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Answer: Risk culture typically develops at the local business unit level, making it harder for local teams to adopt a firm-wide risk culture.
## Explanation **A is correct.** Risk culture mainly originates on a local business unit basis, with local team leaders defining their unit's risk culture. This can create gaps between the stated targets of the organization with respect to risk culture and employee behavior, making it difficult for teams to view risk in the same way and adopt a firm-wide risk culture. **B is incorrect.** The text argues that risk culture typically becomes more visible during times of stress as the strengths and weaknesses of the risk culture become apparent. **C is incorrect.** Describing risk in a common manner throughout an organization is actually a preferred practice and not a challenge, and this makes it easier, not more difficult, to highlight concentrations of risk. **D is incorrect.** While the board needs to be educated on the key risks faced by the enterprise, a strong risk culture does not require the board go all the way to performing day-to-day risk management activities. An advisory role is a preferable function for a board.
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A risk consultant is presenting to a group of bankers and investment managers about the importance of maintaining a strong and effective risk culture at a firm. The consultant begins by discussing some challenges to the establishment of a strong risk culture. Which of the following correctly describes a challenge to firms in ensuring a strong risk culture?
A
Risk culture typically develops at the local business unit level, making it harder for local teams to adopt a firm-wide risk culture.
B
Risk culture can only be assessed effectively during normal market conditions and not during times of stress due to market volatility.
C
Risk is typically expressed in a common manner throughout an organization, making it more difficult to identify concentrations of risk.
D
A strong risk culture requires that the board of directors performs day-to-day risk management activities, but boards typically take an advisory role.
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