An organization cannot afford the loss that comes from taking risks that go wrong, but they suffer big losses because they often take these risks anyway. What combination of risk capacity and risk…

Question

Options

• ALow risk capacity, high risk appetite
• BHigh risk capacity, high risk appetite
• CLow risk capacity, low risk appetite
• DHigh risk capacity, low risk appetite

• A
  76% (19)
• B
  8% (2)
• C
  4% (1)
• D
  12% (3)

Explanation

Risk capacity measures what an organization can afford to lose; risk appetite measures how willing they are to take on risk. The organization here cannot afford losses (low risk capacity) yet consistently accepts risky decisions anyway (high risk appetite), making A the correct pairing.

Why the distractors fail:

• B is wrong because high risk capacity means the organization can absorb losses - the opposite of the scenario.
• C is wrong because low risk appetite would mean they avoid risks, but they clearly embrace them.
• D is wrong on both counts: they lack financial resilience (not high capacity) and they do pursue risks (not low appetite).

Memory tip: Think "Capacity = Can afford" and "Appetite = Ambitiousness for risk." A broke gambler has low capacity (empty pockets) but high appetite (keeps betting) - that image locks in option A.

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