RISK PROFILE, RISK CAPACITY AND RISK APPETITE
Risk profile
The risk profile of a firm is the current exposure of the firm to the risks to its business objectives. The firm is of course able to adjust its risk profile through changing its business objectives and through further mitigating the risks.
Risk capacity
The business objectives of the firm are directly affected by the capacity of the firm for taking the risks that are part of its business objectives. If a firm has aggressive business objectives, but limited capital to support the risks to the objectives, it clearly has a capacity constraint. If this is the case, the risk profile of the firm must be reduced through amending the business objectives. This will then prompt a discussion about ...
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