Which one of the following is an example of a nondiversifiable
risk? a. a well-respected chairman of the Federal Reserve Bank
suddenly resigns b. a well-respected president of a firm suddenly
resigns c. a poorly managed firm suddenly goes out of business due
to lack of sales d. a key employee suddenly resigns and accepts
employment with a key competitor e. a well-managed firm reduces its
work force and automates several jobs
Nondiversifiable risk is the risk which cannot be mitigated or
reduced and the risk is not in our control and hence the risk
cannot be diversified. In the given alternatives only “a” is
nondiversifiable risk as “a well respected chairman of the Federal
Reserve Bank suddenly resigns” is not in our control. So no firm
can prevent that as the Federal Reserve Bank is a Government body.
All remaing’ alternatives are caused by the Firm and the Firm could
have taken appropriate steps to stop the events and hence all other
alternatives given in the question are diversifiable risks.