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Answers to supplementary objective test questions
CHAPTER 13 – RISK MANAGEMENT
13.1
Risk appetite The level of risk the organisation is willing
to accept
Risk capacity The way in which the organisation
manages its risk
Risk attitude The level of risk the organisation can
tolerate
Risk Strategy The way in which the organisation
manages its risk
13.2 C
This is an example of avoidance, or abandonment. Company A has decided to
take immediate action by abandoning its operations in that country.
13.3 A
A risk acceptance strategy involves taking limited or no action to reduce the
exposure to risk and would be taken if the returns expected from bearing the
risk were expected to be greater than the potential liabilities. The case mentions
that the product is highly profitable. It may be that the returns attainable by
maintaining and even increasing its sales are worth the liabilities incurred by
compensation claims. This is a risk acceptance strategy.
13.4 B
Risk appetite has two composite elements:
1 Risk capacity – the amount of risk that the organisation can bear
2 Risk attitude – the overall approach to risk, in terms of the board being risk
averse or risk seeking.
13.5 B
TARA stands for 'Transference (or Sharing), Avoidance, Reduction
or Acceptance' so only 'Approving' of the choices given does not form part of
this framework.
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