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,Introduction to Risk Management and Insurance 10th Edition Dorfman Test Bank
Introduction to Risk Management and Insurance, 10e (Dorfman/Cather)
Chapter 2 Risk Identification
1) The ultimate objective of ERM does not include the following:
A) hedge against a drop in the stock price of the firm
B) eliminate product recalls
C) minimize interruption in the firms supply chain
D) survival of the company
Answer: A
Diff: 2
2) Risk identification:
A) is something completely different from loss identification
B) is only relevant for firms making products that have moving parts
C) can lead to financial loss
D) is also called loss identification in the insurance industry
Answer: D
Diff: 2
3) Which of the following would not normally be identified in the risk identification process?
A) Property Risk
B) External Risk
C) Human Resource Risk
D) Pure Risk
Answer: B
Diff: 2
4) Which of the following is true about internal risks?
A) They deal with issues related to the operations of the firm.
B) They are harder to manage than external risks.
C) They are beyond the control of the risk manager.
D) They are more costly than external risks.
Answer: A
Diff: 2
5) Which of the following is true about external risks?
A) They deal with issues related to the operations of the firm.
B) They are beyond the control of the risk manager.
C) They are easier to manage than external risks.
D) They are predictable.
Answer: B
Diff: 2
1
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,6) Which of the following is true about pure risks?
A) The risk/return tradeoff is applicable to pure risks.
B) A firm cannot profit from its exposure to pure risk.
C) Risk managers must be tolerant of negative outcomes related to pure risks.
D) Pure risk is not a source of great concern for risk managers.
Answer: B
Diff: 2
7) Which of the following is true about speculative risks?
A) A firm cannot profit from its exposure to speculative risk.
B) The risk/return tradeoff is not applicable to speculative risks.
C) Risk managers must be tolerant of negative outcomes related to speculative risks.
D) Speculative risk is not a source of great concern for risk managers.
Answer: C
Diff: 2
8) Which of the following is true about direct losses?
A) Does not include smoke damage to a building
B) Is a non-financial loss
C) Has no direct liability consequences for the firm
D) Often is followed by an indirect loss due to business interruption
Answer: D
Diff: 1
9) Which of the following is true about indirect losses?
A) Includes smoke damage to a building
B) Is unrelated to business interruption
C) Often results as a consequence of a direct loss
D) Is a non-financial loss
Answer: C
Diff: 3
10) Which of the following is true about the relationship between direct and indirect losses?
A) The impact of indirect losses can be much bigger than the original direct loss.
B) They are unrelated events.
C) Direct losses are the result of an indirect loss due to business interruption.
D) Indirect losses are irrelevant compared to direct losses.
Answer: A
Diff: 2
2
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, 11) If a private elementary school having a single building were to lose the building in a tornado,
it is likely that the largest category of loss would be:
A) property taxes
B) indirect loss of income and continuing expenses until school returns to its normal status
C) liability loss
D) key personnel loss
Answer: B
Diff: 2
12) Which of the following is true about indirect losses?
A) A lawsuit is a good example of an indirect loss.
B) They can have a spill-over effect to other product lines.
C) They are only a result of significant property losses.
D) Indirect losses are irrelevant compared to direct losses.
Answer: B
Diff: 3
13) Which of the following is true about pure risks?
A) They are also known as hazard risks.
B) They are completely unrelated to hazard risks.
C) Are only recently being considered by risk managers.
D) Consist of Property and associated Human Resource risk only.
Answer: A
Diff: 2
14) Which of the following is an appropriate method for calculating the financial impact on the
firm that results from the loss of a key employee?
A) Research comparable salaries on employment data websites
B) Never let these employees be in the same building at the same time
C) A multiple of the key person's salary
D) Calculate the net present value of the future salary owed to the employee under his/her
existing employment contract
Answer: C
Diff: 2
15) Property Risk:
A) is an example of a speculative risk
B) is an example of an indirect risk
C) only relates to buildings
D) is an example of a pure risk
Answer: D
Diff: 2
3
Copyright © 2013 Pearson Education, Inc.
TEST BANK
,Introduction to Risk Management and Insurance 10th Edition Dorfman Test Bank
Introduction to Risk Management and Insurance, 10e (Dorfman/Cather)
Chapter 2 Risk Identification
1) The ultimate objective of ERM does not include the following:
A) hedge against a drop in the stock price of the firm
B) eliminate product recalls
C) minimize interruption in the firms supply chain
D) survival of the company
Answer: A
Diff: 2
2) Risk identification:
A) is something completely different from loss identification
B) is only relevant for firms making products that have moving parts
C) can lead to financial loss
D) is also called loss identification in the insurance industry
Answer: D
Diff: 2
3) Which of the following would not normally be identified in the risk identification process?
A) Property Risk
B) External Risk
C) Human Resource Risk
D) Pure Risk
Answer: B
Diff: 2
4) Which of the following is true about internal risks?
A) They deal with issues related to the operations of the firm.
B) They are harder to manage than external risks.
C) They are beyond the control of the risk manager.
D) They are more costly than external risks.
Answer: A
Diff: 2
5) Which of the following is true about external risks?
A) They deal with issues related to the operations of the firm.
B) They are beyond the control of the risk manager.
C) They are easier to manage than external risks.
D) They are predictable.
Answer: B
Diff: 2
1
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,6) Which of the following is true about pure risks?
A) The risk/return tradeoff is applicable to pure risks.
B) A firm cannot profit from its exposure to pure risk.
C) Risk managers must be tolerant of negative outcomes related to pure risks.
D) Pure risk is not a source of great concern for risk managers.
Answer: B
Diff: 2
7) Which of the following is true about speculative risks?
A) A firm cannot profit from its exposure to speculative risk.
B) The risk/return tradeoff is not applicable to speculative risks.
C) Risk managers must be tolerant of negative outcomes related to speculative risks.
D) Speculative risk is not a source of great concern for risk managers.
Answer: C
Diff: 2
8) Which of the following is true about direct losses?
A) Does not include smoke damage to a building
B) Is a non-financial loss
C) Has no direct liability consequences for the firm
D) Often is followed by an indirect loss due to business interruption
Answer: D
Diff: 1
9) Which of the following is true about indirect losses?
A) Includes smoke damage to a building
B) Is unrelated to business interruption
C) Often results as a consequence of a direct loss
D) Is a non-financial loss
Answer: C
Diff: 3
10) Which of the following is true about the relationship between direct and indirect losses?
A) The impact of indirect losses can be much bigger than the original direct loss.
B) They are unrelated events.
C) Direct losses are the result of an indirect loss due to business interruption.
D) Indirect losses are irrelevant compared to direct losses.
Answer: A
Diff: 2
2
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, 11) If a private elementary school having a single building were to lose the building in a tornado,
it is likely that the largest category of loss would be:
A) property taxes
B) indirect loss of income and continuing expenses until school returns to its normal status
C) liability loss
D) key personnel loss
Answer: B
Diff: 2
12) Which of the following is true about indirect losses?
A) A lawsuit is a good example of an indirect loss.
B) They can have a spill-over effect to other product lines.
C) They are only a result of significant property losses.
D) Indirect losses are irrelevant compared to direct losses.
Answer: B
Diff: 3
13) Which of the following is true about pure risks?
A) They are also known as hazard risks.
B) They are completely unrelated to hazard risks.
C) Are only recently being considered by risk managers.
D) Consist of Property and associated Human Resource risk only.
Answer: A
Diff: 2
14) Which of the following is an appropriate method for calculating the financial impact on the
firm that results from the loss of a key employee?
A) Research comparable salaries on employment data websites
B) Never let these employees be in the same building at the same time
C) A multiple of the key person's salary
D) Calculate the net present value of the future salary owed to the employee under his/her
existing employment contract
Answer: C
Diff: 2
15) Property Risk:
A) is an example of a speculative risk
B) is an example of an indirect risk
C) only relates to buildings
D) is an example of a pure risk
Answer: D
Diff: 2
3
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