Risk Appetite and Risk Tolerance CGEIT Practice Questions (Page 5)

Questions 21–25

1. 21expert · hard

   A multinational corporation has a risk appetite statement that is 'cautious' overall, but its business units have been given risk tolerances that are quite generous. The board is concerned that the tolerances may be undermining the appetite. Which of the following is the most likely issue?

   • AThe business units are not following the risk appetite statement.
   • BThe tolerances are not aligned with the risk appetite, leading to excessive risk-taking in aggregate.
   • CThe risk appetite is too vague to be useful.
   • DThe risk appetite is too conservative for the company's growth objectives.
   Reveal Solution Discussion Select an answer first
2. 22foundation · easy

   What is the primary purpose of setting risk tolerance levels?

   • ATo satisfy regulatory requirements only
   • BTo eliminate all risks that could affect the organization
   • CTo transfer all risks to third parties
   • DTo provide specific boundaries for risk-taking that align with the risk appetite
   Reveal Solution Discussion Select an answer first
4. 23foundation · easy

   When establishing risk appetite, which of the following should be considered?

   • AOrganizational objectives, stakeholder expectations, and regulatory requirements
   • BOnly the financial capacity to absorb losses
   • CThe risk appetite of competitors in the industry
   • DThe historical risk losses of the organization
   Reveal Solution Discussion Select an answer first
5. 24application · medium

   A retail bank has set its enterprise risk appetite as 'low' for credit risk. The board now needs to set risk tolerance levels for different business units. Which of the following is the most appropriate way to set these tolerances?

   • ASet tolerance levels for each business unit based on its specific risk profile, strategic importance, and capacity to manage risk, ensuring they collectively align with the enterprise appetite.
   • BSet tolerance levels based on the highest risk unit to ensure the bank is prepared for worst-case scenarios.
   • CSet tolerance levels based on regulatory minimums, as these are the most conservative and safe.
   • DSet a uniform tolerance level for all business units to ensure consistency across the bank.
   Reveal Solution Discussion Select an answer first
6. 25application · medium

   A manufacturing company has had the same risk appetite statement for five years. During a strategic planning session, the board notes that the company has expanded into new markets and adopted new technologies. What should the board do regarding the risk appetite?

   • ADelegate the review of the risk appetite to the risk management department without board involvement.
   • BAutomatically increase the risk appetite to accommodate the new markets and technologies.
   • CReview and potentially revise the risk appetite to ensure it remains aligned with the current strategic objectives and risk profile.
   • DKeep the risk appetite unchanged since it has served the company well.
   Reveal Solution Discussion Select an answer first