CAPM - Business Risk - Categorized into Systematic and Unsystematic risk

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November 22, 2016 at 7:44 am #350550
salman7
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Dear sir,

In CAPM, the Business risk categories is new because if we google the risk, then the major categories of risks in finance are systematic and Unsystematic risks (Business risk is coming under Unsystematic risk) as below:

“Systematic – Non diversifiable or uncontrollable by an org – Macro in nature:
1. Market risk
2. Interest rate risk
3. Purchasing power or inflationary risk
4. Economic, Securities market
5. Sociological
6. Political
7. Legal
8. External environment

Unsystematic – Diversifiable or controllable by an org – Micro in nature – Industry risk
1. Business/Liquidity risk – External and internal risk
2. Default risk
3. Financial/credit risk
4. Operational risk
5. Uncertainty
6. Consumer preferences
7. Internal risk”

Please clarify ? I am confused for the categorization or should I just assume that the categories is just applicable when CAPM is considered?

Thanks,
November 22, 2016 at 3:10 pm #350664
John Moffat
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I have no idea why you say the business risk categories is new – they have always been part of CAPM.

I explain in detail the distinction in my free lectures, and what is in the lectures is more than enough for Paper F9.
You certainly don’t need to learn a long list of examples for each of systematic and unsystematic – what the examiner wants is that you understand the difference between them and the relevance.
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