Financial Risk Manager Part 1

The risk profile of a company is the amount of risk it is currently exposed to. It should be less than the company's risk appetite, which is the amount of risk the company is willing to take on. In this case, the company's risk appetite is $300 million. Therefore, the risk profile should be less than this amount. Option B, which is$250 million, is the only option that is less than the company's risk appetite. This is in line with the principle that a company's risk profile should always be less than its risk appetite, which in turn should be less than its total risk capacity. This ensures that the company does not take on more risk than it can handle, thereby safeguarding its financial stability and long-term viability.

Choice A is incorrect. The risk amount of $400 million exceeds the firm's risk appetite of$300 million, which means it falls outside the acceptable risk profile.

Choice C is incorrect. The risk amount of $900 million not only exceeds the firm's risk appetite but also its total risk capacity of$600 million, making it an unacceptable level of risk for the company.

Choice D is incorrect. Similar to choice A, a risk amount of $450 million surpasses the company's established risk appetite and therefore does not align with its acceptable risk profile.