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    Question

    Systemic risk may arise due to

    ______
    A Market volatility Correct Answer Incorrect Answer
    B Contagion effect Correct Answer Incorrect Answer
    C High fiscal deficit Correct Answer Incorrect Answer
    D Adverse Government policies Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Systemic risk refers to  the risk of a breakdown of an entire system rather than simply the failure of individual parts . In a financial context, it denotes the risk of a cascading failure in the financial sector, caused by linkages within the financial system, resulting in a severe economic downturn. As such, systemic risk can arise due to contagion effect i.e. the risk that financial difficulties at one or more bank(s) spill over to a large number of other banks or the financial system as a whole .

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