Western Governors University (WGU) BUS2040 D076 Finance Skills for Managers Practice Exam

Firm-specific risk refers to risks that are unique to a particular company or organization, as opposed to risks that affect an entire industry or market. These risks can arise from various factors, including management decisions, market competition, and geographical location, as they directly influence the operations and performance of a specific firm.

Industry trends, however, do not represent firm-specific risk because they affect a broader range of companies within the same industry. Trends can include shifts in consumer preferences, technological advancements, or changes in regulatory policies that impact all firms within that industry rather than individual companies. Therefore, they do not reflect the unique risks tied to a specific firm's internal workings or environment.

This distinction is crucial for managers and investors as understanding the difference between firm-specific risks and broader industry risks helps in making informed decisions regarding investments and management strategies.