Post a real life example of firm-specific risk and describe whether it is a firm-specific risk...
Post a real life example of firm-specific risk and describe whether it is a firm-specific risk or a market risk. Provide specific details to justify your answer.
Homework Answers
ANSWER:-
Firm specific risks is the unique risk that a firm faces at the company or industry level.
the market risk is the risk due to the macroeconomic factors, like changes in the business cycles, rate of inflation, changes in interest rates.
an exampe of firm specific risk:
There was news that the no tears shampoo of Johnsons and Johnsons contains formaldehyde ,which can cause cancer in babies. thus this is a risk that is unique to this company only and does not affect any other risky company. As a result of which the company had to withdraw the product from the market.
But when there is inflation in the economy it affects all the risky assets.
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