The correct answer is B. diversifying risk.
Risk pooling is a risk management technique that involves combining the risks of multiple parties into a single pool. This can be done through insurance, hedging, or other financial instruments. By pooling risks, the overall risk to each party is reduced.
A catastrophic loss event is a single event that causes a large amount of damage or loss. Examples of catastrophic loss events include earthquakes, hurricanes, and terrorist attacks.
A speculative risk is a risk that has the potential for both gain and loss. Examples of speculative risks include investing in stocks or commodities.
Applying the risk-return trade-off is the process of balancing the amount of risk you are willing to take with the potential return you hope to achieve. For example, you might be willing to take on more risk if you believe there is a chance of a high return.
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