8: Risk Treatment (practice questions) Prep Exam Questions And All Correct Answers.

The management team of a company decided that it made more sense for the organization to concentrate on critical operations and to outsource noncritical operations. Outsourcing noncritical operations is a form of: A. Risk avoidance. B. Risk transfer. C. Risk retention. D. Hazard modification. - correct answer B. Risk transfer. The risk that remains after all of the risk treatment methods have been applied is called: A. Diversifiable risk. B. Speculative risk. C. Pure risk. D. Residual risk. - correct answer D. Residual risk. Which one of the following is a pure risk? A. Purchasing 100 shares of common stock B. Betting $50 on the outcome of a football game C. Being sued for $10,000 because of property damage D. Opening a new business venture - correct answer C. Being sued for $10,000 because of property damage Loss reduction reduces: A. Loss frequency. B. Loss severity. C. Loss exposure units. D. Loss trend factors. - correct answer B. Loss severity. The most direct driving route between Bailey's home and the office where she works would require her to drive through a high-crime area. In the high-crime area, car jackings and drive-by shootings are common. Although it increases her travel time by 15 to 20 minutes in each direction, Bailey takes a longer route so that she does not have to drive through the high-crime area. Bailey is dealing with the risk of being injured while driving through the high-crime area through: A. Transfer. B. Loss control. C. Retention. D. Avoidance. - correct answer D. Avoidance. Which one of the following is a common example of unplanned retention? A. Automobile bodily injury losses B. Losses related to accidents or illness C. Property losses due to fire D. Flood losses - correct answer D. Flood losses A conscious act or decision not to act that generates the funds to pay for losses or offset the variability in cash flows that may occur as an outcome of risk defines: A. Risk management. B. Risk control. C. Risk financing. D. Risk assessment. - correct answer C. Risk financing. One reason planned retention may be chosen as a risk management technique is because: A. Other alternatives are not legal. B. The organization is operating at a high profit level. C. No other alternatives are available. D. The organization will use any losses incurred to offset capital gains. - correct answer C. No other alternatives are available. Risk financing techniques can be classified into the two main groups. One of the two main groups is: A. Control. B. Avoidance. C. Retention. D. Separation. - correct answer C. Retention. Liz Sellers owns a property that has below standard electrical wiring. Liz's insurer quoted a high premium to insure the property with current wiring and advised her that the premiums will be reduced once the property is upgraded to meet the current standards and building codes. Unable to afford the premiums, Liz has decided to forgo purchasing insurance at this time. Liz is setting aside some savings to address small losses. Liz has chosen which one of the following risk management techniques? A. Planned retention. B. Unfunded retention. C. Partial retention. D. Unplanned retention. - correct answer A. Planned retention. Risk treatment decisions are based on the results of a: - correct answer Risk assessment (8.3) The risk assessment includes ___________ and ___________an organization's various risks. - correct answer Identifying and analyzing (8.3) List the 5 general categories of risk treatment option