Operational Risk also includes ____ (I) ____, however excludes ____ (II) ____ and ____ (III) ____. (I) Residual Risk, (II) Legal Risk and (III) Strategic Risk (I) Strategic Risk, (II) Residual Risk and (III) Shariah Non-Compliance (I) Shariah Non-Compliance, (II) Strategic Risk and Residual Risk (I) Legal Risk, (II) Strategic Risk and (III) Shariah Non-Compliance
Answer (1)
Operational risk is a category of risk that focuses on potential losses stemming from failures in internal processes, people, systems, or from external events. It does not typically cover all types of risks a business might face, as some are categorized differently based on their unique nature.
To address the multiple-choice question provided:
Correct Choice : Operational Risk also includes Legal Risk (I) , however excludes Strategic Risk (II) and Shariah Non-Compliance (III) .
Legal Risk (I) : Legal risk is included in operational risk as it arises from potential legal or regulatory penalties and loss resulting from legal actions. It is part of operational risk because it is connected to the organization's operations.
Excludes Strategic Risk (II) : Strategic risk pertains to the potential loss that may arise from poor strategic business decisions, implementation, or adaptability to industry changes. This type of risk is usually excluded from operational risk as it is more aligned with overall business strategy rather than operational errors or failures.
Excludes Shariah Non-Compliance (III) : Shariah non-compliance is especially relevant to Islamic finance and refers to actions that do not comply with Shariah law. This is typically considered a separate category of risk for financial institutions working within Islamic rules.
Understanding operational risk is crucial for businesses to mitigate potential losses and create robust processes and systems that support sustainable operations. This knowledge can also help organizations align their operational strategies with regulatory expectations and industry standards.
