Describe the four ways that management can use to respond to risk. Provide an example for each of them.

Management can respond to risk in one of four ways: (1) Reduce the likelihood and impact of risk by implementing an effective system of internal controls. (2) Accept the likelihood and impact of the risk. (3) Share risk or transfer it to someone else by buying insurance, outsourcing an activity,
or entering into hedging transactions. (4) Avoid risk by not engaging in the activity that produces the risk. This may require the company to sell a division, exit a product line, or not expand as anticipated. Students' answers may vary depending on examples they used.

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