Question

Question 1

Classify the following events as mostly systematic or mostly un-systematic. Is the distinction clear in every case?

1. Short term interest rates decrease expectantly.

2. The interest rate a company pays on its short term debt borrowing is increased by the bank.

3. Oil prices expectantly decline.

4. An oil tanker runs aground creating a large oil spill.

5. A major manufacturing company loses a multimillion dollar product liability suit.

6. The Supreme Court of Canada decision substantially broadens producer liability for injuries suffered by product users.

Answer 1

A. Short term interest rate decreasing will be attributed to SYSTEMATIC risk because this is related to market fluctuations

B.interest rate which a company pays on short term debt borrowing will be increased by bank is leading to a UNSYSTEMATIC risk because it is company specific in nature

C. Oil prices declining is SYSTEMATIC risk because it is market related factors which leads to change in oil price.

D. Oil tanker run aground creating a large oil spill is UNSYSTEMATIC RISK because it is a related to company specific in nature and it is not related to overall market.

E. Major manufacturing company losing suit is UNSYSTEMATIC risk in nature because it is company specific.

F. Supreme court of Canada decision regarding producer liability is another factor of UNSYSTEMATIC risk because it is industry related.