A firm decides not to conduct an activity because it does not want to face the exposure associated with it. Which named option best describes this decision?

### Why this is right The firm responds by not conducting the activity that creates the exposure. That is avoidance: the activity is removed rather than retained or transferred. ### The concept **Risk avoidance** is a response that prevents an exposure by stopping, declining, or not beginning the activity that gives rise to it. It differs from **risk acceptance**, where the activity or exposure remains and the decision-maker bears its consequences. It also differs from **risk transfer**, where another party agrees to take on some specified financial consequences. **Risk assessment** is a step in understanding a risk, not itself a response option. The source names these terms but gives no detailed decision rule, so the scenario tests their basic distinctions. ### The other options - **A. Risk acceptance**: The firm would retain the exposure, which conflicts with its decision not to conduct the activity. - **C. Risk transfer**: The firm would arrange for another party to take on agreed consequences, not stop the activity. - **D. Risk assessment**: This would involve examining the exposure, not selecting the response described. ### Terms - **Risk avoidance**: Removing an exposure by not undertaking the activity that creates it. - **Risk assessment**: Examining a risk to understand it; the source mentions this topic but gives no readable procedure. ### Remember If the activity is stopped to remove its exposure, think avoidance.