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CMA Final · Strategic Performance Management and Business Valuation · Risk Management

In enterprise risk management, a firm decides to withdraw from a product line whose expected losses exceed the board's risk appetite, rather than insure or share the exposure. Which risk response does this represent?

This is risk avoidance. The firm eliminates the exposure by withdrawing from the activity itself. Transfer or sharing would keep the product line and pass on part of the loss, and acceptance would retain the risk, so none of them fit.

  1. ARisk avoidanceCorrect
  2. BRisk transfer
  3. CRisk acceptance
  4. DRisk sharing

Explanation

Exiting the activity altogether removes the exposure, which is risk avoidance. Transfer and sharing would keep the activity going while moving some of the loss to another party, such as an insurer. Acceptance would mean continuing and bearing the risk.

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