LDCs have greater ______ risk but offer the higher probability of diversification benefits.

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LDCs (Less Developed Countries) have greater political risk due to their unstable political and legal systems. However, investing in LDCs can offer higher probability of diversification benefits because they usually have different economic structures and markets compared to developed countries, which can help reduce portfolio risk. Translation risk (B) relates to fluctuations in exchange rates while operating risk (D) refers to the risk associated with a company's operations. Economic risk (A) relates to economic factors such as inflation and recession.

LDCs Have Greater ______ Risk but Offer the Higher Probability