FRM Part I · FRM Exam Part I · The Building Blocks of Risk Management
A manufacturer's board states it will accept some commodity price risk but will not accept exposure beyond a defined amount of annual earnings volatility. This statement most directly represents which concept?
This represents risk appetite, the amount and type of risk the board is willing to accept to pursue its objectives, here expressed as a cap on earnings volatility. It is not risk transfer, identification or attribution, which describe other activities.
- ARisk appetiteCorrect
- BRisk transfer
- CRisk identification
- DRisk attribution
Explanation
Risk appetite is the level and type of risk an organization is willing to accept in pursuit of objectives, often expressed through limits like earnings volatility. Transfer is shifting risk to others, identification is finding risks, and attribution explains sources of results.
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