Certified Financial Management Specialist Practice Exam

Which type of risk affects long-term goals and objectives?

1. Strategic Risk

2. Operational Risk

3. Market Risk

4. Credit Risk

The correct answer is: Strategic Risk

Strategic risk is inherently tied to the long-term goals and objectives of an organization. This type of risk arises from the decisions that affect the overall direction and sustainability of a business. When a company sets long-term goals, it must consider various factors such as market trends, competition, and regulatory changes, all of which can influence its strategic path. If an organization misjudges these factors, it can lead to significant setbacks in achieving its long-term vision and performance goals. Strategic risk encompasses elements such as failing to adapt to changing markets or misallocating resources towards initiatives that do not align with the company's overall strategy. As organizations face evolving landscapes, the need for sound strategic decision-making becomes crucial. This is particularly important for long-term objectives, where the implications of strategic missteps can take years to rectify, impacting the organization’s growth and competitiveness. In contrast, operational risk deals more with the day-to-day functioning and internal processes of an organization, market risk pertains to fluctuations in markets that affect the value of investments, and credit risk relates to the potential of a borrower failing to meet obligations. While all these risks are important, they do not have the same direct impact on long-term strategic objectives as strategic risk does.