FRM Part I · FRM Exam Part I · The Building Blocks of Risk Management
A bank's board approves a statement describing the aggregate level and types of risk it is willing to accept in pursuit of its strategic objectives. Which term best describes this statement?
The statement is the bank's risk appetite, which is the aggregate level and types of risk the board is willing to accept to pursue its strategy. Risk capacity is the maximum the firm could absorb, and risk culture concerns behaviour and attitudes.
- ARisk appetiteCorrect
- BRisk capacity
- CRisk culture
- DRisk attribution
Explanation
Risk appetite is the amount and type of risk an organization is willing to take to achieve its objectives, and is set by the board. Risk capacity is the maximum risk the firm could bear, which is a different and larger concept. Risk culture describes behaviours and attitudes toward risk, not the approved level of risk.
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