Question

It has recently been brought to the attention of senior management that the company is highly exposed to Equity price risk due to a recent international turmoil that will impact the business negatively.
You are required to explain in detail the concept of Equity price risk and how it is impacted by political turmoil of a country.

Answer 1

Equity price risk takes place due to underlying volatility of the security. The volatility causes sharp standard deviation and thus the range of minimum price and maximum price widens and fluctuations within that range rises causing equity price risk.

This can be due to political turmoil for example the shares of Verizon rise sharply due to election of Democrats as they have higher coordination and relationship with them. However suddenly there is fallout of government in that State and huge political uproar then stock price becomes too volatile and oscillating due to uncertainty and thus leads to an equity price risk.

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