NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Investment
Which of the following risks is a systematic risk that cannot be eliminated by diversification?
Market risk from changes in interest rates or the overall economy is systematic risk. It affects all securities, so diversification cannot remove it, whereas company-specific events such as strikes or management failure can be diversified away.
- AManagement failure at a single company
- BMarket risk arising from changes in interest rates or the economyCorrect
- CA strike at one company's factory
- DLoss of a key customer by one firm
Explanation
Systematic risk affects the whole market, such as interest rate or economic changes, and cannot be diversified away. The other options are company-specific and can be reduced through diversification.
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