Asked by Montonya Boozier on May 30, 2024
Verified
Banks minimize the risk of loss to depositors by:
A) lending to government officials.
B) making many different loans to different borrowers.
C) refusing to lend money to the U.S.government.
D) lending to the richest 1 percent of the population.
E) making very long-term loans.
Risk of Loss
The probability or chance that an investment's actual return will be different than expected, including losing some or all the original investment.
Different Loans
A variety of borrowing options available to individuals or entities, each with unique terms, interest rates, and purposes.
Depositors
Individuals or entities that place their money in a financial institution such as a bank, for the purpose of saving or earning interest.
- Recognize the role of financial intermediaries, specifically banks, in the economy.
- Recognize how banks manage risks and overcome the problem of asymmetric information.
Verified Answer
ZK
Zybrea KnightJun 05, 2024
Final Answer :
B
Explanation :
By making many different loans to different borrowers, banks minimize the risk of losing all their funds if one borrower defaults. This diversification spreads the risk across many borrowers and industries.
Learning Objectives
- Recognize the role of financial intermediaries, specifically banks, in the economy.
- Recognize how banks manage risks and overcome the problem of asymmetric information.