Many investors diversify their asset portfolios to reduce risk. For this reason, does it make sense...

Many investors diversify their asset portfolios to reduce risk. For this reason, does it make sense for banks to never specialize in lending to a particular type of borrower? Why or why not?

Expert Solution

Diversification is an important aspect of maintenance of the Asset portfolio because it will help in reduction of the unsystematic risk as it will be completely minimising the risk related to a particular specific element in the overall portfolio.

Banks are generally specialising in lending to various kinds of borrowers in order to diversify their overall loan portfolio because they are having both kind of loan portfolios corporate and retail loan structure so they will be trying to diversify their loan structure in order to minimise the risk associated with a particular and specific subject so they will be trying to minimise the unsystematic risk related to their overall loan portfolio by diversifying the loan portfolio and issuing their loan portfolios to various other entities and various other groups of people so that their overall loan portfolio diversified and they are secured in adverse economic cycle to a large extent because their loan portfolio is not concentrated.

jeff jeffy answered 2 years ago

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