Asked by Stuart Englehart on Jul 03, 2024
Verified
People who want to reduce the risk they face may pay other people who are less sensitive to risk to take on some of their risk.As a result:
A) a market for risk is illegal.
B) trade in risk reduces mutual gains.
C) total risk increases.
D) people who are willing to accept more risk will purchase from people who are less willing.
Market for Risk
A financial market where individuals and institutions trade financial instruments to manage risk exposure.
Risk Reduction
Strategies or actions taken to minimize the potential for loss or harm in investment, business operations, or other areas of concern.
- Explain the effective distribution of risk along with the fundamentals of diversification and pooling in minimizing risk.
Verified Answer
MJ
Matty JollerJul 06, 2024
Final Answer :
D
Explanation :
When people who are less sensitive to risk are paid to take on risk from others, it creates a market for risk. This allows people who are more risk-averse to transfer some of their risk to those who are more willing to accept it. This can result in a more efficient allocation of risk and may lead to mutual gains for both parties involved.
Learning Objectives
- Explain the effective distribution of risk along with the fundamentals of diversification and pooling in minimizing risk.
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