Systematic and Unsystematic Risk Discussion Questions

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1. You are the Chief Risk Officer for a company and you’ve been tasked with identifying the areas where your company is exposed to systematic and unsystematic risks.

Respond to the following in a minimum of 175 words:

· Based on the information you learned this week, what approach would you take in explaining how systematic and unsystematic risks affect risk planning?

· Describe your approach.

· Name 3 or more systematic or unsystematic risks your company might face.

· Think of some implications if your company decides not to be proactive and plan for these risks.

2. The purchasing power risk is the risk of inflation, lowering our ability to purchase goods and services. For instance, when I was in the second grade, I began a lawn care business. I paid $0.25 for a gallon of gas to fuel my push lawnmower. Last week, I spent $2.98/gallon when I filled my automobile with gasoline. One reason for the difference in price is purchasing power. Purchasing power is one reason for using the present value, future value, net present value, internal rate of return, and profitability index when creating and evaluating capital budgets. What is the reinvestment rate risk?

3. Many are familiar with the NYSE, which is referred to as the Big Board. The NYSE has the most rigid requirements to be listed and traded on the exchange. For instance, an organization must have 1.1 million shares to be listed and traded on the NYSE. The American Stock Exchange (AMEX) is not known as well as the NYSE. But, the NYSE and AMEX are located in NYC. The AMEX is known as the curb. Also, we have regional exchanges as the Chicago Stock Exchange and Pacific Stock Exchange. The London and Tokyo Exchanges are international markets. Refer to Section 11.2. What did you learn from viewing Figure 11.2?