The correct answer is: C. A & B correct.
Risk financing is the process of managing the financial consequences of risk. It includes two main strategies: risk retention and risk transfer.
Risk retention is the decision to keep the financial consequences of a loss if it occurs. This can be done by setting aside funds to cover potential losses, or by self-insuring.
Risk transfer is the decision to shift the financial consequences of a loss to another party. This can be done by purchasing insurance, or by entering into a risk-sharing agreement with another party.
Both risk retention and risk transfer are important tools for managing risk. The best approach for a particular organization will depend on the nature of the risks it faces, its financial resources, and its risk tolerance.
Here is a brief explanation of each option:
- Option A: Risk Retention. Risk retention is the decision to keep the financial consequences of a loss if it occurs. This can be done by setting aside funds to cover potential losses, or by self-insuring.
- Option B: Risk Transfer. Risk transfer is the decision to shift the financial consequences of a loss to another party. This can be done by purchasing insurance, or by entering into a risk-sharing agreement with another party.
- Option C: A & B correct. Both risk retention and risk transfer are important tools for managing risk. The best approach for a particular organization will depend on the nature of the risks it faces, its financial resources, and its risk tolerance.
- Option D: None of the above. This option is incorrect because it does not include all of the possible answers.