Risk sharing
A)generally reduces the tax liability of savers.
B)increases borrowers' ability to raise funds in the financial system.
C)comes at the cost of lower liquidity.
D)is sometimes offset by the effects of diversification.

Question

Quizplus · Accepted Answer

Risk sharing allows lenders to spread their risk across multiple borrowers, which in turn increases the pool of available funds for borrowers. This can help increase their ability to raise funds in the financial system. Option A is not relevant to risk sharing. Option C is not necessarily true as risk sharing can actually increase liquidity in certain situations. Option D is true to some extent, as diversification can help offset some of the risks involved in risk sharing, but it does not change the fact that risk sharing itself can help mitigate risk.

Risk Sharing