Strong_Reflection 3_FINCB

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University of Phoenix *

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FINCB/571

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Finance

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Feb 20, 2024

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1 Reflection Three Amanda Strong University of Phoenix FINCB/571 Daniel Pasternack December 29, 2023
2 Reflection Three Systematic and Unsystematic Risk You are the chief risk officer for a company, and you have been tasked with identifying the areas where your company is exposed to systematic and unsystematic risks. Based on the information you learned about this concept, what approach would you take in explaining how systematic and unsystematic risks affect risk planning? Describe  your approach. Name 3 or more systematic or unsystematic risks your company might face. Think of the implications if your company decides not to be initiative-taking and plan for these risks. As a chief risk officer for your organization, you can be tasked with identifying the areas that your company is exposed to systematic and unsystematic risks. To identify these risks, you need to know what systematic and unsystematic risks are. Systematic risks are the risks that result from contributing factors that are outside of the organization’s control. These risks can be considered routine and are brought on by external factors outside of your organization that impact the organization. Examples of systematic risks can be found in market risks, interest rate risks, purchasing power, and exchange rate. Unsystematic risk, also known as company-specific risk, is a term used to describe risks that are brought on by internal business factors. Organizations that have a variety of investment types will help to minimize risk and help to control the types of risks. Residual risk, specific risk, nonsystematic risk, and diversifiable risk are examples of unsystematic risk. System risk is the financial risk that is constantly evolving in a market impacting everyone involved in the market. The market’s overall risk is determined by the direction of the market. The company can be doing well overall and the price per share could drop if the market is experiencing a decline.
3 Market risks make up about two-thirds of the total number of systematic risks. The systematic risk market has a high-risk rate; since internal rate risks are a risk that is adjusted according to the market value interest rate, it will manifest as systematic risk. Two ways to examine the overall interest rate risk. Fluctuations in the security’s interest rate are linked to the cost of risk and the reinvestment rate, which is determined by dividing dividend income by the reinvestment interest rate. Reinvestment risk would increase or is now positive if the price risk has decreased, which is reflected as negative. The risk associated with inflation is the risk to the organization’s purchasing power. As inflation takes place the company’s capacity to buy massive quantities of goods declines because the cost of a single good has increased. When there is inflation in the economy an investor’s rate of return does not rise with inflation. The investors’ rate of return falls over the long term. The organization does not plan for these risks and can face financial risk and could lose investors. To ensure the risk is minimized before encountering it is important to evaluate any potential outcome and adjust the organization’s strategy, as necessary. Although as most organizations know you are not able to eliminate all risks, reducing them can help to minimize the impact on the organization. Venture Capital You are a business consultant who works with new business owners. A new client wants to start a bakery and seeks your advice. Based on what you have learned from the readings, discuss the advantages and disadvantages of using venture capital as startup funding for a business.  Describe  what approach you would recommend for the client by using the information you researched. As a business consultant using venture capital as a startup funding for an organization has both benefits and drawbacks as far as risks and rewards. One of the benefits is access to business
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