Question 4Market (or systematic) risk ___________ whereas idiosyncratic risk __________.
Question
Question 4Market (or systematic) risk ___________ whereas idiosyncratic risk __________.
Solution
Market (or systematic) risk cannot be eliminated through diversification, whereas idiosyncratic risk can be reduced or eliminated through diversification.
Step 1: Understand the two types of risks. Market risk, also known as systematic risk, is the risk that affects all companies in the market. It is caused by factors such as inflation rates, exchange rates, political instability, changes in interest rates, and natural disasters. On the other hand, idiosyncratic risk, also known as unsystematic risk, is company or industry-specific risk. It is the risk that a specific company or industry will underperform due to company or industry-specific factors.
Step 2: Understand the impact of diversification on these risks. Diversification is the strategy of investing in a variety of securities in order to lower the risk associated with putting all your money in one investment. By diversifying, you can reduce the idiosyncratic risk because the poor performance of one company or industry can be offset by the good performance of other companies or industries in your portfolio.
Step 3: Therefore, the statement can be completed as follows: Market (or systematic) risk cannot be eliminated through diversification, whereas idiosyncratic risk can be reduced or eliminated through diversification.
Similar Questions
Question 4Market (or systematic) risk ___________ whereas idiosyncratic risk __________. 0 / 1 pointIs the risk for an asset to experience losses due to factors that affect the entire stock marketIs the risk which is endemic to the industry of the asset and therefore not the market as a wholeIs the risk for an asset to experience losses due to factors that affect the entire stock marketIs the risk which is endemic to a specific asset and therefore not the market as a wholeIs the risk for an asset to not be able to be traded in the market at a later timeIs the risk for an asset to experience losses due to factors that affect the entire stock marketIs the risk for an asset to experience losses due factors that solely affect the industry associated with the asset Is the risk which is endemic to a specific asset and therefore not the market as a whole
Systematic risk is also called Blank______ risk.Multiple choice question.diversifiableindustry-specificmarketworldwide
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
Which of the following statements is correct? Select one: a. Unsystematic risk and market risk represent the same type of risk b. Idiosyncratic risk and unsystematic risk represent the same type of risk c. Firm-specific risk and idiosyncratic risk represent different types of risk d. Idiosyncratic risk and market risk represent the same type of risk
Which of the following are examples of systematic risk?Multiple select question.future rates of inflationlabor strikesregulatory changes in tax ratesan increase in competition in the industry
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