Which of the following best describes the three main categories of economic risk?

• A. Financial risk, social risk, and environmental risk
• B. Price risk, demand risk, and supply risk
• C. Market risk, credit risk, and operational risk
• D. Systematic risk, unsystematic risk, and speculative risk

Answer: (C)

Verified step by step guidance

1. Step 1: Understand that economic risks are generally categorized based on how they affect businesses and markets. The question asks for the three main categories of economic risk, which are commonly used in finance and economics.
2. Step 2: Review each option and identify which set of risks are widely recognized in economic and financial literature. For example, 'Market risk, credit risk, and operational risk' are standard categories used to describe different types of risks faced by firms and investors.
3. Step 3: Define each of the three main categories: Market risk refers to the risk of losses due to changes in market prices; credit risk is the risk that a borrower will default on a loan; operational risk involves failures in internal processes, people, or systems.
4. Step 4: Compare the other options to see if they fit the standard classification. For instance, 'Price risk, demand risk, and supply risk' are more specific types of risks but not the main categories, while 'Systematic risk, unsystematic risk, and speculative risk' relate more to investment risk types rather than broad economic risk categories.
5. Step 5: Conclude that the best description of the three main categories of economic risk is 'Market risk, credit risk, and operational risk' because these cover the broad and commonly accepted types of economic risks in microeconomics and finance.