CFA Level I · CFA Level I Exam · Introduction to Risk Management
In an enterprise risk management framework, risk governance is best described as:
Risk governance is the top-down framework that establishes oversight, accountability, and the organization's risk appetite and tolerance. Hedging and VaR measurement are tools used inside that framework, so they do not describe governance itself.
- Athe top-down process of setting risk oversight, accountability, and the organization's risk appetite and toleranceCorrect
- Bthe use of derivatives to offset exposures identified by individual business units
- Cthe calculation of value at risk for each trading desk
Explanation
Risk governance is the top-down structure that sets risk oversight, accountability and the risk appetite and tolerance for the whole organization. Hedging with derivatives and computing VaR are risk management tools applied within that structure, not governance itself.
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