Which risk category concerns risk that affects specific industries or companies, such as industry-specific regulations?

Which risk category concerns risk that affects specific industries or companies, such as industry-specific regulations?

• A. Currency risk.
• B. Operational risk.
• C. Reputational risk.
• D. Micro risk.

Answer: (D)

The idea being tested is how to tell apart risks that hit only a specific industry or company from broader, market-wide risks. Industry-specific regulations are a perfect example of risks that are confined to a particular sector or firm. They change the rules, costs, and viability for those in that industry, while other sectors aren’t affected in the same way. That makes it a micro or idiosyncratic risk—something not shared by the whole market. Currency risk involves swings in exchange rates that can affect many companies with international exposure, so it’s more of a market-wide concern. Reputational risk relates to how the public perceives a company, which isn’t about industry-wide regulatory changes. Operational risk comes from internal processes and systems within a company, not from external industry-specific regulatory shifts.

The idea being tested is how to tell apart risks that hit only a specific industry or company from broader, market-wide risks. Industry-specific regulations are a perfect example of risks that are confined to a particular sector or firm. They change the rules, costs, and viability for those in that industry, while other sectors aren’t affected in the same way. That makes it a micro or idiosyncratic risk—something not shared by the whole market.

Currency risk involves swings in exchange rates that can affect many companies with international exposure, so it’s more of a market-wide concern. Reputational risk relates to how the public perceives a company, which isn’t about industry-wide regulatory changes. Operational risk comes from internal processes and systems within a company, not from external industry-specific regulatory shifts.