Which type of risk is defined as inherent in all securities due to market volatility?

Which type of risk is defined as inherent in all securities due to market volatility?

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

Answer: (A)

The type of risk that is inherent in all securities due to market volatility is systematic risk. This risk is associated with the overall movement of the financial markets and is influenced by factors that affect the entire economy, such as changes in interest rates, inflation, and geopolitical events. Unlike specific risks that may only affect a particular company or industry, systematic risk cannot be diversified away by holding a diversified portfolio of securities. Therefore, investors are exposed to this type of risk regardless of the specific investments they hold, making it a fundamental element of the investment landscape. Understanding systematic risk is crucial for investors since it affects all securities and plays a significant role in asset pricing and investment strategy.

The type of risk that is inherent in all securities due to market volatility is systematic risk. This risk is associated with the overall movement of the financial markets and is influenced by factors that affect the entire economy, such as changes in interest rates, inflation, and geopolitical events. Unlike specific risks that may only affect a particular company or industry, systematic risk cannot be diversified away by holding a diversified portfolio of securities. Therefore, investors are exposed to this type of risk regardless of the specific investments they hold, making it a fundamental element of the investment landscape. Understanding systematic risk is crucial for investors since it affects all securities and plays a significant role in asset pricing and investment strategy.