ole miss fin 341 test 1 leinbenberg UPDATED ACTUAL Questions And Correct
Answers
Terms in this set (96)
Financial Risk Management identification, analysis, and treatment of speculative financial risks
Commodity price risk the risk of losing money if the price of a commodity changes
Interest rate risk risk of loss caused by adverse interest rate movements
Currency exchange risk rate risk of loss value caused by changes in the rate at which one nation's currency
may be converted to another nation's currency
Integrated Risk Program risk treatment technique that combines coverage for pure and speculative risks in
the same contract
Enterprise Risk Management comprehensive risk management program that addresses an organization's pure
risks, speculative risks, strategic risks, and operational risks
Strategic Risk refers to uncertainty regarding an organization's goals and objectives, and the
organization's strengths, weaknesses, opportunities, and threats
Operational Risks develop out of business operations, including the manufacture and distribution of
products and providing services to customers
Terrorism Risk can be addressed through risk control and insurance
Insurance brokers intermediaries who represent insurance purchasers, offer an array of services to
their clients, including attempting to place their clients' business with others
Securitization of risk insurable risk is transferred to the capital markers through creation of a financial
instrument, such as catastrophe bond, futures contract, options contract, or other
financial instrument
Catastrophe bond corporate bonds that permit the issuer to skip or defer scheduled payments if a
catastrophic loss occurs
Insurance option option that derives value from specific insurable losses or from an index of values
Weather option provides payment if a specified weather contingency occurs
Risk uncertainty concerning the occurrence of a loss
Loss Exposure any situation or circumstance in which a loss is possible, regardless of whether a
loss occurs
Objective (degree) Risk the relative variation of actual loss from expected loss; observable and
measurable; declines as the number increases
, Law of large numbers as the number of exposure units increases, the more closely the actual loss
experience will approach the expected loss experience
Subjective risk uncertainty based on a person's mental condition or state of mind; difficult to
measure
Chance of loss the probability that an event will occur
Peril cause of loss
Hazard creates or increases frequency or severity of loss
Physical hazard physical condition that increases the frequency or severity of loss
Example of physical hazard icy roads increasing the chance of auto accident
Moral hazard dishonesty or character defects in an individual that increase the frequency or
severity of loss
Example of moral hazard faking an accident to collect from an insurer
Attitudinal (morale) hazard carelessness or indifference to a loss, which increases the frequency or severity of
a loss
Attitudinal (morale) hazard example leaving car keys in an unlocked car, which increases the chance of theft
Legal hazard characteristics of a legal system or regulatory environment that increase the
frequency or severity of losses
Legal hazard example large damage awards in liability lawsuits
Diversifiable (particular) risk affects only individuals or small groups and not the entire economy, can be
reduced or eliminated by diversification
Diversifiable risk example car theft, robbery
Nondiversifiable (fundamental) risk affects the entire economy or large numbers of persons or groups within the
economy, can't be reduced or eliminated by diversification; government
assistance may be necessary
Nondiversifiable (fundamental) risk example rapid inflation, war, hurricanes, floods, earthquakes
Enterprise risk encompasses all major risks faced by a business firm such as pure, speculative,
strategic, operational, and financial
Strategic risk uncertainty regarding the firm's financial goals and objectives
Operational risk results from the firm's business operations
Answers
Terms in this set (96)
Financial Risk Management identification, analysis, and treatment of speculative financial risks
Commodity price risk the risk of losing money if the price of a commodity changes
Interest rate risk risk of loss caused by adverse interest rate movements
Currency exchange risk rate risk of loss value caused by changes in the rate at which one nation's currency
may be converted to another nation's currency
Integrated Risk Program risk treatment technique that combines coverage for pure and speculative risks in
the same contract
Enterprise Risk Management comprehensive risk management program that addresses an organization's pure
risks, speculative risks, strategic risks, and operational risks
Strategic Risk refers to uncertainty regarding an organization's goals and objectives, and the
organization's strengths, weaknesses, opportunities, and threats
Operational Risks develop out of business operations, including the manufacture and distribution of
products and providing services to customers
Terrorism Risk can be addressed through risk control and insurance
Insurance brokers intermediaries who represent insurance purchasers, offer an array of services to
their clients, including attempting to place their clients' business with others
Securitization of risk insurable risk is transferred to the capital markers through creation of a financial
instrument, such as catastrophe bond, futures contract, options contract, or other
financial instrument
Catastrophe bond corporate bonds that permit the issuer to skip or defer scheduled payments if a
catastrophic loss occurs
Insurance option option that derives value from specific insurable losses or from an index of values
Weather option provides payment if a specified weather contingency occurs
Risk uncertainty concerning the occurrence of a loss
Loss Exposure any situation or circumstance in which a loss is possible, regardless of whether a
loss occurs
Objective (degree) Risk the relative variation of actual loss from expected loss; observable and
measurable; declines as the number increases
, Law of large numbers as the number of exposure units increases, the more closely the actual loss
experience will approach the expected loss experience
Subjective risk uncertainty based on a person's mental condition or state of mind; difficult to
measure
Chance of loss the probability that an event will occur
Peril cause of loss
Hazard creates or increases frequency or severity of loss
Physical hazard physical condition that increases the frequency or severity of loss
Example of physical hazard icy roads increasing the chance of auto accident
Moral hazard dishonesty or character defects in an individual that increase the frequency or
severity of loss
Example of moral hazard faking an accident to collect from an insurer
Attitudinal (morale) hazard carelessness or indifference to a loss, which increases the frequency or severity of
a loss
Attitudinal (morale) hazard example leaving car keys in an unlocked car, which increases the chance of theft
Legal hazard characteristics of a legal system or regulatory environment that increase the
frequency or severity of losses
Legal hazard example large damage awards in liability lawsuits
Diversifiable (particular) risk affects only individuals or small groups and not the entire economy, can be
reduced or eliminated by diversification
Diversifiable risk example car theft, robbery
Nondiversifiable (fundamental) risk affects the entire economy or large numbers of persons or groups within the
economy, can't be reduced or eliminated by diversification; government
assistance may be necessary
Nondiversifiable (fundamental) risk example rapid inflation, war, hurricanes, floods, earthquakes
Enterprise risk encompasses all major risks faced by a business firm such as pure, speculative,
strategic, operational, and financial
Strategic risk uncertainty regarding the firm's financial goals and objectives
Operational risk results from the firm's business operations
