Explanation:
Legal and regulatory risk entails going against stipulated laws, rules, and regulations. Through designated regulatory bodies, the government enforces these rules to safeguard the safety of consumers and ensure fair competition among businesses in the same industry.
Option A is incorrect: Operational risk refers to the risk that arises due to operational weaknesses like management failure, faulty controls, inadequate systems, etc. Human factor risk is one of the essential operational risks, and it results from human errors like entering wrong parameter values, using wrong controls, etc.
Option B is incorrect: Credit risk is the risk associated with a counterparty not fulfilling its contractual obligations is the credit risk. For example, the default on a credit card loan is the scenario in which credit risk materializes for a credit card company.
Option D is incorrect: Strategic risk is the risk associated with the risk of significant investments for which the uncertainty of success and profitability is high. It is related to the strategic change in the policies of a company to make it more competitive in the marketplace.
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Q.81 The risk manager of a certain public company is in the process of appraising several projects before giving recommendations to shareholders. He realizes that a few projects may put the company on a collision course with the Food and Drug administration because of ethical issues and human safety violations. Under such circumstances, which major type of risk is the company facing?
A
Operational risk.
B
Credit risk.
C
Legal and regulatory risk.
D
Strategic risk.