To the extent that individual economies are ____ each other, net cash flows from a portfolio of subsidiaries should exhibit ____ variability, which may reduce the probability of bankruptcy.

Question

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When individual economies are independent of each other, the net cash flows from a portfolio of subsidiaries should exhibit less variability. This is because fluctuations in one economy will not affect the performance of other economies, making the portfolio more diversified and less prone to bankruptcy risk. Therefore, independent economies are preferred for reducing portfolio risk.

To the Extent That Individual Economies Are ____ Each Other