Risk Management Final Exam (2025) ||
Complete Questions & Solutions (100%
Verified)
define: objective risk - ANSWER - the relative variation of actual loss from expected loss
define: risk - ANSWER - uncertainty concerning the occurrence of loss
A phrase that encompasses all of the major risks faced by a business firm is - ANSWER
- enterprise risk
Enterprise risk includes financial risk (no answer) - ANSWER - Enterprise risk does not
include financial risk (no answer)
Financial risk is easily addressed through the purchase of insurance - ANSWER - ...
All of the following are considered financial risks EXCEPT
A) the decline in the value of a bond portfolio because of rising interest rates.
B) increased cost of production because of rising commodity prices.
C) loss of money because of adverse movements in currency exchange rates.
D) destruction of a production facility caused by an explosion. - ANSWER - D
Katelyn was just named Risk Manager of ABC Company. She has decided to create a
risk management program which considers all of the risks faced by ABC-pure,
speculative, operational, and strategic-in a single risk management program. Such a
program is called a(n) - ANSWER - enterprise risk management program
A pure risk is defined as a situation in which there is - ANSWER - only the possibility of
loss or no loss.
The premature death of an individual is an example of a - ANSWER - pure risk
Which of the following statements about speculative risks is true?
A) They are almost always insurable by private insurers.
B) They are more easily predictable than pure risks.
C) They may benefit society even though a loss occurs.
D) They involve only a chance of loss. - ANSWER - They may benefit society even
though a loss occurs
An automobile that is a total loss as a result of a collision is an example of which of the
following types of risk - ANSWER - Diversifiable risk
,All of the following are programs to insure fundamental risks EXCEPT
A) federally subsidized flood insurance. B) auto physical damage insurance.
C) Social Security. D) unemployment insurance. - ANSWER - B
All of the following are examples of personal risks EXCEPT
A) poor health. B) unemployment.
C) premature death. D) flood. - ANSWER - D
Why may premature death result in economic insecurity?
I. Additional expenses associated with death may be incurred.
II. The income of the deceased person's family may be inadequate to meet its basic
needs. - ANSWER - 1. Additional expenses associated with death may be incurred.
2. The income of the deceased person's family may be inadequate to meet its basic
needs.
What are consequences of long-term disability? - ANSWER - Continuing medical
expenses, and loss or reduction of employee benefits
Examples of direct property losses - ANSWER - the theft of a person's jewelry, the
destruction of a firm's manufacturing plant by an earthquake, the vandalism of a
person's automobile
The extra expense incurred by a business to stay in operation following a fire is an
example of a(n) - ANSWER - indirect loss
Future income and assets can be attached to pay judgments if inadequate insurance is
carried - ANSWER - statement about liability risks
examples of burdens to society because of the presence of risk - ANSWER - the size of
an emergency fund must be increased, Society is deprived of certain goods and
services, Mental fear and worry are present
Loss control includes what two things? - ANSWER - Loss reduction and loss prevention
Following good health habits can be categorized as - ANSWER - loss prevention
From the insured's perspective, the use of deductibles in insurance contracts is an
example of - ANSWER - risk retention
The use of fire-resistive materials when constructing a building is an example of -
ANSWER - loss control
All of the following statements about risk retention are true EXCEPT
A) It may be used intentionally if commercial insurance is unavailable.
B) It may be used passively because of ignorance.
, C) Its use is most appropriate for low-frequency, high-severity types of risks.
D) Its use results in cost savings if losses are less than the cost of insurance. -
ANSWER - C
methods of noninsurance transfer - ANSWER - entering into a hold-harmless
agreement, hedging risk using futures contracts, incorporating a business
Curt borrowed money from a bank to purchase a fishing boat. He purchased property
insurance on the boat. Curt had difficulty making loan payments because he did not
catch many fish, and fish prices were low. Curt intentionally sunk the boat, collected
from his insurer, and paid off the loan balance. This scenario illustrates the problem of -
ANSWER - moral hazard
Jenna opened a successful restaurant. One night, after the restaurant had closed, a fire
started when the electrical system malfunctioned. In addition to the physical damage to
the restaurant, Jenna also lost profits that could have been earned while the restaurant
was closed for repairs. The
lost profits are an example of - ANSWER - indirect loss
Brad started a pest control business. To protect his personal assets against liability
arising out of the business, Brad incorporated the business. Brad's use of the corporate
form of organization to shield against personal liability claims illustrates - ANSWER -
noninsurance transfer
ABC Insurance Company plans to sell homeowners insurance in five Western states.
ABC expects that 8 homeowners out of every 100, on average, will report claims each
year. The variation between the rate of loss that ABC expects to occur and the rate of
loss that actually does occur - ANSWER - objective risk
Tyndal Products Company produces cereal. The company has entered into contracts to
deliver 500,000 boxes of cereal during the next 18 months. The company is concerned
that the prices of
two ingredients, corn and wheat, may increase over the next 18 months. The company
used grain futures contracts to hedge the price risk associated with these commodities.
Tyndal's use of hedging illustrates which risk management technique? - ANSWER -
noninsurance transfer
Cathy's car hit a patch of ice on the road. The car skidded off the road and hit a tree.
The presence of ice on the road is best described as a(n) - ANSWER - physical hazard
Jim and Paula Franklin started a dry cleaning business. The business may be
successful or it may fail. The type of risk that is present when either a profit or loss could
occur is called - ANSWER - speculative risk
Complete Questions & Solutions (100%
Verified)
define: objective risk - ANSWER - the relative variation of actual loss from expected loss
define: risk - ANSWER - uncertainty concerning the occurrence of loss
A phrase that encompasses all of the major risks faced by a business firm is - ANSWER
- enterprise risk
Enterprise risk includes financial risk (no answer) - ANSWER - Enterprise risk does not
include financial risk (no answer)
Financial risk is easily addressed through the purchase of insurance - ANSWER - ...
All of the following are considered financial risks EXCEPT
A) the decline in the value of a bond portfolio because of rising interest rates.
B) increased cost of production because of rising commodity prices.
C) loss of money because of adverse movements in currency exchange rates.
D) destruction of a production facility caused by an explosion. - ANSWER - D
Katelyn was just named Risk Manager of ABC Company. She has decided to create a
risk management program which considers all of the risks faced by ABC-pure,
speculative, operational, and strategic-in a single risk management program. Such a
program is called a(n) - ANSWER - enterprise risk management program
A pure risk is defined as a situation in which there is - ANSWER - only the possibility of
loss or no loss.
The premature death of an individual is an example of a - ANSWER - pure risk
Which of the following statements about speculative risks is true?
A) They are almost always insurable by private insurers.
B) They are more easily predictable than pure risks.
C) They may benefit society even though a loss occurs.
D) They involve only a chance of loss. - ANSWER - They may benefit society even
though a loss occurs
An automobile that is a total loss as a result of a collision is an example of which of the
following types of risk - ANSWER - Diversifiable risk
,All of the following are programs to insure fundamental risks EXCEPT
A) federally subsidized flood insurance. B) auto physical damage insurance.
C) Social Security. D) unemployment insurance. - ANSWER - B
All of the following are examples of personal risks EXCEPT
A) poor health. B) unemployment.
C) premature death. D) flood. - ANSWER - D
Why may premature death result in economic insecurity?
I. Additional expenses associated with death may be incurred.
II. The income of the deceased person's family may be inadequate to meet its basic
needs. - ANSWER - 1. Additional expenses associated with death may be incurred.
2. The income of the deceased person's family may be inadequate to meet its basic
needs.
What are consequences of long-term disability? - ANSWER - Continuing medical
expenses, and loss or reduction of employee benefits
Examples of direct property losses - ANSWER - the theft of a person's jewelry, the
destruction of a firm's manufacturing plant by an earthquake, the vandalism of a
person's automobile
The extra expense incurred by a business to stay in operation following a fire is an
example of a(n) - ANSWER - indirect loss
Future income and assets can be attached to pay judgments if inadequate insurance is
carried - ANSWER - statement about liability risks
examples of burdens to society because of the presence of risk - ANSWER - the size of
an emergency fund must be increased, Society is deprived of certain goods and
services, Mental fear and worry are present
Loss control includes what two things? - ANSWER - Loss reduction and loss prevention
Following good health habits can be categorized as - ANSWER - loss prevention
From the insured's perspective, the use of deductibles in insurance contracts is an
example of - ANSWER - risk retention
The use of fire-resistive materials when constructing a building is an example of -
ANSWER - loss control
All of the following statements about risk retention are true EXCEPT
A) It may be used intentionally if commercial insurance is unavailable.
B) It may be used passively because of ignorance.
, C) Its use is most appropriate for low-frequency, high-severity types of risks.
D) Its use results in cost savings if losses are less than the cost of insurance. -
ANSWER - C
methods of noninsurance transfer - ANSWER - entering into a hold-harmless
agreement, hedging risk using futures contracts, incorporating a business
Curt borrowed money from a bank to purchase a fishing boat. He purchased property
insurance on the boat. Curt had difficulty making loan payments because he did not
catch many fish, and fish prices were low. Curt intentionally sunk the boat, collected
from his insurer, and paid off the loan balance. This scenario illustrates the problem of -
ANSWER - moral hazard
Jenna opened a successful restaurant. One night, after the restaurant had closed, a fire
started when the electrical system malfunctioned. In addition to the physical damage to
the restaurant, Jenna also lost profits that could have been earned while the restaurant
was closed for repairs. The
lost profits are an example of - ANSWER - indirect loss
Brad started a pest control business. To protect his personal assets against liability
arising out of the business, Brad incorporated the business. Brad's use of the corporate
form of organization to shield against personal liability claims illustrates - ANSWER -
noninsurance transfer
ABC Insurance Company plans to sell homeowners insurance in five Western states.
ABC expects that 8 homeowners out of every 100, on average, will report claims each
year. The variation between the rate of loss that ABC expects to occur and the rate of
loss that actually does occur - ANSWER - objective risk
Tyndal Products Company produces cereal. The company has entered into contracts to
deliver 500,000 boxes of cereal during the next 18 months. The company is concerned
that the prices of
two ingredients, corn and wheat, may increase over the next 18 months. The company
used grain futures contracts to hedge the price risk associated with these commodities.
Tyndal's use of hedging illustrates which risk management technique? - ANSWER -
noninsurance transfer
Cathy's car hit a patch of ice on the road. The car skidded off the road and hit a tree.
The presence of ice on the road is best described as a(n) - ANSWER - physical hazard
Jim and Paula Franklin started a dry cleaning business. The business may be
successful or it may fail. The type of risk that is present when either a profit or loss could
occur is called - ANSWER - speculative risk
