The Ability of Diversification to Reduce Risk

question 74

Multiple Choice

The ability of diversification to reduce risk

• A) is greater the more negatively correlated the two events are.
• B) is greater the more positively correlated the two events are.
• C) is greater the more uncorrelated the two events are.
• D) is greater the more risk averse the individual is.

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Definitions:

Without Recourse

A legal term indicating that the holder of a financial instrument cannot demand payment from the original issuer in the case of default.

Transfer

The act of moving or conveying property, rights, or obligations from one entity or person to another.

Forged Signature

A signature that is fraudulently copied or imitated without the authorization of the person whose signature it purports to be, often intended to deceive or commit fraud.

Forgery

The false making or alteration of a writing with the intent to defraud.