Certified Management Accountant 2025 – 400 Free Practice Questions to Pass the Exam

Market risk, often referred to as systematic risk, involves factors that affect the entire market or economy, rather than just a specific industry or company. This type of risk cannot be eliminated through diversification of an investment portfolio, meaning that it affects all securities to some extent. Examples of elements that contribute to systematic risk include changes in interest rates, inflation, political instability, and economic shocks.

In contrast, unsystematic risk is unique to a specific company or industry and can be mitigated through diversification. Operational risk pertains to failures in internal processes, people, or systems within an organization, while credit risk is associated with the potential for loss due to a borrower's failure to repay a loan or meet contractual obligations. Systematic risk captures the essence of market-wide influences, making it inherently non-diversifiable and vital for the understanding of investment portfolios and risk management strategies.