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:
The statement 'Although diversification may purge idiosyncratic risk, it simultaneously reduces diversity and thereby increases systematic risk' means...
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from GACE Marketing Education (546): Practice & Study GuideChapter 3 / Lesson 14