Accounting and Finance Study Material

Accounting and Finance

Table of Contents
Question Two...................................................................................................................................3
Question Three.................................................................................................................................4
Question Four..................................................................................................................................5
Question Six.....................................................................................................................................6
REFERENCES................................................................................................................................9

Question Two
A) Specific risk
A specific risk seems to be the threat which only affects one business, market, or
business, according to an individual. By expanding their investments, investors may reduce real
risk (Cornwall, Vang and Hartman, 2019). The stocks must be spread around different industries
so that market- or business information affects just a small portion of the portfolio's assets. In
the context of rational, risk adverse investors ETFs (exchange-traded funds) are an opportunity
for firms to broaden financial portfolios. ETFs is being used to monitor a large index, like the
S&P 500 Index, or they could be used to monitor particular sectors, currency, or asset
groups. Investors may, for instance, minimise real risk through purchasing an ETF with a well-
balanced mix of equities as well as industries. Internal or external problems may put the
company at risk. Internal risk is linked to a company's operating performance. An internal danger
would be administration failing to secure a new innovation with such a trademark, leading to a
loss of strategic edge. An example of external market risk was its FDA prohibiting a particular
product which a business buys. This has to do with a profitability ratio. This has to do with a
capital structure of the company that support to continue to expand and fulfil its financial
commitments, a corporation must have an optimum balance of stocks and bonds. Inaccurate
earnings as well as working capital may result from a poor financial performance.
B) Market Risk
Market risk refers to the probability that an investor or other company will lose money as a
result of factors that influence the actual impact of accounting financial markets. The value-at-
risk (VaR) approach is used by market participants to assess market risk. VaR modelling is a
predictive risk management approach that calculates the possible loss and likelihood of a stock or
portfolio. Although the VaR approach is now well commonly used, it is subject to some
assumptions that restrict its accuracy. It implies, for instance, that the composition and quality of
the assets being evaluated remain constant over time. While this may be appropriate for short-
term assets, this could result in less precise calculations for long-term investment decisions.
C) Chart analysis