CFA Level I · CFA Level I Exam · Introduction to Risk Management
Three firms form a joint venture to explore an offshore oil field, with each contributing capital and bearing one third of any losses. This arrangement is best described as risk:
The joint venture is risk sharing. Each firm bears only one third of any loss, so the exposure is spread among several parties. Avoidance would mean not exploring at all, and acceptance would mean a firm retains the whole risk on its own.
- ASharingCorrect
- BAvoidance
- CAcceptance
Explanation
Splitting the losses among several parties spreads the exposure, which is risk sharing. Avoidance would mean not undertaking the exploration. Acceptance would mean each firm bears the entire risk itself.
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