CFA Investment Practice Exam

The strategy that focuses on tolerating certain risks within an organization is referred to as a toleration strategy. This approach acknowledges that not all risks can or should be eliminated or transferred and involves accepting the potential negative impacts associated with certain risks while maintaining the organization's overall risk profile.

Organizations may choose to tolerate risks when the cost of mitigating them outweighs the potential loss that could be incurred. This is often seen in situations where the risks are low-impact or when the organization has resources and strategies in place to recover from the potential adverse effects.

In this context, tolerating risks allows organizations to operate more flexibly and focus on their core activities without becoming overly conservative. It is essential for organizations to assess their risk appetite and make informed decisions regarding which risks to tolerate, ensuring they align with their overall strategic objectives.