Balance and Systematic risk: Difference between pages

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1. ''Banking.''
1. ''Capital Asset Pricing Model (CAPM)''.


The balance in a bank account reflects all items that have been deposited into and paid out of the account.  
Systematic risk is an important concept in the Capital asset pricing model.


Systematic risk means the element of total risk which cannot be eliminated by holding a diversified portfolio of investments.


:<span style="color:#4B0082">'''''Example 1: Overdrawn account becomes balance in our favour'''''</span>
Under the CAPM, only systematic risk is rewarded with additional returns.


:We have an overdraft of £50k at the start of April.  
(Because rational investors are assumed to have already fully diversified away all diversifiable risks).


:The balance at the start of a period is known as an opening balance. In our example it is £50k.
:So we owe £50k to the bank.


Systematic risk is often quantified by Beta.


:We deposit £60k into the account during the month of April.


:This repays our overdraft, with some cash left over.
Systematic risk is also known as 'market risk' or 'non-diversifiable risk'.


:At the end of April, our bank account now has a positive amount in it, of:


::-50 + 60 = 10
2.


:We have £10k cash in our bank account at the end of April.  
''Financial markets supervision''.


The same as ''systemic risk''.


:The amount at the end of a period is the closing balance. In our example the closing balance is £10k.
:<span style="color:#4B0082">'''''Example 2: Closing overdrawn balance in favour of the bank'''''</span>
:Our opening bank account balance for the month of May is £10k cash.
:So the opening cash is £10k.
:We pay £30k out of the account during May.
:Opening balance + deposits - withdrawals = Closing balance
::+10 - 30 = -20
:This is an overdraft of £20k at the end of May.
:We have a closing overdraft balance of £20k.
2. ''Accounting.''
The balance in a financial account reflects all items that have been posted to the account.




== See also ==
== See also ==
* [[Book]]
* [[Beta]]
* [[Cash flow]]
* [[Capital asset pricing model]]
* [[Cleared balance]]
* [[Gearing]]
* [[Flow]]
* [[Market risk]]
* [[Inflow]]
* [[Non-diversifiable risk]]
* [[Ledger]]
* [[Systemic risk]]
* [[Ledger balance]]
* [[Unsystematic risk]]
* [[Outflow]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Manage_risks]]
[[Category:The_business_context]]

Revision as of 14:05, 16 May 2020

1. Capital Asset Pricing Model (CAPM).

Systematic risk is an important concept in the Capital asset pricing model.

Systematic risk means the element of total risk which cannot be eliminated by holding a diversified portfolio of investments.

Under the CAPM, only systematic risk is rewarded with additional returns.

(Because rational investors are assumed to have already fully diversified away all diversifiable risks).


Systematic risk is often quantified by Beta.


Systematic risk is also known as 'market risk' or 'non-diversifiable risk'.


2.

Financial markets supervision.

The same as systemic risk.


See also

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