Question

How does diversification reduce risks in financial markets?

a.

Collecting funds from multiple sources and investing them in one place

b.

Investing funds across various asset classes

c.

Maintaining time difference between investments

d.

Investing in safe assets

Posted under IC38 Life Insurance Agent Exam

Answer: (b).Investing funds across various asset classes Explanation:Diversification is a risk management strategy in financial markets where funds are invested across various asset classes to reduce risk. This involves spreading investments across different types of assets, such as stocks, bonds, real estate, and more. By doing so, the risk associated with any single asset or investment is minimized, as losses in one asset can be offset by gains in another. This approach helps to achieve a balance in the investment portfolio and reduce overall risk. Therefore, option (b) is the correct answer, as it accurately describes how diversification reduces risks in financial markets.

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