Practice Quiz

Financial Planner

Category - Investment Planning

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Systematic risk includes risks that affect the entire market; the risk cannot be eliminated through diversification because it affects the entire market. For an investor to determine total financial risk, what must also be determined?
  1. Business Risk
  2. Financial Risk
  3. Exchange Rate Risk
  4. Nonmarket Risk
Explanation
Answer: D - For an investor to determine total financial risk, a nonmarket risk must also be combined with systematic risk. Nonmarket risk is also known as unsystematic risk. It is risk associated with individual events that affect a particular security. It implies the ease with which a security can be bought or sold. These risks include business risk and financial risk. Unlike systematic risk, unsystematic risk can be eliminated through diversification.
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