RMI 2302 FSU NYCE EXAM 1 (Q&A) QUESTIONS
WITH VERIFIED ANSWERS
Risk Likelihood - ANSWER Frequency - the probability that a loss can occur.
What 3 ways can Risk Likelihood be categorized - ANSWER High - an event is
expected to happen in most circumstances
Medium - an even will probably happen in many circumstances
Low - an event may occur at some point
Risk Impact - ANSWER Severity - the potential effect that a loss could have if it
arises.
Risk prevention methods are best applied to what? - ANSWER Frequency of
losses
Risk reduction methods are best applied to what? - ANSWER Severity of losses
Do risk reduction methods have costs that are both monetary and nonmonetary?
- ANSWER Yes. It requires putting a value on human life. (Consider how to
balance risk/reward of how much it is worth spending to save one life. What is
the quality of life if you did save them)
The frequency states that there is a 25% chance of 1 accident, a 50% chance of
2 accidents, and a 25% chance of 3 accidents. The severity states that it costs
$10,000 per accident. What is the expected loss? - ANSWER (how often it occurs
* how bad it is when it occurs)
(.25*10,000)+(.50*10,000)+(.25*10,000) = $20,000
Pure risk - ANSWER "will there be a loss or no loss"
only involve 2 possible outcomes
Speculative Risk - ANSWER "will there be a loss, no loss, or a gain?"
What are the eight categories of risk? - ANSWER Static
Dynamic
Core
Secondary
Fundamental
Particular
, Speculative
Pure
What are the 4 sources of risk? - ANSWER Personal
Property
Liability
Financial
What are the 2 types of Hazards? - ANSWER Physical (tangible) and Intangible
Hazards
What are the three types of intangible hazards? - ANSWER Moral
Morale
Societal
What are the three attitudes towards risk? - ANSWER Risk Averse
Risk Seeker
Risk Neutral
What type of attitude is willing to pay more to avoid risk? - ANSWER Risk Averse
What are examples of financial statements? - ANSWER Dun and Bradstreet
(credit reports), SEC-10K report, annual report, balance sheet, and income
statement.
What do flow chart depict about a company? - ANSWER the steps it takes to go
from raw materials to finished products
What do organizational charts depict? - ANSWER the layout of hierarchy or the
organization. "who reports to whom" and "what they are responsible for"
What is the last step in the risk management process that is often done first? -
ANSWER Evaluate and Review.
What are two reasons that potential severity must be measured for? - ANSWER
1. A notion of severity is necessary for classify risks.
2. to determine the amount of insurance that should be purchased when the
decision is made to transfer the risk.
Recent financial crisis was caused when what three factors occurred
simultaneously? *This is an example of systematic risk and no one saw it
coming..... - ANSWER 1. efficient mortgage refinancing market
2. more interest rates
3. rising house prices
WITH VERIFIED ANSWERS
Risk Likelihood - ANSWER Frequency - the probability that a loss can occur.
What 3 ways can Risk Likelihood be categorized - ANSWER High - an event is
expected to happen in most circumstances
Medium - an even will probably happen in many circumstances
Low - an event may occur at some point
Risk Impact - ANSWER Severity - the potential effect that a loss could have if it
arises.
Risk prevention methods are best applied to what? - ANSWER Frequency of
losses
Risk reduction methods are best applied to what? - ANSWER Severity of losses
Do risk reduction methods have costs that are both monetary and nonmonetary?
- ANSWER Yes. It requires putting a value on human life. (Consider how to
balance risk/reward of how much it is worth spending to save one life. What is
the quality of life if you did save them)
The frequency states that there is a 25% chance of 1 accident, a 50% chance of
2 accidents, and a 25% chance of 3 accidents. The severity states that it costs
$10,000 per accident. What is the expected loss? - ANSWER (how often it occurs
* how bad it is when it occurs)
(.25*10,000)+(.50*10,000)+(.25*10,000) = $20,000
Pure risk - ANSWER "will there be a loss or no loss"
only involve 2 possible outcomes
Speculative Risk - ANSWER "will there be a loss, no loss, or a gain?"
What are the eight categories of risk? - ANSWER Static
Dynamic
Core
Secondary
Fundamental
Particular
, Speculative
Pure
What are the 4 sources of risk? - ANSWER Personal
Property
Liability
Financial
What are the 2 types of Hazards? - ANSWER Physical (tangible) and Intangible
Hazards
What are the three types of intangible hazards? - ANSWER Moral
Morale
Societal
What are the three attitudes towards risk? - ANSWER Risk Averse
Risk Seeker
Risk Neutral
What type of attitude is willing to pay more to avoid risk? - ANSWER Risk Averse
What are examples of financial statements? - ANSWER Dun and Bradstreet
(credit reports), SEC-10K report, annual report, balance sheet, and income
statement.
What do flow chart depict about a company? - ANSWER the steps it takes to go
from raw materials to finished products
What do organizational charts depict? - ANSWER the layout of hierarchy or the
organization. "who reports to whom" and "what they are responsible for"
What is the last step in the risk management process that is often done first? -
ANSWER Evaluate and Review.
What are two reasons that potential severity must be measured for? - ANSWER
1. A notion of severity is necessary for classify risks.
2. to determine the amount of insurance that should be purchased when the
decision is made to transfer the risk.
Recent financial crisis was caused when what three factors occurred
simultaneously? *This is an example of systematic risk and no one saw it
coming..... - ANSWER 1. efficient mortgage refinancing market
2. more interest rates
3. rising house prices
