Risk sharing is profitable for financial institutions due to
A)low transactions costs.
B)asymmetric information.
C)adverse selection.
D)moral hazard.

Question

Quizplus · Accepted Answer

Risk sharing allows financial institutions to diversify their portfolios and reduce overall risk. This helps to lower transactions costs as they do not need to allocate as much capital towards risk management strategies. As such, risk sharing is profitable for financial institutions due to low transactions costs. Asymmetric information, adverse selection, and moral hazard are factors that can undermine profitability in risk sharing.

Risk Sharing Is Profitable for Financial Institutions Due to