Which of the following best describes 'systematic risk'?

Systematic risk refers to the risk that affects the entire market or a large segment of it, rather than being confined to a specific company or industry. This type of risk is inherent to the entire market and includes factors such as economic downturns, political instability, changes in interest rates, and widespread financial crises. Since systematic risk cannot be eliminated through diversification—it impacts all investments to some extent—it's important for investors to understand its nature and manage their exposure to it.

In contrast, the other options describe risks that are more localized or specific. For instance, the risk specific to a single firm or industry pertains to unsystematic risk, which can often be mitigated by diversifying one's investment portfolio. The risk from operational failures relates to internal controls and business processes rather than market-wide phenomena, and the risks associated with foreign investments and exchange rates are also categorized as specific risks influenced by particular geopolitical or economic conditions. These distinctions help clarify why the correct answer emphasizes the broader impact of systematic risk on the overall market.