B

Systematic risk concerns the risk a security possesses based on its price responsiveness to macroeconomic variables, or the economy as a whole. If we reduce correlation of responsiveness to the economy, we inevitably reduce systematic risk.

By contrast, unsystematic risk is the risk a security possesses through a microeconomic factor, such as the firm itself, an industry, supply chain, etc. In an efficient portfolio, this risk is diversified away to zero, leaving systematic risk as the only risk in a portfolio.

Beta measures a security's systematic risk; the standard deviation measures a security's total risk (S+U).

A point of confusion frequently entails systemic risk v. systematic risk. Systematic risk was explained above. Systemic risk is the risk of financial system collapse, as we saw in 2008 with the financial meltdown.

The answer is B.

systematic risk is a kind of risk that affects the entire economic system such as excessive leverage in the economy as a whole, demographics change related headwinds, etc.

An action that decreases correlation to economy wide fluctuation is therefore reducing systemic risk in general.

A

most go bankrupt without state help anyway (capitalism they say? state reduce taxes, reduce employement cost, support finished product..)

that virtual economy can 't go for long

The answer is B.

Anything that decreases the company's correlation with the economy will "decrease" systematic risk.

7. All else the same, actions or events that cause firm returns to be less correlated with changes in the economy will _______ the firm's systematic risk in general.

A) increase

B) decrease

C) not affect

D) affect (direction not determinable)

E) increase the firm's unsystematic risk but not affect

Thanks in advance for the help!!