Choice "B" is correct. Inherent risk is the risk to an entity in the absence of any actions management might take to alter either the risk's likelihood or impact. The $10 million exposure identified in the problem is the risk exposure without management's intervention.
Choice "d" is incorrect. The inherent risk is not the sum of the inherent risk of $10 million and the residual risk of $4 million.
Choice "a" is incorrect. The inherent risk is not the difference between the inherent risk of $10 million and the residual risk of $4 million.
Choice "c" is incorrect. The $4 million risk exposure, after management purchases the hedge, is the residual risk. Residual risk is the risk that remains after management responds to the risk.