Risk Diversification Refers to the Process by Which

question 95

Multiple Choice

Risk diversification refers to the process by which:

• A)people organize themselves into a group to collectively absorb the cost of the risk faced by each individual.
• B)insurance companies change their clients' risk aversion.
• C)risks are shared across different people, reducing the impact of any particular risk on any one individual.
• D)insurance companies reallocate the likelihood of catastrophes happening.

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Definitions:

Lease

A contractual agreement where one party, the lessor, grants the other party, the lessee, the right to use an asset for a specified period in exchange for payment.

Discount Rate

A rate used to determine the present value of future cash flows; in monetary policy, it refers to the interest rate charged to commercial banks for loans from a central bank.

Trust Agreement

A legal document establishing a trust and outlining the rules and guidelines that the trustees must follow in managing the trust assets for the benefit of the beneficiaries.

Present Value

The worth in present terms of a sum of money due in the future or sequences of cash receipts, using a given rate of return for discounting.