NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Investment
Which of the following is an example of unsystematic risk for an investor holding shares of a single company?
A strike at the company's plant is unsystematic risk because it is specific to that firm and can be reduced through diversification. Repo rate changes, inflation and market-wide declines affect the whole economy and are systematic risks.
- AA change in the repo rate by the central bank
- BA general rise in inflation across the economy
- CA strike at the company's manufacturing plantCorrect
- DA sharp fall in the overall stock market index
Explanation
Unsystematic risk is specific to a company or industry and can be reduced by diversification. A plant strike affects one firm. Interest rate changes, inflation and market-wide falls are systematic risks that diversification cannot remove.
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