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    Question

    XYZ Bank Ltd specializes in granting loans to firms in a specific line of business. Which of the following is true in this case?

    A Bank would decrease its operating cost and decrease its credit risk Correct Answer Incorrect Answer
    B Bank would increase both its operating cost and its credit risk Correct Answer Incorrect Answer
    C Bank would increase its operating cost and decrease its credit risk Correct Answer Incorrect Answer
    D Bank would decrease its operating costs and increase its credit risk Correct Answer Incorrect Answer
    E none of the above Correct Answer Incorrect Answer

    Solution

    Specialisation can reduce operating cost due to economies of scale. However credit risk may increase due to concentration risk.

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