Risk diversification would explain bilateral capital flow between two countries where the rates of return on financial assets is equal.

Question

Quizplus · Accepted Answer

Risk diversification is a strategy to reduce risk by allocating investments among various financial assets or countries. Even if the rates of return are equal, investors might still engage in bilateral capital flows to diversify their risk across different markets or countries, thereby potentially reducing the overall risk of their investment portfolio.

Risk Diversification Would Explain Bilateral Capital Flow Between Two Countries