Question

which of the following is an example of a market risk for a company that manufactures automobiles?
a failure in the companys accounts receivable process
damage to completed cars being transported to a buyer
a competitor that offers a similar line of cars with comparable quality at lower prices
being suddenly unable to source a critical component of the automobile

Explanation:

To determine the market risk, we analyze each option:

• Option 1: A failure in accounts receivable process is an operational risk (internal process issue), not market risk.
• Option 2: Damage to cars during transport is a logistics/operational risk (internal or supply - chain operational issue), not market risk.
• Option 3: A competitor offering similar cars at lower prices affects the company's market position (demand, pricing power) as it's related to market competition, which is a key market risk factor.
• Option 4: Inability to source a critical component is a supply - chain/operational risk (related to input availability), not market risk.

Answer:

C. A competitor that offers a similar line of cars with comparable quality at lower prices