Explanation:
Risks with little understanding are probably hedged in some fashion. The other responses are reasons why the firm usually maintains exposure—especially the risk/reward tradeoff. Business revolves around the ability to turn risk into reward, so the desirable retention is usually something management seeks. And if negative impacts are low, and costs can be incorporated in prices, then all the better.
(Book 1, Module 2.1, LO 2.a)
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Question 49
Risks cannot be managed unless they are known. The concept of known knowns, known unknowns, unknown unknowns, etc., has been around for a long time. There are various reasons why a firm decides to maintain exposure to a known risk, however. Which of the following is not usually considered a reason to retain known risks at the firm?
A
The negative potential impact on performance is low.
B
Management desires the risk/reward tradeoff.
C
Product/service pricing can incorporate risk cost.
D
Management has little understanding of the retained exposure.
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