OLE MISS FIN 341 TEST 1 LEINBENBERG
Financial Risk Management - Answers -identification, analysis, and treatment of
speculative financial risks
Commodity price risk - Answers -the risk of losing money if the price of a commodity
changes
Interest rate risk - Answers -risk of loss caused by adverse interest rate movements
Currency exchange risk rate - Answers -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 - Answers -risk treatment technique that combines coverage
for pure and speculative risks in the same contract
Enterprise Risk Management - Answers -comprehensive risk management program
that addresses an organization's pure risks, speculative risks, strategic risks, and
operational risks
Strategic Risk - Answers -refers to uncertainty regarding an organization's goals and
objectives, and the organization's strengths, weaknesses, opportunities, and threats
Operational Risks - Answers -develop out of business operations, including the
manufacture and distribution of products and providing services to customers
Terrorism Risk - Answers -can be addressed through risk control and insurance
Insurance brokers - Answers -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 - Answers -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 - Answers -corporate bonds that permit the issuer to skip or defer
scheduled payments if a catastrophic loss occurs
Insurance option - Answers -option that derives value from specific insurable losses or
from an index of values
Weather option - Answers -provides payment if a specified weather contingency occurs
Risk - Answers -uncertainty concerning the occurrence of a loss
, Loss Exposure - Answers -any situation or circumstance in which a loss is possible,
regardless of whether a loss occurs
Objective (degree) Risk - Answers -the relative variation of actual loss from expected
loss; observable and measurable; declines as the number increases
Law of large numbers - Answers -as the number of exposure units increases, the more
closely the actual loss experience will approach the expected loss experience
Subjective risk - Answers -uncertainty based on a person's mental condition or state of
mind; difficult to measure
Chance of loss - Answers -the probability that an event will occur
Peril - Answers -cause of loss
Hazard - Answers -creates or increases frequency or severity of loss
Physical hazard - Answers -physical condition that increases the frequency or severity
of loss
Example of physical hazard - Answers -icy roads increasing the chance of auto
accident
Moral hazard - Answers -dishonesty or character defects in an individual that increase
the frequency or severity of loss
Example of moral hazard - Answers -faking an accident to collect from an insurer
Attitudinal (morale) hazard - Answers -carelessness or indifference to a loss, which
increases the frequency or severity of a loss
Attitudinal (morale) hazard example - Answers -leaving car keys in an unlocked car,
which increases the chance of theft
Legal hazard - Answers -characteristics of a legal system or regulatory environment
that increase the frequency or severity of losses
Legal hazard example - Answers -large damage awards in liability lawsuits
Diversifiable (particular) risk - Answers -affects only individuals or small groups and not
the entire economy, can be reduced or eliminated by diversification
Diversifiable risk example - Answers -car theft, robbery
Financial Risk Management - Answers -identification, analysis, and treatment of
speculative financial risks
Commodity price risk - Answers -the risk of losing money if the price of a commodity
changes
Interest rate risk - Answers -risk of loss caused by adverse interest rate movements
Currency exchange risk rate - Answers -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 - Answers -risk treatment technique that combines coverage
for pure and speculative risks in the same contract
Enterprise Risk Management - Answers -comprehensive risk management program
that addresses an organization's pure risks, speculative risks, strategic risks, and
operational risks
Strategic Risk - Answers -refers to uncertainty regarding an organization's goals and
objectives, and the organization's strengths, weaknesses, opportunities, and threats
Operational Risks - Answers -develop out of business operations, including the
manufacture and distribution of products and providing services to customers
Terrorism Risk - Answers -can be addressed through risk control and insurance
Insurance brokers - Answers -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 - Answers -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 - Answers -corporate bonds that permit the issuer to skip or defer
scheduled payments if a catastrophic loss occurs
Insurance option - Answers -option that derives value from specific insurable losses or
from an index of values
Weather option - Answers -provides payment if a specified weather contingency occurs
Risk - Answers -uncertainty concerning the occurrence of a loss
, Loss Exposure - Answers -any situation or circumstance in which a loss is possible,
regardless of whether a loss occurs
Objective (degree) Risk - Answers -the relative variation of actual loss from expected
loss; observable and measurable; declines as the number increases
Law of large numbers - Answers -as the number of exposure units increases, the more
closely the actual loss experience will approach the expected loss experience
Subjective risk - Answers -uncertainty based on a person's mental condition or state of
mind; difficult to measure
Chance of loss - Answers -the probability that an event will occur
Peril - Answers -cause of loss
Hazard - Answers -creates or increases frequency or severity of loss
Physical hazard - Answers -physical condition that increases the frequency or severity
of loss
Example of physical hazard - Answers -icy roads increasing the chance of auto
accident
Moral hazard - Answers -dishonesty or character defects in an individual that increase
the frequency or severity of loss
Example of moral hazard - Answers -faking an accident to collect from an insurer
Attitudinal (morale) hazard - Answers -carelessness or indifference to a loss, which
increases the frequency or severity of a loss
Attitudinal (morale) hazard example - Answers -leaving car keys in an unlocked car,
which increases the chance of theft
Legal hazard - Answers -characteristics of a legal system or regulatory environment
that increase the frequency or severity of losses
Legal hazard example - Answers -large damage awards in liability lawsuits
Diversifiable (particular) risk - Answers -affects only individuals or small groups and not
the entire economy, can be reduced or eliminated by diversification
Diversifiable risk example - Answers -car theft, robbery
