The amount and type of risk an organisation is willing to take to pursue its objectives. The board sets it and limits put it into practice.
Where you will meet it
Risk appetite comes up in 32 learning outcome notes across the FRM syllabus.
A few of them:
Corporate Bonds FRM Part I · Financial markets and products
“Spreads widen when the market sees weaker credit quality, after a downgrade, or when liquidity or risk appetite deteriorates.”
The Building Blocks of Risk Management FRM Part I · Foundations of risk management
“It identifies, assesses and responds to all material risks together, linked to strategy and risk appetite, rather than leaving each unit to manage its own risks in a silo.”
Stress Testing FRM Part I · Valuation and risk models
“They also support limit setting, risk appetite and contingency planning.”
Governance FRM Part II · Credit risk measurement and management
“The board sets the risk appetite and oversees the framework, and senior management carries it out.”
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