Answer-first summary for fast verification
Answer: The risk plan should set volatility goals such as VaR or tracking error for relevant time periods.
## Explanation Let's analyze each option: **Option A**: Incorrect. The risk budget is about allocating risk capital, not defining return on risk capital (RORC) levels. RORC is more related to performance measurement and compensation. **Option B**: Incorrect. Identifying critical dependencies regarding funding and investment performance is part of the risk plan, not the risk budget. The risk plan establishes the overall risk management framework. **Option C**: Incorrect. The risk plan sets the overall strategic framework, while the risk budget deals with the specific allocation of risk capital among asset classes. The risk plan should not state exactly how risk capital should be allocated. **Option D**: **Correct**. The risk plan should indeed set volatility goals such as Value at Risk (VaR) or tracking error for relevant time periods. This is a fundamental component of risk planning that establishes the quantitative risk tolerance levels for the organization. The risk plan establishes the overall risk management strategy, including risk tolerance, governance structure, and quantitative risk limits. Setting volatility goals like VaR or tracking error is a key element of defining the organization's risk appetite within the risk planning process.
Author: LeetQuiz .
Ultimate access to all questions.
A newly established pension fund hires a risk consultant to help develop its risk management framework and tools. During an initial meeting with the fund managers, the consultant discusses the fundamental dimensions of the risk management process and describes risk planning, risk budgeting, and risk monitoring, as well as how each of these three dimensions should be structured. Which of the following statements about the risk plan or the risk budget is correct?
A
The risk budget should define acceptable levels of return on risk capital (RORC) for each risk capital allocation.
B
The risk budget should identify the firm's critical dependencies regarding funding and investment performance.
C
The risk plan should state exactly how risk capital should be allocated among asset classes.
D
The risk plan should set volatility goals such as VaR or tracking error for relevant time periods.
No comments yet.