Explain Tobin's idea of Don't put all your eggs in one basket. ...

[khang]

Explain Tobin's idea of Don't put all your eggs in one basket.
 
  What will be an ideal response?

Question 2

While many developing countries have reformed their economies in order to imitate the success of the successful industrial economies, the process remains incomplete and most developing countries tend to be characterized by all of the following EXCEPT
 
  A) seigniorage.
  B) control of capital movements by limiting foreign exchange transactions connected with trade in assets.
  C) use of natural resources or agricultural commodities as an important share of exports.
  D) a worse job of directing savings toward their most efficient investment uses.
  E) reduced corruption and poverty due to limited underground markets.

[lorealeza77]

Answer to Question 1

Trade in assets can make both parties better off by allowing them to reduce the riskiness of the return on their wealth. Portfolio diversification occurs when the wealth is divided among a wide spectrum of assets, so the amount of money riding on each individual asset is reduced. Obviously, this diversification needs to be contrasted against the expected returns of the new assets that you are acquiring.

Answer to Question 2

E

[khang]

Thanks for the timely response, appreciate it

[brbarasa]

Gracias!