Chapter 1: Introduction to and Overview of Risk Management Que & Ans

Probability - ANS The likelihood that an outcome or event will occur Two elements within the definition of risk - ANS Uncertainty of outcome and possibility of a negative outcome Pure risk - ANS A chance of loss or gain Speculative risk - ANS A chance of loss, no loss, or gain Credit risk - ANS The risk that customers or other creditors will fail to make promised payments as they come due Subjective risk - ANS The perceived amount of risk based on an individual's or organization's opinion Objective risk - ANS The measurable variation in uncertain outcomes based on facts and data Diversifiable risk - ANS A risk that affects only some individuals, businesses, or small groups Nondiversifiable risk - ANS A risk that affects a large segment of society at the same time Systemic risk - ANS The potential for a major disruption in the function of an entire market or financial system Static risk - ANS The risk that is always present in an organization Dynamic risk - ANS The risk that results from economic change or emerging risks Hazard - ANS A condition that increases the frequency or severity of a loss Moral hazard - ANS A condition that increases the likelihood that a person will intentionally cause or exaggerate a loss Morale (attitudinal) hazard - ANS A condition of carelessness or indifference that increases the frequency or severity of loss Frequency - ANS Number of losses Severity - ANS The size of a loss Physical hazard - ANS A tangible characteristic of property, persons, or operations that tends to increase the frequency or severity of loss Legal hazard - ANS A condition of the legal environment that increases loss frequency or severity