Which scenario would involve transferring the risk to a third party?

• A. Accept the risk
• B. Mitigate the risk internally
• C. Avoid the risk
• D. Transfer the risk to a third party

Answer: (D)

Risk transfer is about shifting the potential loss to another party, typically through insurance or a contractual arrangement. The scenario that fits this is when a mechanism is used to have someone else bear the financial consequences if something goes wrong—for example, buying insurance or including an indemnification clause in a contract. This moves the liability to the third party rather than you absorbing it yourself. In contrast, accepting the risk means you bear it, mitigating means reducing the risk internally, and avoiding means not engaging in the activity at all.