Final answer:
Nonsystematic risk is the type of inherent risk in the reviewed portfolio because it is heavily weighted towards specific companies and sectors which exposes it to specific risks that can be mitigated through diversification.
Step-by-step explanation:
The question you've asked pertains to the inherent risks of a portfolio that includes -30% ABC energy company, -30% XYZ health care company, -30% exchange-traded fund, and -10% money market funds. Among the options provided, nonsystematic risk is the correct answer to the inherent risk in this portfolio. Nonsystematic risk, also known as specific or diversifiable risk, is a type of risk that affects a specific company or sector.
Nonsystematic risk can be reduced through diversification, which means spreading investments across various industries or asset classes. Since the portfolio in question is heavily weighted towards specific companies and sectors, it is particularly exposed to risks specific to those companies or the sectors they operate in, such as changes in company management, competitive pressures, or sector-specific economic downturns.
In contrast to nonsystematic risk, systemic risks like market risk, interest rate risk or currency risk affect the entire market and cannot be mitigated just by diversification alone. The options for credit risk, liquidity risk, and political risk are not inherently described in the portfolio's composition as provided. Credit risk pertains to the likelihood that borrowers will default on their obligations, liquidity risk involves the ease of converting assets to cash without significant price alteration, and political risk involves changes in the political environment that may affect investment values.