International diversification of loans can best reduce a bank's overall credit risk if
A)the loans are made in countries in a single continent.
B)the loans are made in countries whose economic cycles do not move together over time.
C)the loans are made in countries in a single continent AND the loans are made in countries whose economic cycles do not move together over time.
D)None of these are correct.

Question

International diversification of loans can best reduce a bank's overall credit risk if
A)the loans are made in countries in a single continent.
B)the loans are made in countries whose economic cycles do not move together over time.
C)the loans are made in countries in a single continent AND  the loans are made in countries whose economic cycles do not move together over time.
D)None of these are correct.

Quizplus · Accepted Answer

International diversification of loans can best reduce a bank's overall credit risk when the loans are made in countries whose economic cycles do not move together over time. This is because when one country's economy is down and the risk of default is higher, another's may be up, balancing the overall risk.

International Diversification of Loans Can Best Reduce a Bank's Overall