Financial Risk Manager Part 1

Explanation

Correct Answer: B

Enterprise Risk Management (ERM) is a comprehensive and integrated framework for managing risk across an organization. It advocates for a holistic view of risk across business lines, considering both the diversification and concentration of risk. This approach allows for a more accurate and complete understanding of the organization's overall risk profile.

Why Choice B is Correct:

• ERM emphasizes viewing risk across business lines rather than in silos
• It considers both diversification benefits and concentration risks
• This holistic approach enables better identification of interdependencies and correlations among risks
• It supports more effective and efficient risk management processes

Why Other Choices are Incorrect:

Choice A is incorrect: ERM does not operate on independent dimensions. Instead, it integrates all risk dimensions to provide a comprehensive view of the firm's risk profile. The success of the ERM framework is not motivated by independent operations but by its ability to manage and mitigate risks in an integrated manner.

Choice C is incorrect: This statement contradicts the holistic approach of ERM which advocates for viewing and managing all types of risks as interrelated rather than assessing them independently.

Choice D is incorrect: Since choices A and C are incorrect, this option cannot be correct.

Key ERM Principles:

• Holistic view of risk across the organization
• Integrated risk management approach
• Consideration of risk interdependencies
• Focus on both opportunities and threats
• Alignment with strategic objectives