In advance of an expected market decline, an investor reduces the holdings of the equity portion of her diversified portfolio and uses the proceeds to purchase money market securities. The investor is attempting to reduce her exposure towards:
A) diversifiable risk.
B) inflation risk.
C) country/political risk.
D) systematic risk.

Question

Quizplus · Accepted Answer

By shifting from equities to money market securities, the investor is reducing her exposure to systematic risk, which is the risk inherent to the entire market or market segment. Systematic risk, unlike diversifiable risk, cannot be eliminated through diversification. Money market securities are considered safer and less volatile, thus reducing the impact of market-wide downturns on the investor's portfolio.

In Advance of an Expected Market Decline, an Investor Reduces