By the end of this chapter, you should understand:

1. risk aversion and diminishing marginal utility
2. risk pooling and risk spreading
3. how inside information leads to moral hazard and adverse selection
4. how as asset return reflects its cash income and its capital gain (loss)
5. how correlation of asset returns affects risk pooling
6. asset market efficiency
7. spot and forward markets
8. how hedging shifts the burden of risk