Question

    ___________ implies the overall market risk that affects all securities and cannot be diversified away.

    A Pure risk Correct Answer Incorrect Answer
    B Group risk Correct Answer Incorrect Answer
    C Systematic risk Correct Answer Incorrect Answer
    D Non-systematic risk Correct Answer Incorrect Answer

    Solution

    Systematic risk implies the overall market risk that affects all securities and cannot be diversified away. Systematic risk, also known as market risk or non-diversifiable risk, refers to the risk inherent in the overall market or the entire economy. It is beyond the control of an individual investor and affects all securities in the market. This type of risk cannot be eliminated through diversification because it is not specific to any particular company or industry. Factors contributing to systematic risk include macroeconomic events, changes in interest rates, political instability, natural disasters, and other broad market influences. Investors can manage systematic risk through various risk management strategies, such as asset allocation and hedging.

    Practice Next