Which risk results from external natural causes rather than specific parties?

Which risk results from external natural causes rather than specific parties?

• A. Systematic Risk
• B. Fundamental Risk
• C. Credit Risk
• D. Specific Risk

Answer: (B)

The correct answer is systematic risk. This type of risk arises from external factors that affect the entire market or a significant portion of it, rather than being linked to any specific company or sector. Examples of systematic risk include economic changes, natural disasters, geopolitical events, and market-wide phenomena such as inflation or changes in interest rates. Understanding systematic risk is crucial for investors and financial analysts, as it cannot be eliminated through diversification. It affects all investments to varying degrees and highlights the importance of considering the broader economic environment when making investment decisions. In contrast, the other options refer to risks that are either specific to individual entities or arise from particular financial circumstances, rather than broader market forces.

The correct answer is systematic risk. This type of risk arises from external factors that affect the entire market or a significant portion of it, rather than being linked to any specific company or sector. Examples of systematic risk include economic changes, natural disasters, geopolitical events, and market-wide phenomena such as inflation or changes in interest rates.

Understanding systematic risk is crucial for investors and financial analysts, as it cannot be eliminated through diversification. It affects all investments to varying degrees and highlights the importance of considering the broader economic environment when making investment decisions.

In contrast, the other options refer to risks that are either specific to individual entities or arise from particular financial circumstances, rather than broader market forces.