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Question 1 of 10
1. Question
What is this type of risk, which is defined as uncertainty based on a person’s mental condition or state of mind?
Correct
The impact of subjective risk varies depending on the individual. If an individual experiences great mental uncertainty concerning the occurrence of loss, that person’s behavior may be affected. High subjective risk often results in conservative and prudent behavior, whereas low subjective risk may result in less conservative behavior.
Incorrect
The impact of subjective risk varies depending on the individual. If an individual experiences great mental uncertainty concerning the occurrence of loss, that person’s behavior may be affected. High subjective risk often results in conservative and prudent behavior, whereas low subjective risk may result in less conservative behavior.
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Question 2 of 10
2. Question
Non-diversifiable risk is a risk that affects the entire economy or large numbers of persons or groups within the economy. Which of the following scenarios are examples of non-diversifiable risk?
I. Premature death
II. Rapid inflation
III. Job-related accidents
IV. Cyclical unemploymentCorrect
Non-diversifiable risk cannot be eliminated or reduced by diversification. Examples include rapid inflation, cyclical unemployment, war, hurricanes, floods, and earthquakes because a large number of individuals or groups are affected.
Incorrect
Non-diversifiable risk cannot be eliminated or reduced by diversification. Examples include rapid inflation, cyclical unemployment, war, hurricanes, floods, and earthquakes because a large number of individuals or groups are affected.
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Question 3 of 10
3. Question
Indemnification is a characteristic of insurance, which means that the insured is restored to his or her approximate financial position before the occurrence of loss. Which of the following scenarios are examples of indemnification?
I. If your home burns in a fire, a homeowners policy will indemnify you or restore you to your previous position
II. If you are sued because of the negligent operation of an automobile, you will pay all the expenses
III. If you become seriously disabled, you can loan money from a bank to pay for the expenses
IV. If your home burns in a fire, you may borrow money from a mortgage firm to reconstruct your damaged homeCorrect
Other examples of indemnification include the following:
(1) If you are sued because of the negligent operation of an automobile, your auto liability insurance policy will pay those sums that you are legally obligated to pay.
(2) If you become seriously disabled, a disability-income insurance policy will restore at least part of the lost wages.Incorrect
Other examples of indemnification include the following:
(1) If you are sued because of the negligent operation of an automobile, your auto liability insurance policy will pay those sums that you are legally obligated to pay.
(2) If you become seriously disabled, a disability-income insurance policy will restore at least part of the lost wages. -
Question 4 of 10
4. Question
Private insurers generally insure only pure risks. However, some pure risks are not privately insurable. What are the ideal characteristics of an insurable risk?
I. There must be a large number of exposure units
II. The loss must be intentional
III. The loss must be immeasurable
IV. The loss should not be catastrophicCorrect
The six characteristics of an insurable risk include the following:
(1) There must be a large number of exposure units.
(2) The loss must be accidental and unintentional.
(3) The loss must be determinable and measurable.
(4) The loss should not be catastrophic.
(5) The chance of loss must be calculable.
(6) The premium must be economically feasible.Incorrect
The six characteristics of an insurable risk include the following:
(1) There must be a large number of exposure units.
(2) The loss must be accidental and unintentional.
(3) The loss must be determinable and measurable.
(4) The loss should not be catastrophic.
(5) The chance of loss must be calculable.
(6) The premium must be economically feasible. -
Question 5 of 10
5. Question
Risk Management has certain objectives before a loss occurs. Which of the following are pre-loss objectives?
I. Reduction of anxiety
II. Meeting legal obligations
III. Survival of the firm
IV. Continued operationsCorrect
Risk management objectives before a loss occur include the following:
(1) The first objective means that the firm should prepare for potential losses in the most economical way.
(2) The second objective is the reduction of anxiety.
(3) The final objective is to meet any legal obligations.Incorrect
Risk management objectives before a loss occur include the following:
(1) The first objective means that the firm should prepare for potential losses in the most economical way.
(2) The second objective is the reduction of anxiety.
(3) The final objective is to meet any legal obligations. -
Question 6 of 10
6. Question
What is this type of risk control technique, wherein a certain loss exposure is never acquired or undertaken, or existing loss exposure in abandoned?
Correct
The major advantage of avoidance is that the chance of loss is reduced to zero if the loss exposure is never acquired. Also, if an existing loss exposure is abandoned, the chance of loss is reduced or eliminated because the activity or product that could produce a loss has been abandoned.
Incorrect
The major advantage of avoidance is that the chance of loss is reduced to zero if the loss exposure is never acquired. Also, if an existing loss exposure is abandoned, the chance of loss is reduced or eliminated because the activity or product that could produce a loss has been abandoned.
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Question 7 of 10
7. Question
Risk financing refers to techniques that provide for the payment of losses after they occur. What are the major risk-financing techniques?
I. Retention
II. Non-insurance transfers
III. Non-commercial insurance
IV. Insurance transfersCorrect
The major risk-financing technique includes the following:
(1) Retention means that the firm retains part or all of the losses that can result from a given loss.
(2) Non-insurance transfers are methods other than insurance by which a pure risk and its potential financial consequences are transferred to another party.
(3) Commercial insurance is also used in a risk management program. Insurance is appropriate for loss exposures that have a low probability of loss, but the severity of the loss is high.Incorrect
The major risk-financing technique includes the following:
(1) Retention means that the firm retains part or all of the losses that can result from a given loss.
(2) Non-insurance transfers are methods other than insurance by which a pure risk and its potential financial consequences are transferred to another party.
(3) Commercial insurance is also used in a risk management program. Insurance is appropriate for loss exposures that have a low probability of loss, but the severity of the loss is high. -
Question 8 of 10
8. Question
Financial risk management refers to the identification, analysis, and treatment of speculative financial risks. Which of the following are speculative financial risks?
I. Commodity price risk
II. Interest rate risk
III. Dollar risk
IV. Economy riskCorrect
Speculative financial risks include the following:
(1) Commodity price risk is the risk of losing money if the price of commodity changes.
(2) Interest rate risk is the risk of loss caused by adverse interest rate movements.
(3) The currency exchange rate is the value for which one nation’s currency may be converted to another nation’s currency.Incorrect
Speculative financial risks include the following:
(1) Commodity price risk is the risk of losing money if the price of commodity changes.
(2) Interest rate risk is the risk of loss caused by adverse interest rate movements.
(3) The currency exchange rate is the value for which one nation’s currency may be converted to another nation’s currency. -
Question 9 of 10
9. Question
What is defined as a computerized database that permits the risk manager to store, update, and analyze risk management data and to use such data to predict and attempt to control future loss levels?
Correct
Risk management information systems have multiple uses. About property exposures, the database may include a listing of corporation’s properties and the characteristics of those properties, property insurance policies, coverage terms, loss records, a log of fleet vehicles, and other data.
Incorrect
Risk management information systems have multiple uses. About property exposures, the database may include a listing of corporation’s properties and the characteristics of those properties, property insurance policies, coverage terms, loss records, a log of fleet vehicles, and other data.
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Question 10 of 10
10. Question
What is this risk management tool, which is defined as grids detailing the potential frequency and severity of risks faced by the organization?
Correct
Construction of risk maps requires risk managers to analyze each risk that the organization faces before plotting it on the map. The use of risk maps varies from simply graphing the exposure to employing simulation analysis to estimate likely loss scenarios.
Incorrect
Construction of risk maps requires risk managers to analyze each risk that the organization faces before plotting it on the map. The use of risk maps varies from simply graphing the exposure to employing simulation analysis to estimate likely loss scenarios.