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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.

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Differences between Systematic Risks and Unsystematic Risks:

  1. Systematic Risk refers to risks that are associated with the whole market or economy as a whole.On the other hand: Unsystematic Risk refers to the risks that arises on account of a specific security or a company or a particular industry.
  2. Systematic Risk impacts a great number of securities in a market while Unsystematic Risk only impacts the securities of a specific company or a particular industry.
  3. Systematic Risk is uncontrollable while Unsystematic Risk is controllable by the specific company or industry.
  4. Systematic Risk is caused by external factors such as changes in the government policy while Unsystematic Risk is caused by factors which are internal in nature such as management failure.
  5. Systematic Risk cannot be avoided by diversification while Unsystematic Risk can be reduced by diversification.

Two Sources of Systematic Risk:

  1. Market Crash: A crash of any securities market will adversely impact the securities being traded in the market.Since there is no way to avoid market and this is an external factor so it is a source of Systematic Risk.
  2. Inflation:Any change in the inflation will impact the economy as a whole and hence this is a source of systematic risk.

Two Sources of Unsystematic Risks:

  1. Management Failure: Failure of the management of a company can adversely impact the performance of a company and since this is caused by an internal factor therefore it is a source of unsystematic risk
  2. Change in government regulations impacting a particular industry:Any change in government regulations impacting a particular industry and is a source of unsystematic risk .

jeff jeffy answered 2 months ago
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