Risk management objective & risk management strategy
Explain the relationship between risk management objective and risk management strategy of an entity.
The risk management strategy of an entity should be distinguished from its risk management objective. The risk management strategy is established at the highest level at which an entity determines how it manages its risk. The risk management strategy is normally in place for a longer period of time. However, it may include some flexibility to react to changes in circumstances even while the strategy is in place. The risk management strategy is usually documented at the highest level with guidance on the policies to be pursued for implementing the strategy. The risk management objective is applied for every hedging relationship which dovetails into the risk management strategy of the enterprise. The risk management objective specifies how a particular hedging instrument that has been designated is used to hedge a particular exposure of the corresponding hedged item. A risk management strategy may have multiple hedging relationships whose risk management objectives relate to executing that overall risk management strategy.
