Funded risk assumption:
A) is typically done through a subsidiary on Bermuda or the Cayman Islands
B) increases moral hazard for the firm
C) is when a firm assumes by creating a liquid or near liquid cash reserve
D) is a form of risk transfer

Question

Quizplus · Accepted Answer

Funded risk assumption is when a firm creates a liquid or near-liquid cash reserve to cover potential losses. This is different from unfunded risk assumption, where a firm simply accepts the risk without taking any action to mitigate it. Funded risk assumption can be a useful risk management tool, as it allows firms to offset the costs of potential losses while still retaining some control over the risks they are taking on.

Funded Risk Assumption