Diversification
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Questions and Answers

What is diversification?

  • Selling all assets at once to minimize risk
  • Investing in a single stock to maximize returns
  • Buying stocks from a single company to minimize investment risk
  • Reducing the chance of loss by spreading the loss exposure across different parties, securities, or transactions (correct)

    • How can relying on a single supplier be risky?

  • The supplier may go out of business (correct)
  • The supplier may be located in a different country
  • The supplier may not deliver on time
  • The supplier may not provide high-quality products

    • Why is it risky for a grain farmer to sell the entire harvest at one time?

  • The farmer may not find a buyer
  • Grain prices may fluctuate (correct)
  • The farmer may not have enough grain to sell
  • The farmer may not have enough storage space

    • What does diversification refer to?

    <p>Spreading loss exposure across different parties, securities, or transactions</p> Signup and view all the answers

    What is an example of how having different customers and suppliers reduces risk?

    <p>Sales are impacted adversely by a domestic recession</p> Signup and view all the answers

    How can a grain farmer minimize risk when selling their harvest?

    <p>Sell 9,000 bushels each quarter or 3,000 bushels each month</p> Signup and view all the answers

    Reducing risk by diversifying across different parties and suppliers is known as ______

    <p>diversification</p> Signup and view all the answers

    Investment risk can be reduced by holding different ______

    <p>assets</p> Signup and view all the answers

    Selling a harvest in smaller quantities over time is an example of diversifying ______

    <p>transactions</p> Signup and view all the answers

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