Question

3. distinguish between beta (i.e., market) risk, within-firm (i.e., corporate) risk, and stand-alone risk for a potential project. of the three measures, which is theoretically the most relevant, and why?

Answer 1

Market risk concerns with the changes occur in the financial market; corporate risk is associated with the organization itself; and standalone risk reflect the problem happen within a single department of an organization.

Here, all the three risks in regard to a portential project are breifly described:

• Market risk reflects the effect of loss in the project due to the overall performance of the financial market. Market risk arises from fluctuations in interest rates, exchange rates, stock prices, and commodity prices.
• Corporate risk refers to a risk to the project that is associated with an organization’s internal or external factors that may impact profitability negatively.  
• Standalone risk is a risk that is concerned with a single operating unit, or asset of an organization that may damage the project.

Of the three risks, the market risk is the most relevant because in regard to the project the market risk measures all the factors which have impact on the performance of financial markets.

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