1. Which of the following is a financial risk?
A. Slips and falls at a workplace
B. Poor decision-making by managers leading to losses
C. A hurricane damaging property
D. A worker getting injured on the job
Answer: B) Poor decision-making by managers leading to losses
Rationale: Financial risk refers to risks that arise from financial
decisions, such as poor management of resources, leading to potential
losses. (quizlet.com)
2. What is the main characteristic of a speculative risk?
A. The risk can only result in a loss
B. The risk involves both a potential gain and a loss
C. The risk cannot be insured
D. The risk is controllable through safety measures
Answer: B) The risk involves both a potential gain and a loss
Rationale: Speculative risks involve scenarios where there is a
possibility of both gain and loss, unlike pure risks, which only involve
the possibility of loss. (quizlet.com)
3. Which of the following is an example of an event that may trigger a
financial risk?
A. The failure of a new product launch due to poor market reception
,B. A natural disaster causing physical property damage
C. A worker’s compensation claim for an injured employee
D. A change in labor laws affecting operational costs
Answer: A) The failure of a new product launch due to poor market
reception
Rationale: Financial risks arise from business activities like poor
investments or financial decisions, such as the failure of a product
launch. (quizlet.com)
4. Which of the following is an example of an operational risk?
A. A decrease in stock prices due to market conditions
B. A data breach resulting from inadequate cybersecurity measures
C. A change in tax law
D. A natural disaster affecting operations
Answer: B) A data breach resulting from inadequate cybersecurity
measures
Rationale: Operational risks arise from failures in internal processes,
systems, or people, such as cybersecurity breaches. (quizlet.com)
5. What type of risk management strategy involves planning for
potential future losses?
A. Risk identification
B. Risk retention
C. Risk forecasting
D. Risk avoidance
, Answer: C) Risk forecasting
Rationale: Risk forecasting involves anticipating potential future losses
and developing strategies to address them proactively. (stuvia.com)
6. In what situation would a risk management strategy typically choose
risk avoidance?
A. When the potential loss is high but the likelihood of occurrence is
low
B. When the frequency of loss is high and the severity is low
C. When the risk can be completely eliminated by not engaging in
certain activities
D. When transferring the risk to an insurance company is too
expensive
Answer: C) When the risk can be completely eliminated by not
engaging in certain activities
Rationale: Risk avoidance is chosen when the risk can be completely
eliminated by avoiding the activity or situation that creates the risk.
(stuvia.com)
7. What is reinsurance and why is it used?
A. A method of transferring risk to another insurance company to
manage large claims
B. A process of eliminating all risks from an insurance portfolio
C. A strategy to increase the frequency of claims
D. A way to reduce the severity of individual claims
A. Slips and falls at a workplace
B. Poor decision-making by managers leading to losses
C. A hurricane damaging property
D. A worker getting injured on the job
Answer: B) Poor decision-making by managers leading to losses
Rationale: Financial risk refers to risks that arise from financial
decisions, such as poor management of resources, leading to potential
losses. (quizlet.com)
2. What is the main characteristic of a speculative risk?
A. The risk can only result in a loss
B. The risk involves both a potential gain and a loss
C. The risk cannot be insured
D. The risk is controllable through safety measures
Answer: B) The risk involves both a potential gain and a loss
Rationale: Speculative risks involve scenarios where there is a
possibility of both gain and loss, unlike pure risks, which only involve
the possibility of loss. (quizlet.com)
3. Which of the following is an example of an event that may trigger a
financial risk?
A. The failure of a new product launch due to poor market reception
,B. A natural disaster causing physical property damage
C. A worker’s compensation claim for an injured employee
D. A change in labor laws affecting operational costs
Answer: A) The failure of a new product launch due to poor market
reception
Rationale: Financial risks arise from business activities like poor
investments or financial decisions, such as the failure of a product
launch. (quizlet.com)
4. Which of the following is an example of an operational risk?
A. A decrease in stock prices due to market conditions
B. A data breach resulting from inadequate cybersecurity measures
C. A change in tax law
D. A natural disaster affecting operations
Answer: B) A data breach resulting from inadequate cybersecurity
measures
Rationale: Operational risks arise from failures in internal processes,
systems, or people, such as cybersecurity breaches. (quizlet.com)
5. What type of risk management strategy involves planning for
potential future losses?
A. Risk identification
B. Risk retention
C. Risk forecasting
D. Risk avoidance
, Answer: C) Risk forecasting
Rationale: Risk forecasting involves anticipating potential future losses
and developing strategies to address them proactively. (stuvia.com)
6. In what situation would a risk management strategy typically choose
risk avoidance?
A. When the potential loss is high but the likelihood of occurrence is
low
B. When the frequency of loss is high and the severity is low
C. When the risk can be completely eliminated by not engaging in
certain activities
D. When transferring the risk to an insurance company is too
expensive
Answer: C) When the risk can be completely eliminated by not
engaging in certain activities
Rationale: Risk avoidance is chosen when the risk can be completely
eliminated by avoiding the activity or situation that creates the risk.
(stuvia.com)
7. What is reinsurance and why is it used?
A. A method of transferring risk to another insurance company to
manage large claims
B. A process of eliminating all risks from an insurance portfolio
C. A strategy to increase the frequency of claims
D. A way to reduce the severity of individual claims
