What type of risk is market risk considered?

What type of risk is market risk considered?

• A. Unsystematic risk
• B. Systematic risk
• C. Credit risk
• D. Liquidity risk

Answer: (B)

Market risk is categorized as systematic risk, which is inherent to the entire market or market segment. This type of risk is tied to factors that affect the overall market's performance, such as changes in economic conditions, interest rates, and geopolitical events. Unlike unsystematic risk, which can be mitigated through diversification within a portfolio, systematic risk cannot be eliminated as it impacts all investments to some degree. Understanding systematic risk is crucial for investors because it reflects the volatility and potential downturns that can affect their assets regardless of the specific characteristics or performance of individual securities. Recognizing this risk allows investors to strategize appropriately, incorporating measures such as hedging or asset allocation to manage the potential negative impacts on their investment portfolios.

Market risk is categorized as systematic risk, which is inherent to the entire market or market segment. This type of risk is tied to factors that affect the overall market's performance, such as changes in economic conditions, interest rates, and geopolitical events. Unlike unsystematic risk, which can be mitigated through diversification within a portfolio, systematic risk cannot be eliminated as it impacts all investments to some degree.

Understanding systematic risk is crucial for investors because it reflects the volatility and potential downturns that can affect their assets regardless of the specific characteristics or performance of individual securities. Recognizing this risk allows investors to strategize appropriately, incorporating measures such as hedging or asset allocation to manage the potential negative impacts on their investment portfolios.