A firm will likely benefit most from diversifying if:
A) the correlations between country economies are high.
B) the correlations between country economies are low.
C) the variability of all country economy levels is high.
D) B and C

Question

Quizplus · Accepted Answer

When the correlations between country economies are low, diversification is beneficial because when one economy is performing poorly, another economy may be performing well, which can balance out the negative impacts. If the correlations between country economies are high, economic downturns will affect all countries, leading to greater risks and fewer benefits from diversification. The variability of all country economy levels being high can indicate that diversification can be beneficial as it reduces the risks of loss due to country-specific economic issues. Therefore, both B and C are not correct as the first statement is correct.

A Firm Will Likely Benefit Most from Diversifying If