Two of the four key resources that are regarded as critical to maintain confidence and...

Key Resources for Calibrating Risk Appetite

Risk appetite defineshow much risk an organization is willing to acceptto achieve its objectives.

Two of the most critical resourcesfor maintaining confidence and setting risk appetite arenet earnings and capital.

Why Net Earnings and Capital are Critical

Net earningsreflectprofitability and financial stability, influencing risk-taking capacity.

Capitalensures that the institutioncan absorb lossesand meet regulatory requirements.

Basel III emphasizes capital adequacyas a core measure of financial resilience.

Why Answer B is Correct

Net earnings support operational stability, whilecapital determines how much risk an institution can bear.

Both are used todefine and calibrate risk appetite levels.

Why Other Answers Are Incorrect

Option

Explanation

A. Capital expenditure and liquidity.

Incorrect– Capital expenditure is aninvestment measure, not a direct risk appetite determinant.

C. Strong regulatory assessment and net earnings.

Incorrect– Regulatory assessments are important butdo not directly set risk appetite.

D. Quality human resources and reputation.

Incorrect– HR and reputation areimportant for governance but do not directly influence risk capital and earnings stability.

PRMIA Risk Appetite Framework

Basel III Capital and Earnings Management Guidelines

PRMIA References for Verification