Question

In: Finance

Business risk is typically described as the exposure a company or organization has to a number of factors that may lower the...

Business risk is typically described as the exposure a company or organization has to a number of factors that may lower the company’s profits, which may trigger a business failure. Although there are many business risks, two major risk categories are systematic risks and unsystematic risks. 

Respond to the following in a minimum of 175 words: 

Explain the differences between systematic risks and unsystematic risks. 


Briefly discuss two sources of systematic risks and two sources of unsystematic risks. 


Solutions

Expert Solution

Systematic risks are otherwise known as Market risks, are those risks arising due to macro economic factors. As these risks affect the entire macro economy such risks cannot be diversified as the entire portfolio would be affected.

Some of the examples of a systematic risk are

a) Recession

A recession affects the entire economy and every asset class including debt, equity would be affected due to this phenomena. Any attempt to diversify would not fetch returns for the investor.

b) Corporate Tax

Any attempt by the government to tinker with the corporate tax can affect both debt and equity instruments, thus adding to the systematic risks

On the other hand ,unsystematic risks arise due to the risks inherent in the firm or firm specific risks. These risks can be diversified by an investor to yield the benefits of risk mitigation. Some of the major unsystematic risks are

a) Credit Risk

A particular firm may be facing liquidity crunch and as a result unable to pay its creditors. This could give rise to credit risk and  as a result such a risk can be diversified by an investor.

b) Exchange rate risk

A firm that is majorly focused on export revenue may face exchange risk if not properly hedged. Such firms can also be considered for diversification by an investor if he/she wishes to reduce the risk arising from it.

jeff jeffy answered 6 months ago
Next > < Previous

Related Solutions

Business risk is typically described as the exposure a company or organization has to a number...
Business risk is typically described as the exposure a company or organization has to a number of factors that may lower the company’s profits, which may trigger a business failure. Although there are many business risks, two major risk categories are systematic risks and unsystematic risks. Respond to the following in a minimum of 175 words: Explain the differences between systematic risks and unsystematic risks. Briefly discuss two sources of systematic risks and two sources of unsystematic risks.
Research has shown that lifestyle behaviors, dietary, environmental factors and occupational exposure contribute to the number...
Research has shown that lifestyle behaviors, dietary, environmental factors and occupational exposure contribute to the number of cancer cases and deaths. Health indicators are important factors to consider when determining the origins of disease. How can variables in non-modifiable and modifiable factors influence a person’s health status? Discuss the difference between modifiable and non-modifiable risk factors. Include all in your response: Age Gender Genetics Environment Activity level
THIS IS A BUSINESS LAW PROBLEM!!! Describe the decisive factors in determining whether a business organization...
THIS IS A BUSINESS LAW PROBLEM!!! Describe the decisive factors in determining whether a business organization is a partnership and what factors are used to determine partnership property. Explain in detail. Give examples.
Describe some of the factors that may lead to lower profits when unemployment is too high;...
Describe some of the factors that may lead to lower profits when unemployment is too high; Similarly, describe some of the factors that could lead to lower profits when unemployment is too low. Finally, explain how this limits the ability of policy-makers to push for full employment and instead may give rise to cycles of rising employment followed by lowering employment.
Organizational Design is described as being “the foundation” of business organization. Where do Organizational Structure and...
Organizational Design is described as being “the foundation” of business organization. Where do Organizational Structure and Organizational Charts fit into this foundation? Explain how Specialization, Departmentalization and Decision-Making Hierarchy help to determine a company’s organizational structure.
Organizational Design is described as being “the foundation” of business organization. Where do Organizational Structure and...
Organizational Design is described as being “the foundation” of business organization. Where do Organizational Structure and Organizational Charts fit into this foundation? Explain how Specialization, Departmentalization and Decision-Making Hierarchy help to determine a company’s organizational structure.
Marketing has often been described as a framework for an organization to develop a strategy as...
Marketing has often been described as a framework for an organization to develop a strategy as opposed to a tool. Describe how this statement could be accurate. If you were to sit in a committee at a health center trying to develop a program around a critical issue for population health management, how might you as a consultant identify whether they were in fact using a marketing framework, or not? What would be the appropriate indicators of the committee’s process?...
It has been established that voter turnout in US presidential elections is typically lower than what...
It has been established that voter turnout in US presidential elections is typically lower than what we observe in other established, industrial democracies. In addition, turnout is even lower in Texas compared to other states and even more so in local elections. Discuss the factors that contribute to Texas’ low turnout levels. To what extent does Texas' level of turnout affect the outcome of an election? Explain.
Critically evaluate the factors that may lead a business to choose the countries that it chooses...
Critically evaluate the factors that may lead a business to choose the countries that it chooses and the driving forces behind its international business initiatives
Eric has faced the lower sales from his laundry business and it business has gone to...
Eric has faced the lower sales from his laundry business and it business has gone to bankrupt. Eric get some ideas to revitalize his business. He suggest to provide new services such as drive thru laudry service ( customer will get a receipt after 3 hours come back to collect and they no need to get out from car especially the lock down of COVID 19), cooperate with GRAB to have a pick up service at cusmoter's house ( after...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT