The following quote about the financial system is taken from Alessandri and Haldane (2009): 'Although diversification may purge idiosyncratic risk, it simultaneously reduces diversity and thereby increases systematic risk'.
Explain the quote and how it relates to the vulnerability of the financial system to crises.
It is a system which channelizes the savings into an investment with the help of different players like the bank, non-banking financial institutions, stock exchanges, etc. In other words, the financial system helps in increasing investment in the economy.
Answer and Explanation: 1
The statement 'Although diversification may purge idiosyncratic risk, it simultaneously reduces diversity and thereby increases systematic risk' means...
See full answer below.
Become a member and unlock all Study Answers
Try it risk-free for 30 daysTry it risk-free
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
fromChapter 3 / Lesson 14
The decision to spread your company's operations to a new market is a big one, and one that shouldn't be taken likely. This lesson shows some of the tools involved in market planning.