Which of the following can affect unsystematic risk in a specific industry?

Which of the following can affect unsystematic risk in a specific industry?

• A. Market trends
• B. Company strikes
• C. Global economic conditions
• D. Currency exchange rates

Answer: (B)

Unsystematic risk, also known as specific or unique risk, refers to the uncertainties and risks that are specific to a particular company or industry. This type of risk can be mitigated through diversification, as it does not affect the entire market but rather individual entities or sectors. The occurrence of company strikes is a prime example of a factor that can directly impact unsystematic risk. When workers at a specific company engage in a strike, it can severely disrupt operations, leading to losses in productivity, revenue, and potential damage to customer relationships. This situation is unique to the company experiencing the strike and does not extend to the entire market or other companies in different sectors. Therefore, it is a significant contributor to the unsystematic risk associated with that particular organization or industry. In contrast, market trends, global economic conditions, and currency exchange rates are elements that tend to influence systematic risk, which affects the broader market. Market trends refer to general movements in the economy that impact most companies across sectors, while global economic conditions and currency fluctuations similarly affect multiple industries, leading to risk that cannot be mitigated solely through diversification. Hence, these factors do not specifically contribute to the unique risks associated with a single company or industry.

Unsystematic risk, also known as specific or unique risk, refers to the uncertainties and risks that are specific to a particular company or industry. This type of risk can be mitigated through diversification, as it does not affect the entire market but rather individual entities or sectors.

The occurrence of company strikes is a prime example of a factor that can directly impact unsystematic risk. When workers at a specific company engage in a strike, it can severely disrupt operations, leading to losses in productivity, revenue, and potential damage to customer relationships. This situation is unique to the company experiencing the strike and does not extend to the entire market or other companies in different sectors. Therefore, it is a significant contributor to the unsystematic risk associated with that particular organization or industry.

In contrast, market trends, global economic conditions, and currency exchange rates are elements that tend to influence systematic risk, which affects the broader market. Market trends refer to general movements in the economy that impact most companies across sectors, while global economic conditions and currency fluctuations similarly affect multiple industries, leading to risk that cannot be mitigated solely through diversification. Hence, these factors do not specifically contribute to the unique risks associated with a single company or industry.