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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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