1. Which of the following is an example of a moral hazard?
o A) Installing a security system to prevent theft.
o B) A driver speeding because they have comprehensive car insurance.
o C) A company implementing safety protocols to reduce workplace accidents.
o D) A homeowner installing smoke detectors to prevent fire damage.
o Answer: B) A driver speeding because they have comprehensive car insurance.
o Rationale: Moral hazard refers to the tendency to take on more risk when protected
from the consequences, such as driving recklessly due to insurance coverage.
2. Which of the following is an example of risk financing?
o A) Purchasing insurance.
o B) Installing fire suppression systems.
o C) Implementing employee safety training.
o D) Conducting regular equipment maintenance.
o Answer: A) Purchasing insurance.
o Rationale: Risk financing involves obtaining funds to cover potential losses, such as
through insurance policies.
3. What is the purpose of risk control measures?
o A) To eliminate all risks.
o B) To reduce the frequency and severity of losses.
o C) To transfer risks to another party.
o D) To accept all identified risks.
o Answer: B) To reduce the frequency and severity of losses.
o Rationale: Risk control measures aim to minimize the likelihood and impact of
potential losses.
,4. Which of the following is a speculative risk?
o A) Purchasing health insurance.
o B) Starting a new business venture.
o C) Buying a life insurance policy.
o D) Engaging in a fire drill.
o Answer: B) Starting a new business venture.
o Rationale: Speculative risks involve situations where both the possibility of gain and
loss exist, such as starting a new business.
5. What is traditionally defined as risk?
o A) Any situation in which the probability of loss is one.
o B) Any situation in which the probability of loss is zero.
o C) Uncertainty concerning the occurrence of loss.
o D) The probability of loss.
o Answer: C) Uncertainty concerning the occurrence of loss.
o Rationale: Risk is commonly defined as the uncertainty regarding the occurrence of
a loss.
6. Which of the following is an example of a physical hazard?
o A) A worker ignoring safety protocols.
o B) A factory located in a flood-prone area.
o C) A driver speeding due to overconfidence.
o D) A company failing to maintain equipment properly.
o Answer: B) A factory located in a flood-prone area.
o Rationale: Physical hazards are tangible conditions that increase the chance of a
loss, such as a factory situated in a flood-prone area.
7. What is the first step in the risk management process?
o A) Identify loss exposures.
, o B) Measure and analyze loss exposures.
o C) Select appropriate risk treatment techniques.
o D) Implement risk control measures.
o Answer: A) Identify loss exposures.
o Rationale: The initial step in risk management is to identify potential sources of loss.
8. Which of the following is an example of risk transfer?
o A) Purchasing health insurance.
o B) Installing a security system.
o C) Implementing safety protocols.
o D) Conducting regular maintenance.
o Answer: A) Purchasing health insurance.
o Rationale: Risk transfer involves shifting the financial burden of a loss to another
party, such as through insurance.
9. What is the purpose of risk avoidance?
o A) To eliminate the possibility of a loss occurring.
o B) To accept the financial consequences of a loss.
o C) To reduce the frequency and severity of losses.
o D) To transfer the financial responsibility of a loss to another party.
o
13. of the following best describes the law of large numbers?
o A) The larger the sample size, the more predictable the outcome.
o B) The smaller the sample size, the less predictable the outcome.
o C) The law of large numbers applies only to financial risks.
o D) The law of large numbers states that risk cannot be managed.
o Answer: A) The larger the sample size, the more predictable the outcome.
10. Which of the following is an example of a legal hazard?
o A) Installing a security system to prevent theft.
o B) A driver speeding because they have comprehensive car insurance.
o C) A company implementing safety protocols to reduce workplace accidents.
o D) A homeowner installing smoke detectors to prevent fire damage.
o Answer: B) A driver speeding because they have comprehensive car insurance.
o Rationale: Moral hazard refers to the tendency to take on more risk when protected
from the consequences, such as driving recklessly due to insurance coverage.
2. Which of the following is an example of risk financing?
o A) Purchasing insurance.
o B) Installing fire suppression systems.
o C) Implementing employee safety training.
o D) Conducting regular equipment maintenance.
o Answer: A) Purchasing insurance.
o Rationale: Risk financing involves obtaining funds to cover potential losses, such as
through insurance policies.
3. What is the purpose of risk control measures?
o A) To eliminate all risks.
o B) To reduce the frequency and severity of losses.
o C) To transfer risks to another party.
o D) To accept all identified risks.
o Answer: B) To reduce the frequency and severity of losses.
o Rationale: Risk control measures aim to minimize the likelihood and impact of
potential losses.
,4. Which of the following is a speculative risk?
o A) Purchasing health insurance.
o B) Starting a new business venture.
o C) Buying a life insurance policy.
o D) Engaging in a fire drill.
o Answer: B) Starting a new business venture.
o Rationale: Speculative risks involve situations where both the possibility of gain and
loss exist, such as starting a new business.
5. What is traditionally defined as risk?
o A) Any situation in which the probability of loss is one.
o B) Any situation in which the probability of loss is zero.
o C) Uncertainty concerning the occurrence of loss.
o D) The probability of loss.
o Answer: C) Uncertainty concerning the occurrence of loss.
o Rationale: Risk is commonly defined as the uncertainty regarding the occurrence of
a loss.
6. Which of the following is an example of a physical hazard?
o A) A worker ignoring safety protocols.
o B) A factory located in a flood-prone area.
o C) A driver speeding due to overconfidence.
o D) A company failing to maintain equipment properly.
o Answer: B) A factory located in a flood-prone area.
o Rationale: Physical hazards are tangible conditions that increase the chance of a
loss, such as a factory situated in a flood-prone area.
7. What is the first step in the risk management process?
o A) Identify loss exposures.
, o B) Measure and analyze loss exposures.
o C) Select appropriate risk treatment techniques.
o D) Implement risk control measures.
o Answer: A) Identify loss exposures.
o Rationale: The initial step in risk management is to identify potential sources of loss.
8. Which of the following is an example of risk transfer?
o A) Purchasing health insurance.
o B) Installing a security system.
o C) Implementing safety protocols.
o D) Conducting regular maintenance.
o Answer: A) Purchasing health insurance.
o Rationale: Risk transfer involves shifting the financial burden of a loss to another
party, such as through insurance.
9. What is the purpose of risk avoidance?
o A) To eliminate the possibility of a loss occurring.
o B) To accept the financial consequences of a loss.
o C) To reduce the frequency and severity of losses.
o D) To transfer the financial responsibility of a loss to another party.
o
13. of the following best describes the law of large numbers?
o A) The larger the sample size, the more predictable the outcome.
o B) The smaller the sample size, the less predictable the outcome.
o C) The law of large numbers applies only to financial risks.
o D) The law of large numbers states that risk cannot be managed.
o Answer: A) The larger the sample size, the more predictable the outcome.
10. Which of the following is an example of a legal hazard?
