A bank allows us to diversify risk because:
A)it has a big pool of borrowers and savers,so the risk of repayment is spread among many.
B)it has a small amount of borrowers,but many savers,so it can combine savings to make larger loans.
C)it has a small amount of borrowers and savers,so it can connect the optimal saver to the best-matched borrower.
D)it has a big pool of borrowers,but not many savers,so it can choose the riskiest person to borrow from.

Question

Quizplus · Accepted Answer

By having a big pool of borrowers and savers, the risk of repayment is spread among many. This means that even if some borrowers default on their loans, the bank will still have enough money from other borrowers to pay back its savers. This diversification of risk helps to protect the bank and its customers from financial losses. Option B is not correct because if the bank has only a small amount of borrowers, it may not be able to make a large enough loan to meet the needs of its customers. Option C is not correct because even if the bank can connect the optimal saver to the best-matched borrower, there is still a risk of default. Option D is not correct because choosing the riskiest person to borrow from would increase the bank's risk of financial losses.

A Bank Allows Us to Diversify Risk Because