Which type of risk refers to price fluctuations due to overall market volatility and cannot be mitigated through diversification?

Which type of risk refers to price fluctuations due to overall market volatility and cannot be mitigated through diversification?

• A. Market (Systematic) Risk
• B. Company (Non-Systematic) Risk
• C. Interest
• D. Money Market Mutual Fund

Answer: (A)

This is systematic (market) risk. It represents price swings caused by factors that affect the entire market—economic growth or contraction, inflation, monetary policy, geopolitical events—so almost all assets move in response. Because these are broad, diversified holdings still experience market-wide declines or rallies, and diversification cannot eliminate this risk. In contrast, company-specific (non-systematic) risk can be reduced by spreading investments across different firms. Interest-rate risk is a particular factor that falls under market risk, but the wording points to broad market volatility rather than a single factor. A money market mutual fund is a type of investment vehicle, not a risk type.

This is systematic (market) risk. It represents price swings caused by factors that affect the entire market—economic growth or contraction, inflation, monetary policy, geopolitical events—so almost all assets move in response. Because these are broad, diversified holdings still experience market-wide declines or rallies, and diversification cannot eliminate this risk. In contrast, company-specific (non-systematic) risk can be reduced by spreading investments across different firms. Interest-rate risk is a particular factor that falls under market risk, but the wording points to broad market volatility rather than a single factor. A money market mutual fund is a type of investment vehicle, not a risk type.