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

Under the risk-management approach of treating risks by response, Sundaram Textiles decides to stop exporting to a politically unstable country because the possible loss is unacceptable relative to the returns. Which risk response does this represent?

This is risk avoidance. The company eliminates the exposure completely by ceasing the activity that creates it. Transfer would shift the loss to another party, reduction would only lessen likelihood or impact, and acceptance would knowingly retain the risk; none of these involves exiting the activity.

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

Explanation

Withdrawing from the activity altogether so that the exposure no longer exists is risk avoidance. Transfer would involve insurance or hedging while continuing the activity, reduction would lower likelihood or impact but continue, and acceptance would retain the exposure.

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