Risk Acceptance

C.

Risk appetite considers the qualitative and quantitative aspects of accepting risks in an organization.

The term refers to the type of risks the organization is willing to pursue, as well as amount of risk and the level of risk.

Risk appetite is the amount of risk a company or other entity is willing to accept in pursuit of its mission.

This is the responsibility of the board to decide risk appetite of an enterprise.

When considering the risk appetite levels for the enterprise, the following two major factors should be taken into account: -> The enterprise's objective capacity to absorb loss, e.g., financial loss, reputation damage, etc.

-> The culture towards risk taking-cautious or aggressive.

In other words, the amount of loss the enterprise wants to accept in pursue of its objective fulfillment.

Incorrect Answers: A, B: Aversion and hedging are related to each other and represents the avoidance of risk within the organization.

D: The acceptable variation relative to the achievement of an objective is termed as risk tolerance.

In other words, risk tolerance is the acceptable deviation from the level set by the risk appetite and business objectives.

Risk tolerance is defined at the enterprise level by the board and clearly communicated to all stakeholders.

A process should be in place to review and approve any exceptions to such standards.

The risk that an enterprise is willing to accept is called risk tolerance. Risk tolerance is the amount of risk that an organization is willing to take on in pursuit of its goals and objectives. It is the level of risk that the enterprise considers acceptable while pursuing its objectives. Risk tolerance is a key factor in determining the organization's risk management strategy.

Hedging is a risk management strategy used to reduce the risk of adverse price movements in an asset. It involves taking a position in an asset that is negatively correlated with another asset. For example, a company that is exposed to currency risk may hedge its exposure by taking a position in a currency derivative.

Risk aversion is the tendency of an individual or organization to avoid or minimize risk. It is the opposite of risk tolerance. Risk aversion may lead an organization to take a conservative approach to risk management, avoiding risky activities or investments.

Risk appetite is the amount of risk that an organization is willing to take on in pursuit of its goals and objectives. It is similar to risk tolerance, but it is often used to describe the organization's willingness to take on new or innovative risks.

In summary, risk tolerance refers to the amount of risk that an organization is willing to accept, while hedging is a risk management strategy used to reduce the risk of adverse price movements. Risk aversion is the tendency to avoid or minimize risk, and risk appetite is the willingness to take on new or innovative risks.