Online CSC2 Questions Video

Specific risk, also called unsystematic or diversifiable risk, is the risk associated with individual companies or industries. It includes risks such as poor management decisions, product failures, labour disruptions, litigation, or company-specific earnings weakness. By holding a broadly diversified portfolio such as all stocks in the S & P/TSX Composite Index, an investor can theoretically diversify away company-specific risk because negative events affecting one company may be offset by performance from others. Systematic risk cannot be eliminated through diversification because it affects the whole market, such as interest rate changes, recessions, inflation shocks, or broad market declines. Default risk is more directly associated with credit instruments. Therefore, the risk theoretically eliminated through broad equity diversification is specific risk.

The Bank of Canada uses an operating band of 50 basis points to manage the overnight rate. The top of the band is the Bank Rate, and the bottom is the rate the Bank pays on settlement balances. The overnight rate typically operates within this band.

A. 25 basis points: This is too narrow to accommodate monetary operations.

B. 75 basis points: This is wider than the standard operating band.

D. 100 basis points: This is incorrect; the operating band is 50 basis points.