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FRM Part I · FRM Exam Part I · The Governance of Risk Management

Which role is most appropriately assigned to the board of directors with respect to a firm's risk appetite?

The board should approve the risk appetite statement and challenge whether it fits the firm's strategy, capital and risk capacity. Day-to-day limit setting, VaR calculation and model validation belong to management and independent control functions, not the board.

  1. ASetting individual trader position limits each day
  2. BApproving the risk appetite statement and challenging whether it is consistent with strategy and capitalCorrect
  3. CCalculating desk-level VaR figures for regulators
  4. DIndependently validating all pricing models

Explanation

The board is responsible for approving the RAS and ensuring it aligns with strategy, capital and risk capacity. Daily limits, VaR calculation and model validation are management or independent function tasks, not board duties.

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