NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Investment Landscape
Which of the following best describes systematic risk in the context of equity investments?
Systematic risk is market-wide risk arising from factors such as interest rates, inflation and economic conditions. It affects all securities and cannot be removed by diversification, unlike company-specific unsystematic risk, credit risk or liquidity risk.
- ARisk specific to a single company that can be removed by diversification
- BRisk arising from market-wide factors that cannot be eliminated by diversificationCorrect
- CRisk that an issuer fails to pay interest on time
- DRisk of not being able to sell a security quickly at fair price
Explanation
Systematic or market risk comes from economy-wide factors such as interest rates, inflation and politics, and affects all securities. Diversification cannot remove it. Company-specific risk is unsystematic, default is credit risk, and difficulty in selling is liquidity risk.
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