If an FIs trading portfolio of stock is not well-diversified, the additional risk that must be taken into account is
A)unsystematic risk.
B)default risk.
C)timing risk.
D)interest rate risk.
E)systematic risk.

Question

Quizplus · Accepted Answer

Unsystematic risk, also known as specific risk, is the risk associated with a particular security or company. If an FI's trading portfolio is not well-diversified, it may be heavily concentrated in one or a few securities, leading to increased unsystematic risk. This risk can be reduced by diversifying the portfolio across multiple securities and industries. The other options (default risk, timing risk, interest rate risk, and systematic risk) are not directly related to the diversification of the trading portfolio.

If an FIs Trading Portfolio of Stock Is Not Well-Diversified