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FRM Part II · FRM Exam Part II · The Investment Function in Financial Services Management

A bank's board is reviewing the investment portfolio's governance. Which of the following best describes the primary role of the board in the investment policy and risk appetite framework?

The board's primary role is to approve the risk appetite and investment policy limits and to oversee whether management adheres to them. Security selection, trading and daily risk calculation are delegated to management, the front office and the risk function.

  1. ASelecting individual securities to meet the quarterly earnings target
  2. BApproving the risk appetite and investment policy limits, and overseeing management's adherence to themCorrect
  3. CExecuting daily trades within the approved limits
  4. DCalculating the portfolio's daily value-at-risk for regulatory filings

Explanation

The board sets the risk appetite and approves the policy and limits, then oversees compliance. Security selection, trade execution and VaR calculation are management or risk-function tasks, not board responsibilities.

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