Enterprise-wide Risks

D.

Systemic risks are those risks that happen with an important business partner and affect a large group of enterprises within an area or industry.

An example would be a nationwide air traffic control system that goes down for an extended period of time (six hours), which affects air traffic on a very large scale.

Incorrect Answers: A: Contagious risks are those risk events that happen with several of the enterprise's business partners within a very short time frame.

B, C: Their scopes do not limit to the important or general enterprise's business partners.

These risks can occur with both.

Operational risks are those risks that are associated with the day-to-day operations of the enterprise.

It is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.

Reporting risks are caused due to wrong reporting which leads to bad decision.

This bad decision due to wrong report hence causes a risk on the functionality of the organization.

The risk that happens with an important business partner and affects a large group of enterprises within an area or industry is known as systemic risk.

Explanation:

A systemic risk is a risk that arises from the interconnectedness of multiple systems, institutions or companies. The impact of a systemic risk can be widespread and can cause significant disruptions to the entire system. In the context of an important business partner, systemic risk refers to the risk that a failure or disruption of the partner's operations could have a cascading effect on other businesses within the same industry or geographic area.

For example, a major supplier of a critical component to many companies may experience a disruption in its production due to a natural disaster or other event, which could cause a shortage of the component and impact the production of many companies that rely on it. This could lead to a domino effect where the affected companies may have to halt their production, resulting in lost revenue and increased costs.

Contagious risk, on the other hand, refers to the risk of a negative event spreading from one entity to another within a system. For instance, a bank run may be triggered by a rumor about the solvency of a particular bank, which may then cause other customers to withdraw their deposits from other banks, resulting in a widespread panic.

Reporting risk refers to the risk that arises from the inaccuracy or untimeliness of financial or non-financial information reported by an entity, which may impact decision-making by stakeholders.

Operational risk refers to the risk of loss resulting from inadequate or failed internal processes, systems, or human errors, or from external events.

Therefore, the correct answer to the given question is D. Systemic risk.