CFA Level I · CFA Level I Exam · Introduction to Risk Management
A bank installs automated fraud-detection software and requires dual authorization for large payments. The bank continues offering all existing services. These actions are most likely examples of risk:
These actions are risk mitigation. The bank keeps offering its services but adds controls that reduce the probability or the impact of fraud losses. Avoidance would mean ending the activity, and transfer would mean shifting the loss to another party such as an insurer.
- AMitigationCorrect
- BAvoidance
- CTransfer
Explanation
Controls that reduce the likelihood or the size of losses while the activity continues are risk mitigation. Avoidance would require ending the services. Transfer would require shifting losses to a third party, for example through insurance.
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