What do risk limits refer to in an organization?

Risk limits in an organization are predefined thresholds for controlling risk. They serve as critical parameters that help ensure the organization operates within its established risk appetite and tolerance levels. By setting these limits, the organization can effectively manage potential losses and mitigate exposure to excessive risk in various activities, such as trading, lending, or investment.

These limits are essential for maintaining the stability and sustainability of an organization, as they provide a framework for decision-making and risk assessment. When risk-taking exceeds these predefined thresholds, it may trigger a review or intervention, helping the organization avoid significant financial distress or losses.

The other options relate to different aspects of organizational management. For instance, targets for investment returns focus more on performance outcomes rather than risk management. Standards for employee performance address individual contributions and efficiency, while guidelines for ethical behavior pertain to moral conduct within the organization, none of which specifically relate to the control and management of risk.