FRM Part I · FRM Exam Part I · The Governance of Risk Management
Under sound risk governance practice for a financial institution, which of the following is the board of directors' primary responsibility with respect to risk?
The board's primary risk responsibility is to approve the firm's risk appetite and oversee that management operates within it. Day-to-day tasks such as setting desk limits, computing capital or choosing hedges belong to management and risk functions, not the board.
- AApproving the firm's risk appetite and overseeing that management operates within itCorrect
- BSetting daily trading limits for each individual desk
- CCalculating the firm's regulatory capital figures each quarter
- DSelecting the hedging instruments used by the treasury function
Explanation
The board provides oversight and strategic direction, including approving the risk appetite statement and monitoring management against it. Daily limits, capital calculations and hedge selection are management-level or operational tasks delegated beneath the board.
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