FRM Part II · FRM Exam Part II · Risk Governance
A firm distinguishes between risk appetite and risk tolerance. Which of the following best illustrates risk tolerance rather than risk appetite?
Risk tolerance is a specific, measurable boundary on acceptable risk, such as capping unplanned payment system downtime at four hours per quarter. The other statements are broad, qualitative expressions of appetite or intent and do not set a quantified maximum deviation.
- AThe firm will not engage in business lines with significant exposure to sanctions violations
- BThe firm seeks moderate operational risk exposure while growing its retail franchise
- CThe firm accepts that unplanned system downtime for payments may not exceed four hours per quarterCorrect
- DThe firm aims to maintain a strong reputation with customers and regulators
Explanation
Risk tolerance is the specific, quantifiable maximum deviation acceptable around a risk objective, such as downtime hours. The others are broad qualitative statements of appetite or strategic aims.
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