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

Which statement best describes the role of the board of directors in a risk management framework?

The board approves the risk appetite and oversees management's implementation of the risk framework, leaving day-to-day risk decisions to management. It does not approve each trade, hand oversight to external auditors, or leave risk appetite solely to the CRO.

  1. AApproving the risk appetite and overseeing management's implementation of the risk framework, while management handles day-to-day risk decisionsCorrect
  2. BDirectly approving every individual trade above a minimal size
  3. CDelegating all risk oversight to external auditors
  4. DSetting only the compliance budget and leaving risk appetite to the CRO alone

Explanation

The board sets or approves risk appetite and strategy and oversees management's execution of the framework; management runs day-to-day decisions. Approving every trade is operational micromanagement. External auditors do not own risk oversight, and risk appetite must be approved by the board, not the CRO alone.

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