Certified Financial Management Specialist Practice Exam

What is the term for risks that affect the entire financial system?

1. Cohesive Picture

2. Systemic Risks

3. Centralized Controls

4. Governance Activities

The correct answer is: Systemic Risks

The term "Systemic Risks" refers to the potential for a crisis in one part of the financial system to trigger a broader collapse across the entire system. This kind of risk is characterized by its ability to affect many entities and markets simultaneously, leading to widespread economic disruptions. Systemic risks can arise from various sources, including interconnected financial institutions, market fluctuations, and external shocks such as economic recessions or geopolitical events. Understanding systemic risks is crucial for financial managers and policy-makers, as these risks necessitate a holistic approach to risk management and can greatly impact overall economic stability. Unlike localized risks that affect individual entities or sectors, systemic risks encompass the entire financial ecosystem, thereby requiring vigilance and coordinated responses to mitigate their impact. This makes knowledge of systemic risks essential for effective financial management and systemic stability.