RMIN 4000 Exam Questions and Answers 100% Verified
Risk - ANSWER-Uncertainty concerning the occurrence of a loss
Loss exposure - ANSWER-any situation or circumstance in which a loss might occur (regardless of if it happens or not)
- ex: When we think about if we might get sick.. my body is the exposure. If I have a business and 10 buildings.. My buildings are exposures.
Objective risk - ANSWER-relative variation of actual loss from expected loss.
Law of large numbers - ANSWER-as the # of exposures increases the more closely the actual loss will get to the expected.
Pure risk - ANSWER-there's no up-side to the risk (nothing good comes from it), chance
of loss or chance of no loss
Speculative risk - ANSWER-There is a chance for a win or a gain, you're creating a risk.
Ex: golden balls (split or steal) or gambling or buying a house - when we go to sell it, there could be a gain or a sell.
Subjective risk - ANSWER-uncertainity based on a person's mental condition or state of mind. How we feel about the loss.
Ex:$500 is different for a poor person and a rich person
- sister's afraid of water and atkinson is afraid of ziplining
- the risks are the same, but affects them differently (different way of handling it)
Chance of loss - ANSWER-the probability that an event will occur
Objective probability - ANSWER-the long-run relative frequency of an event based on the assumptions of an infinite # of observations and no change in underlying conditions
Subjective probability - ANSWER-the individual's personal estimate of the chance of loss.
Ex: sending annthrax in the mail. - this cost companies a lot of money, when in reality only 5 letters were actually sent with annthrax in them. - so this probably wasn't a huge risk, but it was in light of 9/11 Risk Averse - ANSWER-Avoid Risk if and when possible. Will pay extra to remove risk from a set of outcomes.
Risk is scary
Risk Seeker / Taker - ANSWER-Enjoys risk. Will "gamble" on a big payout and not take many precautions (would not pay anywhere close to expected loss) to avoid risk.
Risk Tolerant / Risk Neutral - ANSWER-- Risk is just right. Will evaluate risk and will strive to "pay" no more or less than the expected loss to avoid the risk.
- The value of risky situation is the expected loss
Peril - ANSWER-the cause of loss
Hazard - ANSWER-a condition that creates or increases the frequency or severity of loss. 4 main types: physical, moral, attitudinal, legal
Physical hazard - ANSWER-- physical condition that increases the frequency or severity
of loss
- ex: icy roads, defective wiring
Moral Hazard - ANSWER-- dishonesty or character defects in an individual that increases the frequency or severity of loss
- ex: insurance fraud, burning down own house to collect
Morale hazard - ANSWER-- carelessness or indifference to a loss, which increases the frequency or severity of loss
- ex: leaving keys in unlocked car, leaving door unlocked
Legal hazard - ANSWER-- characteristics of legal system or regulatory environment that
increase the frequency or severity of loss
- ex: large damage rewards in liability lawsuits
Particular/Diversifiable Risk - ANSWER-A risk that affects only individuals as individuals.
Fundamental/Systematic/Non-diversifiable Risk - ANSWER-Risk that affects a large number of individuals or the entire economy.
Risk Management - ANSWER-A process that identifies loss exposure faced by an organization and selects the most appropriate techniques for treating such exposures.
Enterprise Risk Management (ERM) - ANSWER-combines into a single unified treatment program all major risks faced by the firm
Risk - ANSWER-Uncertainty concerning the occurrence of a loss
Loss exposure - ANSWER-any situation or circumstance in which a loss might occur (regardless of if it happens or not)
- ex: When we think about if we might get sick.. my body is the exposure. If I have a business and 10 buildings.. My buildings are exposures.
Objective risk - ANSWER-relative variation of actual loss from expected loss.
Law of large numbers - ANSWER-as the # of exposures increases the more closely the actual loss will get to the expected.
Pure risk - ANSWER-there's no up-side to the risk (nothing good comes from it), chance
of loss or chance of no loss
Speculative risk - ANSWER-There is a chance for a win or a gain, you're creating a risk.
Ex: golden balls (split or steal) or gambling or buying a house - when we go to sell it, there could be a gain or a sell.
Subjective risk - ANSWER-uncertainity based on a person's mental condition or state of mind. How we feel about the loss.
Ex:$500 is different for a poor person and a rich person
- sister's afraid of water and atkinson is afraid of ziplining
- the risks are the same, but affects them differently (different way of handling it)
Chance of loss - ANSWER-the probability that an event will occur
Objective probability - ANSWER-the long-run relative frequency of an event based on the assumptions of an infinite # of observations and no change in underlying conditions
Subjective probability - ANSWER-the individual's personal estimate of the chance of loss.
Ex: sending annthrax in the mail. - this cost companies a lot of money, when in reality only 5 letters were actually sent with annthrax in them. - so this probably wasn't a huge risk, but it was in light of 9/11 Risk Averse - ANSWER-Avoid Risk if and when possible. Will pay extra to remove risk from a set of outcomes.
Risk is scary
Risk Seeker / Taker - ANSWER-Enjoys risk. Will "gamble" on a big payout and not take many precautions (would not pay anywhere close to expected loss) to avoid risk.
Risk Tolerant / Risk Neutral - ANSWER-- Risk is just right. Will evaluate risk and will strive to "pay" no more or less than the expected loss to avoid the risk.
- The value of risky situation is the expected loss
Peril - ANSWER-the cause of loss
Hazard - ANSWER-a condition that creates or increases the frequency or severity of loss. 4 main types: physical, moral, attitudinal, legal
Physical hazard - ANSWER-- physical condition that increases the frequency or severity
of loss
- ex: icy roads, defective wiring
Moral Hazard - ANSWER-- dishonesty or character defects in an individual that increases the frequency or severity of loss
- ex: insurance fraud, burning down own house to collect
Morale hazard - ANSWER-- carelessness or indifference to a loss, which increases the frequency or severity of loss
- ex: leaving keys in unlocked car, leaving door unlocked
Legal hazard - ANSWER-- characteristics of legal system or regulatory environment that
increase the frequency or severity of loss
- ex: large damage rewards in liability lawsuits
Particular/Diversifiable Risk - ANSWER-A risk that affects only individuals as individuals.
Fundamental/Systematic/Non-diversifiable Risk - ANSWER-Risk that affects a large number of individuals or the entire economy.
Risk Management - ANSWER-A process that identifies loss exposure faced by an organization and selects the most appropriate techniques for treating such exposures.
Enterprise Risk Management (ERM) - ANSWER-combines into a single unified treatment program all major risks faced by the firm
