How Does a Conglomerate Benefit from Following an Unrelated Diversification

question 78

Multiple Choice

How does a conglomerate benefit from following an unrelated diversification strategy?

• A) The conglomerate can solely depend on its primary business activity for a major portion of its revenues.
• B) The conglomerate can share most of its competencies in products, services, technology, or distribution between all its businesses.
• C) The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.
• D) The conglomerate can limit the learning- and experience-curve effects it faces.

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Definitions:

Risk Premium

The additional return an investor demands for taking on a higher risk compared to a risk-free investment.

Non-diversifiable Risk

The part of an investment's risk that cannot be eliminated through diversification, pertaining to wider market or economic factors.

Systematic Risk

The peril present throughout an entire market or a portion of the market that cannot be alleviated by spreading investments.

Non-diversifiable Risk

The portion of an investment's risk that cannot be eliminated through diversification, related to factors affecting the entire market.