Question

1. Classify the following events as mostly systematic or mostly unsystematic. Is the distinction clear in every case?

1. Short-term interest rates increase unexpectedly. (5 points)
2. The interest rate a company pays on its short-term debt borrowing is increased by its bank. (5 points)
3. Oil prices unexpectedly decline. (5 points)
4. An oil tanker ruptures, creating a large oil spill. (5 points)
5. A manufacturer loses a multimillion-dollar product liability suit. (5 points)
6. A Supreme Court decision substantially broadens producer liability for injuries suffered by product users. (5 points)

Answer 1

a. mostly systematic as it will affect every company in the market either directly or indirectly.

b. mostly unsystematic because it will affect only that company as interest rate is only increased for that company on its short-term debt borrowing is by its bank.

c. mostly unsystematic because it will mainly affect companies involved in production, selling and marketing of oil. but it could be mostly systematic also because indirectly it will affect every company in the market.

d. mostly unsystematic because it will affect only that company to which the oil tanker belongs. the company will incur losses from oil spill and may also need to pay damages for ecological destruction.

e. mostly unsystematic because it will affect only the manufacturer.

f. mostly unsystematic because it will affect only producers of the products or manufacturers. market has both manufacturers of the products and service providers. so, it will not affect service providing companies.

the distinction is not clear in every case like case c.