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FRM Part II · FRM Exam Part II · Integrated Risk Management

A bank's board is reviewing its risk appetite framework. Which of the following best describes the primary purpose of a risk appetite statement approved by the board?

A board-approved risk appetite statement sets the aggregate level and types of risk the firm is willing to accept to pursue its strategy. It guides limits and decisions but does not replace business-unit limits, record past losses or guarantee that losses stay within capital.

  1. ATo set the aggregate level and types of risk the firm is willing to accept in pursuit of its strategic objectivesCorrect
  2. BTo list every risk event that occurred in the prior year with its loss amount
  3. CTo replace the need for operational limits at the business-unit level
  4. DTo guarantee that no loss will exceed regulatory capital

Explanation

A risk appetite statement articulates the level and types of risk the firm is willing to take to achieve its strategy, and it guides limit setting. It does not replace business-level limits, it is not a loss log, and it cannot guarantee against losses.

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