Which of the following best describes the concept of 'systematic risk' A. Risk that can be eliminated through diversification B. Risk associated with a particular company or industry C. Risk that affects the entire market and cannot be eliminated through diversification D. Risk of changes in regulatory policies
Question
Which of the following best describes the concept of 'systematic risk' A. Risk that can be eliminated through diversification B. Risk associated with a particular company or industry C. Risk that affects the entire market and cannot be eliminated through diversification D. Risk of changes in regulatory policies
Solution
The concept of 'systematic risk' is best described by option C. Systematic risk is the risk that affects the entire market and cannot be eliminated through diversification. This type of risk is inherent to the entire market or entire market segment. For example, interest rates, recession, and wars all represent sources of systematic risk because they affect the entire market. It is also often referred to as "un-diversifiable risk" or "market risk."
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