Which of the following statements about the various types of risks is true?

Question

Quizplus · Accepted Answer

Inflation risk is a systematic risk because it affects the overall economy and impacts all investments in a similar way. A firm's default risk may be partially diversifiable by investing in a diversified portfolio of bonds, hence A is incorrect. Interest rate risk is a systematic risk as it impacts all investments dependent on interest rates, so B is incorrect. Economic risk includes factors such as inflation, exchange rates, and economic growth, and is therefore also a systematic risk, implying D is incorrect. Political risk is often considered nondiversifiable as the same risk affects all investors and investments in a country, making E incorrect.

Which of the Following Statements About the Various Types of Risks