Stage 19. The Aggregation of Risks and Risk Diversification

‘Do not keep all your eggs in one basket.’

So far, we have analysed risk, focusing on a single, specific source of risk. For instance, we have analysed interest-rate risk in case the interest rate goes up or down. However, banks face several sources of risk at the same time. An international bank could be running an interest rate risk related to the dollar rate change, but also an interest rate risk related to the euro rate change. How can you measure the total aggregated risk of a ...

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