Explanation

Both statements are correct:

Statement I: Risk appetite directly impacts the allocation of resources.

• Risk appetite refers to the amount and type of risk an organization is willing to accept in pursuit of its objectives
• This directly influences how resources (capital, personnel, technology) are allocated across different business activities
• Organizations with higher risk appetite may allocate more resources to higher-risk, higher-return opportunities

Statement II: Risk tolerance is a measure of an organization's ability to take risk.

• Risk tolerance represents the maximum level of risk an organization can bear given its capital, liquidity, and other constraints
• It reflects the organization's capacity to withstand losses without jeopardizing its viability
• Risk tolerance is typically more quantitative and measurable than risk appetite

Key Differences:

• Risk Appetite: What risk the organization wants to take (strategic choice)
• Risk Tolerance: What risk the organization can take (capacity/constraint)

Both concepts are fundamental to effective risk management and work together to guide decision-making.