Answer: The risk appetite should set above the firm's total risk bearing capacity, and below the risk profile

## Explanation The statement is **correct** regarding risk appetite: **Risk appetite** represents the amount and type of risk that an organization is willing to pursue or retain. In the hierarchy of risk management: 1. **Risk bearing capacity** - The maximum amount of risk the firm can technically absorb without threatening its survival 2. **Risk appetite** - The amount of risk the firm is **willing** to take (should be set **above** the risk bearing capacity but **below** the risk profile) 3. **Risk profile** - The actual amount of risk the firm is currently exposed to This relationship ensures that: - The firm takes enough risk to achieve its strategic objectives (above risk bearing capacity) - The firm doesn't take excessive risk that could threaten its viability (below risk profile) - There's a buffer between the firm's willingness to take risk and its actual risk exposure Setting risk appetite in this range allows the organization to pursue opportunities while maintaining prudent risk management practices.

Author: LeetQuiz .