Question

San Andreas Glassworks, Inc., has built its new factory on a major earthquake fault line, whereas...

San Andreas Glassworks, Inc., has built its new factory on a major earthquake fault line, whereas all of the company’s competitors (and most other companies) built their factories in an area where this risk is significantly lower. There is significant risk that an earthquake will destroy the factory. What is this kind of risk called?

Multiple Choice

  • Unsystematic risk

  • Systematic risk

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Answer #1

Unsystematic risk

This risk will be unsystematic risk for San Andreas Glassworks Inc. Unsystematic risk is the risk inherent / specific to the company, industry or country. Though in general, risks of earthquakes are systematic risks but since the competitors and other companies have built their factories in the area where the risk is significantly lower, it means that San Andreas Glassworks, Inc has specifically more risk of earthquakes. So, for this company, it will be an unsystematic risk.

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