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Which of the following statements is incorrect regarding diversification effects in risk aggregation. A. Firms have a vested interest to recognize diversification benefits in their risk aggregation processes. B. Some firms report the level of risk reduction resulting from diversification benefits can be as high as 60% relative to regulatory calculations. C. If financial regulators recognize diversification benefits as part of a risk aggregation methodology, regulatory capital requirements for the supervised firm will be higher, potentially leading to lower profits. D. Differences in diversification benefits between firms does not necessarily come from true economic rationale, but instead from differences in conceptual approaches and measurement methodologies. |