NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investments
Which of the following best describes systematic risk of an investment?
Systematic risk is market-wide risk affecting all securities, such as changes in interest rates, inflation or the economy. Diversification cannot remove it, and it is measured by beta, unlike unsystematic risk which is specific to a company or sector.
- ARisk that can be eliminated by holding a diversified portfolio
- BRisk specific to a single company such as a management fraud
- CMarket-wide risk that affects all securities and cannot be removed by diversificationCorrect
- DRisk arising only from non-payment of interest by an issuer
Explanation
Systematic risk arises from factors such as interest rates, inflation and economic cycles that affect the whole market. It is measured by beta and cannot be diversified away. Company-specific risk is unsystematic and can be reduced by diversification.
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