Saudi Electronic University Sue Ellicott Discussion

I’m working on a finance question and need an explanation and answer to help me learn.

 go through:

Sue Ellicott supervises the trading function at an asset management firm. In conducting an in-house risk management training session for traders, Ellicott elicits the following statements from traders:

Trader 1. ‘‘Liquidity risk is not a major concern for buyers      of a security as opposed to sellers.’’

Trader 2: ‘‘In general, derivatives can be used to      substantially reduce the liquidity risk of a security.’’

Ellicott and the traders then discuss two recent cases of a similar risk exposure in an identical situation that one trader (Trader A) hedged and another trader (Trader B) assumed as a speculation. A participant in the discussion makes the following statement concerning the contrasting treatment:

• Trader 3: ‘‘Our traders have considerable experience and      expertise in analyzing the risk, and this risk is related to our business.      Trader B was justified in speculating on the risk within the limits of his      risk allocation.’’

the (Question):

• State and justify whether each trader’s statement is correct      or incorrect.