Systematic and Unsystematic Risks

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In this short essay, the author presents the brief on identification, measurement and investments in mitigation of systematic & unsystematic risks. The author has presented this subject in the context of Deloitte. In the end, the author has presented some discussion points.


This makes multi-national corporations safer compared to their domestic counterparts. Normally, systematic risk assessment are important for listed companies to effectively price the equities, determining the cost of capital and effective evaluation of projects. However, internationalization also poses some distinct systematic risks to multi-national corporations. Some of these distinct risks are - exposure to currency fluctuations in multiple countries, exposure to political risks pertaining to multiple governments, exposure to reduction in ability of monitoring managers in multiple countries, increased chances of asymmetric & inaccurate localized information thus resulting in wrong investment decisions, etc. Internationalizing investment portfolios also increases the exposure to unsystematic risks - like competitor activity in a foreign country, manager's foul play in another country where the company's monitoring system is weak, etc. Hence, it is important for the organization to have sound global knowledge base & threat database for risk management.
Organization structures with distributed power often increases the exposure to both systematic and non-systematic risks. This is the reason that Chatterjee and Lubatkin et al (1992. ...
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