There are many concerns for risk-averse lenders.Consider the following: 1.Lenders are concerned that borrowers with the greatest risk are the ones most likely to actively pursue loans.2.Lenders are concerned that real GDP will decline leading to reduced corporate profits.3.Lenders are concerned that products produced by certain corporations will become obsolete.
A)1 is market risk;2 is firm-specific risk
B)2 is market risk;3 is firm-specific risk
C)3 is market risk;1 is firm-specific risk
D)2 is firm-specific risk;3 is market risk

Question

Quizplus · Accepted Answer

Market risk refers to risks that affect the entire market or economy, such as changes in GDP or interest rates. Therefore, 2 is market risk as it relates to changes in real GDP. Firm-specific risk, on the other hand, refers to risks that apply only to a single company or industry, such as changes in product demand. Therefore, 3 is firm-specific risk as it relates to the specific corporations' products becoming obsolete. Choice 1 does not accurately describe either market or firm-specific risk, as the concern raised is about the behavior of certain types of borrowers, which is not a risk factor in itself.

There Are Many Concerns for Risk-Averse Lenders