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FRM Part I · FRM Exam Part I · Enterprise Risk Management and Future Trends

A bank's board wants a single, integrated view of credit, market, operational and strategic risks across all business lines, rather than having each unit manage its own risks in isolation. Which description best characterizes this approach?

Enterprise risk management is the approach described. It looks at all risks across the organization in an integrated way, capturing diversification and interactions, whereas silo management leaves each unit to handle its own risks and hedging or insurance only address individual exposures.

  1. AEnterprise risk management, which assesses and manages risks across the whole organization in an integrated, portfolio-based wayCorrect
  2. BSilo-based risk management, where each business line sets its own risk limits independently
  3. CTransactional hedging, where each exposure is hedged individually using derivatives
  4. DRisk transfer through insurance, where all risks are moved to third parties

Explanation

ERM takes an enterprise-wide, integrated view of risks, capturing interactions and diversification across risk types and units. Silo-based management is the opposite, because each unit manages its own risks without a consolidated view. Hedging and insurance are individual risk responses, not a framework.

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