Chapter 6 Exercise 2 A. Soft limits are thresholds that can be crossed occasionally and do not require any actions as long as Cirde the item(s) below that represent true statements. the exposures do not exceed the hard limit. 8. The first time that enterprise risk exposure is calculated, it is always lower than the defined level of C. Risk appetite and risk limits are defined completely independent of each other and have no 0. In the absence of ERM the aggregate metrics - enterprise risk exposure and risk appetite - most companies can still have effective ERM programs by using just their risk limits. risk appetite. relationship Exercise 3 GymEquip , a gym equipment manufacturer, is aware that they must reduce their enterprise risk exposure through mitigation. The table below provides information for four mitigation alternatives that management is considering. Each of the mitigation alternatives 1-4 would reduce the risk exposures to at least the level desired. Mitigation Alternative None #1 #1 #2 #3 #4 Cost of mitigation (SM) 0 20 40 15 Percent reduction in enterprise risk exposure 0 10% 30% 5% 8% Change in company value ($M) 0 30 -2 30 Circle the statement(s) below that are true: A. Based on the information shown above, it appears that #2 is the best alternative. B. Based on the information shown above, it appears that #1 is the best alternative. C. IfX230, then #3 is the best alternative. 48