A risk management function is best organized as:

A risk management function is best organized as:
A . integrated with the risk taking functions as risk management should be a pervasive activity carried out at all levels of the organization.
B . report independently of the risk taking functions
C . reporting directly to the traders, as to be closest to the point at which risks are being taken
D . a part of the trading desks and other risk taking teams

View Answer

Answer: B

Explanation:

The point that this question is trying to emphasize is the independence of the risk management function. The risk function should be segregated from the risk taking functions as to maintain independence and objectivity.

Choice ‘d’, Choice ‘c’ and Choice ‘a’ run contrary to this requirement of independence, and are therefore not correct. The risk function should report directly to senior levels, for example directly to the audit committee, and not be a part of the risk taking functions.