Question

Risk that affects a large number of assets, each to a greater or lesser degree, is called _________risk.

a. Idiosyncratic risk.
b. Diversifiable risk.
c. Systematic risk.
d. Asset-specific risk.
e. Total risk.

Answer 1

c. Systematic risk.

Step-by-step explanation:

Risk that affects a large number of assets, each to a greater or lesser degree, is called systematic risk.

This ultimately implies that, a systematic risk is practically impossible to predict, as well as to be avoided completely by business owners or companies. One of the most effective ways to mitigate a systematic risk is through the use of a correct asset allocation technique or through hedging but diversification of risks wouldn't reduce or mitigate a systematic risk.

Some examples of systematic risks includes changes to law, hike in interest rates, tax reforms, natural disasters such as flooding, earthquake, bushfire, bank failures, change of foreign policy etc.