Businesses can handle risks through which of the following methods?

• A. Diversification of investments
• B. Increasing fixed costs
• C. Reducing product quality
• D. Ignoring market fluctuations

Answer: (A)

Verified step by step guidance

1. Understand the concept of risk in business, which refers to the uncertainty regarding potential losses or gains in business activities.
2. Recognize that businesses manage risk by adopting strategies that minimize potential negative impacts on their financial health.
3. Evaluate each option: Increasing fixed costs raises financial risk, reducing product quality can harm reputation and sales, and ignoring market fluctuations exposes the business to unpredictable losses.
4. Identify that diversification of investments spreads risk across different assets or projects, reducing the impact of any single loss.
5. Conclude that among the given options, diversification of investments is the effective method businesses use to handle risks.