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Hello Sir, do foreign exchange and interest risks come under systematic risk? If that’s the case, when we try to manage the exposure to these risks, are we in other words trying to reduce the systematic risk? There was a question regarding this topic in june 2014,and i an not clear as to what the examiner is saying. Thank you.
The extent of the overall exposure to foreign exchange and interest rate risk (as opposed to one-off occurrences) is one factor that is part of the overall risk of the business i.e. the systematic risk.
As a result, policies designed to reduce that risk will reduce the systematic risk.
This does not affect any calculations you could be asked to do in the exam, but could be relevant as part of a written discussion.
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