Question

You are considering investing in General Motor Company. Which of the following are examples of systematic risk? IN. Risk resulting from possibility of a stock market crash. II. Risk resulting from uncertainty regarding a possible strike against GM. III. Risk resulting from an expensive recall of a GM product. IV. Risk resulting from interest rates decreasing. g

Answer 1

The systematic risks are Risk resulting from uncertainty regarding a possible strike against GM and Risk resulting from an expensive recall of a GM product.

Explanation:

Systematic Risks are those risks which affect the entire market or it's segments and cannot be curbed through diversification of business operations. A business entity/firm has least control over these factors and hence, has less options to overcome them.

The uncertainty crossed and expensive recall of the product are the systematic risks. A stock market crash and a fall in general interest rate are systematic risks because -

1) They affect the entire business sector and not just one single entity

2) They cannot be overcome through investing in other ventures.