A common method for banks to reduce their credit risk is to
A)specialize in loans to one or a few industries in which they have expertise in assessing creditworthiness.
B)specialize in loans to companies whose earnings patterns are quite similar over time.
C)specialize in loans to one or a few industries in which they have expertise in assessing creditworthiness AND specialize in loans to companies whose earnings patterns are quite similar over time.
D)None of these are correct.

Question

Quizplus · Accepted Answer

Banks reduce credit risk through diversification and understanding the creditworthiness of borrowers across various industries, rather than specializing in a few similar sectors or companies with similar earnings patterns.

A Common Method for Banks to Reduce Their Credit Risk