Advanced Diploma of Financial Planning (ADFP) Practice Test

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Prepare for the Advanced Diploma of Financial Planning Test. Study with interactive quizzes and comprehensive questions, each offering detailed explanations and insights. Gear up for success!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

Systematic risks are influenced by which of the following?

Narrow economic factors
Specific securities
Broad market conditions
Individual company performance

The correct answer is: Broad market conditions

Systematic risks are indeed primarily influenced by broad market conditions. These risks are inherent to the entire market or a specific market segment and cannot be mitigated through diversification. Factors contributing to systematic risk often include economic variables like interest rates, inflation, political instability, and overall economic trends affecting large groups of assets or the entire market. This understanding highlights why broad market conditions are pivotal in determining systematic risk. For instance, a recession can lead to a decline in stock prices across multiple sectors, affecting nearly all investments simultaneously. Additionally, changes in monetary policy or global market events can trigger widespread impacts on market performance. The other options refer to different types of risks. Narrow economic factors, specific securities, and individual company performance are more related to unsystematic risk, which can typically be managed through diversification. Hence, these elements do not broadly affect the market as a whole and do not represent the essence of systematic risk, further solidifying why broad market conditions are the correct choice.