Question

How do derivatives contribute to risk management?

a.

They transfer risks to external parties through reinsurance contracts.

b.

They provide comprehensive coverage for all types of risks.

c.

They unbundle risks and allow parties to customize risk exposure.

d.

They enhance regulatory compliance for insurance companies.

Answer: (c).They unbundle risks and allow parties to customize risk exposure. Explanation:Derivatives unbundle risks and pass the risks from parties not willing to take the risk to parties more willing to take the risks.

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Q. How do derivatives contribute to risk management?

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