Keyword Analysis & Research: systemic risk


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Frequently Asked Questions

What are examples of systemic risk?

Examples of Systemic Risk. When the firm collapsed, it created problems throughout the financial system and the economy. Capital markets froze up while businesses and consumers could not get loans, or could only get loans if they were extremely creditworthy, posing minimal risk to the lender. (For more, see: The collapse of Lehman Brothers: A case study .)

How do you measure systemic risk?

If you want to know how much systematic risk a particular security, fund or portfolio has, you can look at its beta, which measures how volatile that investment is compared to the overall market. A beta of greater than 1 means the investment has more systematic risk than the market, while less than 1 means less systematic risk than the market.

What is systemic risk, anyway?

"Systemic risk refers to the risk or probability of breakdowns in an entire system, as opposed to breakdowns in individual parts or components, and is evidenced by comovements (correlation) among most or all the parts."

Is it possible to minimize systematic risk?

Systematic and unsystematic risks can be mitigated, in part, with risk management. Systematic risk can be reduced with asset allocation, while unsystematic risk can be limited with diversification.

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