Question

Words:0 Path: P QUESTION 2 All the firm are facing various risks on the financial markets, especially from macro economic environment. Sometimes, government policy has a significant impact on a firm's operation. Reade the news article below and answer the following questions. https://www.reuters.com/article/india-stocks-foreign-listing/exclusive-indias-secondary-listing:plan-for-firms-joining-foreign-markets Irks-investors sources-idUSL4N2G7315 1. What are the definitions of Systematic and Unsystematic risk? 2. Which risk can be eliminated by diversification and which can not? Why? 3. In this news article, the risk to the companies are systematic risk or the unsystematic risk? Why? 4. Can you give an example on an Indian company who's listing on oversea stock market? What is the company's name, major business, the location of listing? What is the closing price of the company on Sept 14? TT T Arial 3 (12pt) T Path:p Words:0

Answer 1

Hi there,

Here is the answer to question  asked .

1.Systematic risk:

Systematic risk is also referred to as non-diversifiable risk or market risk. Systematic risk is the fluctuations in the returns on securities that occur due to macroeconomic factors. These factors could be the political, social or economic factors that affect the business. Systematic risk can be caused due to unfavorable reasons such as an act of nature like a natural disaster, changes in government policy, international economic components, changes in the nation’s economy, etc.

Systematic risk is further divided into three categories:

• Interest Risk
• Inflation Risk
• Market Risk

Unsystematic risk

The fluctuations in returns of a company arising due to micro-economic factors are termed as unsystematic risks. These risk factors exist within the company and can be avoided if necessary action is taken. The risk factors can include the production of undesirable products, labor strikes, etc.

Unsystematic risks are further divided into two categories:

• Business Risks
• Financial Risks

2.Unsystematic risk is unique to a specific company or industry. Also known as “nonsystematic risk,” "specific risk," "diversifiable risk" or "residual risk," in the context of an investment portfolio, unsystematic risk can be reduced through diversification

Diversification can greatly reduce unsystematic risk from a portfolio. It is unlikely that events such as the ones listed above would happen in every firm at the same time. Therefore, by diversifying, one can reduce their risk.

Systematic risk cannot be eliminate by diversification. Therefore, it is considered un-diversifiable risk. This type of risk accounts for most of the risk in a well-diversified portfolio. It is called systematic risk or market risk. However, the expected returns on their investments can reward investors for enduring systematic risks.

3.As give in the news article the risk to the companies is systematic risk . This risk fluctuations in the returns on securities that occur due to macroeconomic factors.Systematic risk occurs due to uncontrollable factors such as natural calamities. These factors could be the political, social or economic factors that affect the business. Systematic risk can be caused due to unfavorable reasons such as an act of nature like a natural disaster, changes in government policy, international economic components, changes in the nation’s economy, etc.

4.The following are indian comapnies stocks listed oversea.

WIPRO Limited

WIPRO Limited (WIT) is a global information technology, consulting and outsourcing company that helps customers to do business better. The company was established as Western India Vegetable Products Limited in 1945 and was listed on the NYSE (New york stock exchange) in the year 2000.Closing price of wipro limited on september 14 is 4.6500 USD

Dr. Reddy’s Laboratories Limited

Dr. Reddy's Laboratories Limited (RDY), founded in 1984, is a leading global pharmaceutical company engaged in manufacturing and marketing a range of pharmaceutical products and services. Dr. Reddy’s made its debut on the New York Stock Exchange (NYSE) in April 2001.Closing price of  Dr. Reddy's Laboratories Limited on september 14 is 60.49 USD