Assignment:
The CEO of Merlion Holdings, a large diversified conglomerate, is keen to enhance shareholder value using an enterprise risk management framework. You are asked to assist senior management to quantify and manage the risk-return tradeoff for the entire firm. Specifically, the CEO wants to know which risks to retain and which risks to lay off and how to decentralize the risk-return trade-off decisions within the company. Which of the following statements is/are correct?
I. Management should retain strategic and business risks in which the company has a comparative advantage but diversify risks that can be hedged inexpensively through the capital markets.
II. When proposing new projects, business unit managers must evaluate all major risks in the context of the marginal impact of the project on the firm's total risk.
a. Statement I only
b. Statement II only
c. Both statements are correct
d. Both statements are incorrect