fin 341 final UPDATED ACTUAL Questions And Correct Answers
Terms in this set (152)
Risk uncertainty concerning the occurrence of a loss
insurance definition of risk used to identify the property or life that is being considered for insurance
loss exposure any situation or circumstance in which a loss is possible, regardless of whether a
loss occurs
objective risk the relative variation of actual loss from expected loss
Subjective (perceived) risk uncertainty based on a person's mental condition or state of mind
Chance of Loss vs. Objective Risk The chance of loss may be identical for two different groups, but objective risk
may be quite different
peril cause of loss
hazard a condition that increases the chance of loss
Physical Hazard a physical condition that increases the frequency or severity of loss
Moral Hazard dishonesty or character defects in an individual that increase the frequency or
severity of loss
Attitudinal Hazard carelessness or indifference to a loss, which increases the frequency or severity of
a loss
Legal Hazard refers to characteristics of the legal system or regulatory environment that
increase the frequency or severity of losses
Pure Risk A situation in which there are only the possibilities of loss or no loss ex.
earthquake
Speculative Risk is a situation in which either profit or loss is possible (gambling)
diversifiable risk affects only individuals or small groups (car theft). It is also called nonsystematic
or particular risk.
nondiversifiable risk affects the entire economy or large numbers of persons or groups within the
economy (hurricane). It is also called systematic risk or fundamental risk.
Enterprise Risk encompasses all major risks faced by a business firm, which include: pure risk,
speculative risk, strategic risk, operational risk, and financial risk
Strategic Risk refers to uncertainty regarding the firm's financial goals and objectives
, Operational Risk results from the firm's business operations
financial risk uncertainty of loss because of adverse changes in commodity prices, interest
rates, foreign exchange rates, and the value of money
systemic risk is the risk of collapse of an entire system or entire market due to the failure of a
single entity or group of entities that can result in the breakdown of the entire
financial system
Direct Loss vs. Indirect Loss A direct loss is a financial loss that results from the physical damage, destruction,
or theft of the property, such as fire damage to a home
An indirect or consequential loss is a financial loss that results indirectly from the
occurrence of a direct physical damage or theft loss, e.g., the additional living
expenses after a fire
Liability Risk involve the possibility of being held legally liable for bodily injury or property
damage to someone else
lien can be placed on your income and financial assets
Major Commercial Risks property risks, liability risks, loss of business income, other risks
indirect losses account for more losses during something drastic opposed to indirect losses ex.
9/11
observable outlays to reduce risk, expenses from financing potential losses, cost of
unreimbursed losses (insurance premiums)
cost of risk = sum of: outlays to reduce risk, expenses from financing potential losses, cost of
unreimbursed losses (insurance premiums), opportunity costs
Risk Control refers to techniques that reduce the frequency or severity of losses:
-avoidance
-loss prevention
Loss Reduction Activities to reduce the severity of losses
-Duplication
-Separation
-Diversification
Risk Financing refers to techniques that provide for payment of losses after they occur
retention means that an individual or business firm retains part or all of the losses that can
result from a given risk
active retention individual is aware of the risk and deliberately plans to retain all or part of it
Passive Retention risks may be unknowingly retained because of ignorance, indifference, or laziness
Terms in this set (152)
Risk uncertainty concerning the occurrence of a loss
insurance definition of risk used to identify the property or life that is being considered for insurance
loss exposure any situation or circumstance in which a loss is possible, regardless of whether a
loss occurs
objective risk the relative variation of actual loss from expected loss
Subjective (perceived) risk uncertainty based on a person's mental condition or state of mind
Chance of Loss vs. Objective Risk The chance of loss may be identical for two different groups, but objective risk
may be quite different
peril cause of loss
hazard a condition that increases the chance of loss
Physical Hazard a physical condition that increases the frequency or severity of loss
Moral Hazard dishonesty or character defects in an individual that increase the frequency or
severity of loss
Attitudinal Hazard carelessness or indifference to a loss, which increases the frequency or severity of
a loss
Legal Hazard refers to characteristics of the legal system or regulatory environment that
increase the frequency or severity of losses
Pure Risk A situation in which there are only the possibilities of loss or no loss ex.
earthquake
Speculative Risk is a situation in which either profit or loss is possible (gambling)
diversifiable risk affects only individuals or small groups (car theft). It is also called nonsystematic
or particular risk.
nondiversifiable risk affects the entire economy or large numbers of persons or groups within the
economy (hurricane). It is also called systematic risk or fundamental risk.
Enterprise Risk encompasses all major risks faced by a business firm, which include: pure risk,
speculative risk, strategic risk, operational risk, and financial risk
Strategic Risk refers to uncertainty regarding the firm's financial goals and objectives
, Operational Risk results from the firm's business operations
financial risk uncertainty of loss because of adverse changes in commodity prices, interest
rates, foreign exchange rates, and the value of money
systemic risk is the risk of collapse of an entire system or entire market due to the failure of a
single entity or group of entities that can result in the breakdown of the entire
financial system
Direct Loss vs. Indirect Loss A direct loss is a financial loss that results from the physical damage, destruction,
or theft of the property, such as fire damage to a home
An indirect or consequential loss is a financial loss that results indirectly from the
occurrence of a direct physical damage or theft loss, e.g., the additional living
expenses after a fire
Liability Risk involve the possibility of being held legally liable for bodily injury or property
damage to someone else
lien can be placed on your income and financial assets
Major Commercial Risks property risks, liability risks, loss of business income, other risks
indirect losses account for more losses during something drastic opposed to indirect losses ex.
9/11
observable outlays to reduce risk, expenses from financing potential losses, cost of
unreimbursed losses (insurance premiums)
cost of risk = sum of: outlays to reduce risk, expenses from financing potential losses, cost of
unreimbursed losses (insurance premiums), opportunity costs
Risk Control refers to techniques that reduce the frequency or severity of losses:
-avoidance
-loss prevention
Loss Reduction Activities to reduce the severity of losses
-Duplication
-Separation
-Diversification
Risk Financing refers to techniques that provide for payment of losses after they occur
retention means that an individual or business firm retains part or all of the losses that can
result from a given risk
active retention individual is aware of the risk and deliberately plans to retain all or part of it
Passive Retention risks may be unknowingly retained because of ignorance, indifference, or laziness
