Question

Most risks are correlated or interdependent. Give an example that shows the interaction of risks. Explain your answers

Thank you so much!!!

Answer 1

Most risks are not independent in nature and they are interdependent in nature and that can be reflected through various macro risk that would lead to various micro risk.

Various micro risk such as inflation risk and interest rate risk which will be leading to the decrease in the disposable income of various consumers and which can also lead to the shrinkage in the overall demand of the consumers, will be leading to change in the pattern of demand in the overall companies structure, and it would lead to change in the supply and reduction in the supply, so that macro risk due to inflation has led to change in the demand pattern and it has led to a micro so it can often be said that various systematic risk which cannot be diversified often leads to unsystematic risk in the company which will be more firm-specific risk and related to the industry performance or the performance of the particular company like shrinkage in the demand for change in the business cycle or losing of a particular client.

It can be summed up that most of the risks are interdependent in nature and there is always a contagion like situation and one risk will be generating another risk, so the primary risks need to be counted in order to eliminate the risk associated with the business.