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    Question

    Which of the following statement/s is/are NOT correct

    about systemic risk? i. It is the risk inherent to the entire market or an entire market segment. ii. Companies considered a systemic risk are called “too big to fail”. iii. Systemic risk was a major contributor to the financial crisis of 2008. iv. A company that is highly interconnected with others is also a source of systemic risk
    A Only i Correct Answer Incorrect Answer
    B Only iii Correct Answer Incorrect Answer
    C Only iv Correct Answer Incorrect Answer
    D Only ii and iv Correct Answer Incorrect Answer
    E Only iii and iv Correct Answer Incorrect Answer

    Solution

    Systemic risk is the risk of collapse of an entire financial system or entire market, as opposed to risk associated with any one individual entity. Systematic risk is inherent to the entire market or an entire market segment. Systematic risk, also known as “undiversifiable risk,” “volatility” or “market risk,” affects the overall market, not just a particular stock or industry. Systemic risk is the possibility that an event at the company level could trigger severe instability or collapse an entire industry or economy. It was a major contributor to the financial crisis of 2008.

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