FCS 340 MONEY MANAGEMENT EXAM 4 ACTUAL TEST PAPER QUESTIONS CORRECT
ANSWERS GRADED A PLUS
Question:
Risk.
Answer:
uncertainty about the outcome of a situation or event.
Question:
Risk Management.
Answer:
process of identifying and evaluating purely risky situations to determine and implement appropriate
management.
Question:
Perils.
Answer:
any event that can cause a financial loss.
Question:
property insurance.
Answer:
protection from financial losses resulting from the damage to or destruction of your property or
possessions.
Question:
,liability insurance.
Answer:
protection from financial losses suffered when you are held liable for others' losses.
Question:
risk reduction.
Answer:
includes mechanisms, such as insurance that reduce the overall uncertainty about the magnitude of
loss.
Question:
risk retention.
Answer:
accepting that some risks simply arise in the course of one's life and consciously retaining that risk.
Question:
Risk avoidance.
Answer:
the simplest way to handle risk is to avoid it.
Question:
deductible clause.
Answer:
requires that the policyholder pays an initial portion of any loss.
Question:
loss control.
,Answer:
designing specific mechanisms to reduce loss frequency and loss severity.
Question:
large-loss principle.
Answer:
a basic rule of risk management that encourages us to insure the risks that we cannot afford and
retain the risks that we can reasonably afford.
Question:
distinguish between pure risk and speculative risk.
Answer:
pure risk exists when there is no potential for gains, only the possibilities of loss. speculative risk in
the other hand exists when there is a possibility of gains as well as for loss. Example: stock market
are speculative because you can either win or loss depending on the market. Insurance policy is a
pure risk because it will come up in the event of loss or destruction of possessions.
Question:
explain the distinctions between risk and odds.
Answer:
odds are based on ratio of things while risks are based on probabilities.
Question:
distinguish among the five common risk exposures that most people face.
Answer:
Risk avoidance, risk retention, loss control, risk transfer, and risk reduction.
Question:
, risk transfer.
Answer:
another way to handle risk is to transfer it to an insurance company.
Question:
Describe the 5 steps of risk management.
Answer:
1. Identify your risk exposure-what you own and what you do. 2- estimate your risk and potential
losses- how frequently you can have a loss and how severe it would be. 3- choose how to handle
your risk of loss- choose which one of the five exposures you can handle. 4- implement your risk
management program- what methods you will use to handle risk management. 5- evaluate and
adjust your program- life changes so the risks on it, periodically evaluate and check if your methods
are right for your current situation.
Question:
When considering likelihood of loss and severity of loss, explain which one of these two concepts is
more important when deciding whether to buy insurance and why.
Answer:
loss severity is most important because if a person is involved in an accident, the amount he has to
pay could be enormous because liability is more expensive.
Question:
insurance.
Answer:
mechanism for transferring and reducing pure risk though which a large number of individuals share
the financial losses suffered by members of the group as a whole.
Question:
premium.
ANSWERS GRADED A PLUS
Question:
Risk.
Answer:
uncertainty about the outcome of a situation or event.
Question:
Risk Management.
Answer:
process of identifying and evaluating purely risky situations to determine and implement appropriate
management.
Question:
Perils.
Answer:
any event that can cause a financial loss.
Question:
property insurance.
Answer:
protection from financial losses resulting from the damage to or destruction of your property or
possessions.
Question:
,liability insurance.
Answer:
protection from financial losses suffered when you are held liable for others' losses.
Question:
risk reduction.
Answer:
includes mechanisms, such as insurance that reduce the overall uncertainty about the magnitude of
loss.
Question:
risk retention.
Answer:
accepting that some risks simply arise in the course of one's life and consciously retaining that risk.
Question:
Risk avoidance.
Answer:
the simplest way to handle risk is to avoid it.
Question:
deductible clause.
Answer:
requires that the policyholder pays an initial portion of any loss.
Question:
loss control.
,Answer:
designing specific mechanisms to reduce loss frequency and loss severity.
Question:
large-loss principle.
Answer:
a basic rule of risk management that encourages us to insure the risks that we cannot afford and
retain the risks that we can reasonably afford.
Question:
distinguish between pure risk and speculative risk.
Answer:
pure risk exists when there is no potential for gains, only the possibilities of loss. speculative risk in
the other hand exists when there is a possibility of gains as well as for loss. Example: stock market
are speculative because you can either win or loss depending on the market. Insurance policy is a
pure risk because it will come up in the event of loss or destruction of possessions.
Question:
explain the distinctions between risk and odds.
Answer:
odds are based on ratio of things while risks are based on probabilities.
Question:
distinguish among the five common risk exposures that most people face.
Answer:
Risk avoidance, risk retention, loss control, risk transfer, and risk reduction.
Question:
, risk transfer.
Answer:
another way to handle risk is to transfer it to an insurance company.
Question:
Describe the 5 steps of risk management.
Answer:
1. Identify your risk exposure-what you own and what you do. 2- estimate your risk and potential
losses- how frequently you can have a loss and how severe it would be. 3- choose how to handle
your risk of loss- choose which one of the five exposures you can handle. 4- implement your risk
management program- what methods you will use to handle risk management. 5- evaluate and
adjust your program- life changes so the risks on it, periodically evaluate and check if your methods
are right for your current situation.
Question:
When considering likelihood of loss and severity of loss, explain which one of these two concepts is
more important when deciding whether to buy insurance and why.
Answer:
loss severity is most important because if a person is involved in an accident, the amount he has to
pay could be enormous because liability is more expensive.
Question:
insurance.
Answer:
mechanism for transferring and reducing pure risk though which a large number of individuals share
the financial losses suffered by members of the group as a whole.
Question:
premium.
