Question

Why is it dangerous to invest in something you don't understand? Who benefits and who loses...

  1. Why is it dangerous to invest in something you don't understand? Who benefits and who loses when complex securities are issued? Explain.

0 0
Add a comment Improve this question Transcribed image text
Answer #1

When investors invest in a complex product they don't understand, they will stand to be the losers. The reason for this is the inherent risks in the products which would end up with negative returns for the investors. There are different types of risks associated with an investment product like known knowns, known unknowns and unknown unknowns. The investors in such products would always be exposed to known unknowns and unknown unknowns the latter would take the larger proportion.

The sellers of the product would take appropriate steps to cover their risks and then transfer the inherent risks to ignorant investors. Thus investors would stand to lose and the originators and sellers would stand to gain from such a transaction.

Add a comment
Know the answer?
Add Answer to:
Why is it dangerous to invest in something you don't understand? Who benefits and who loses...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
Active Questions
ADVERTISEMENT