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One way to reduce financial risk is to: a. buy bonds only in a major company. b. buy stocks only...

Question:

One way to reduce financial risk is to:

a. buy bonds only in a major company.

b. buy stocks only in a major company.

c. diversify in a variety of assets, both financial and physical.

d. diversify in a number of banks.

Risk Classification:

Risks are classified as either as financial or business risk. Business risks are further classified as either systematic and unsystematic risks. Systematic risks are the risks that affect all firms in the industry, while unsystematic risks affect an individual firm.

Answer and Explanation:

  • The answer is (c)diversify in a variety of assets, both financial and physical.

Financial risks refer to the risks that occur as a result of using debt sources of finances in the company's capital structure. Diversifying in a variety of assets and both financial and physical will go a long way in reducing the financial risks.


Learn more about this topic:

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Investment Risks: Definition & Types

from Finance 305: Risk Management

Chapter 3 / Lesson 3
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