ACCA Financial Management (F9) Certification Practice Exam

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Prepare for the ACCA Financial Management (F9) Certification Exam with engaging quizzes and interactive content. Dive deep into financial management concepts and boost your exam confidence with questions that come with detailed explanations.

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Which term describes the risk that is inherent to the entire market and cannot be eliminated through diversification?

Portfolio risk
Systematic risk
Unsystematic risk
Interest rate risk

The correct answer is: Systematic risk

The correct answer is systematic risk. This term refers to the portion of risk that affects the entire market or a broad range of assets. Systematic risk arises from factors that impact the overall economy, such as changes in economic policies, political events, natural disasters, or global market changes. Unlike unsystematic risk, which is specific to an individual company or industry and can be reduced through diversification, systematic risk remains even when a portfolio is diversified. This is because systematic risk is linked to factors that affect all investments in the market to some degree. Consequently, all investors are exposed to it, and it cannot be mitigated simply by holding a diversified portfolio. Understanding systematic risk is crucial for investors, as it influences market movements and impacts the pricing of assets across the board. Recognizing that this risk exists helps in making informed investment decisions and developing strategies to manage the potential impact on investment returns.