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

In an ERM framework, which role is most appropriately assigned to the firm's board of directors?

The board's role is to approve the risk appetite statement and oversee how management implements the risk framework. Daily VaR monitoring, hedge execution and model validation are operational responsibilities delegated to risk management, trading and validation functions rather than the board.

  1. AApproving the risk appetite statement and overseeing management's implementation of the risk frameworkCorrect
  2. BMeasuring daily trading VaR for each desk and reporting breaches
  3. CExecuting hedging trades to keep exposures within limits
  4. DIndependently validating the pricing models used by front-office staff

Explanation

The board sets or approves risk appetite and oversees the framework. Daily VaR measurement, hedge execution and model validation are operational tasks handled by risk management, the front office and validation teams.

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