Which type of risk is normally reduced most directly through diversification across different companies and industries?
Correct answer: D. Unsystematic business risk
- A. Systematic market risk
- B. Interest rate risk
- C. Inflation risk
- D. Unsystematic business risk
Explanation
Diversification spreads exposure across different firms and industries, reducing company-specific or unsystematic risk. Systematic market risk affects the overall market and cannot be eliminated through ordinary diversification.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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