Which of the Following Statements About the Various Kinds of Risks

question 2

Multiple Choice

Which of the following statements about the various kinds of risks is correct?

• A)Economic risk is a market risk, hence it should not be rewarded by the market.
• B)A firm's default risk is a diversifiable risk, hence it should be rewarded by the market.
• C)Exchange rate risk is a diversifiable risk, hence it should not be rewarded by the market.
• D)Inflation risk is an unsystematic risk, hence it should not be rewarded by the market.
• E)Interest rate risk is a systematic risk, hence it should be rewarded by the market.

---

Definitions:

Variable Selling

Refers to costs that vary directly with the level of sales, such as commissions or shipping fees.

Idle Capacity

The portion of a company's resources, such as labor or machinery, that is not being used to its full potential during the production process.

Joint Processing Costs

The expenses incurred during the initial stages of processing where multiple products are produced simultaneously before they are split into separate components.

Split-off Point

The stage in a production process where multiple products are derived from a single input or process, each taking a different processing route afterward.