Study Guide for AIDA 182 - Fully Solved and Verified

Study Guide for AIDA 182 - Fully Solved and Verified pure risk - answer - A chance of loss or no loss, but no chance of gain. speculative risk - answer - a chance of loss, no loss, or gain price risk - answer - Uncertainty over cash flows resulting from possible changes in the cost of raw materials and other inputs (such as lumber, gas, or electricity), as well as cost-related changes in the market for completed products and other outputs credit risk - answer - The risk that customers or other creditors will fail to make promised payments as they come due subjective risk - answer - The perceived amount of risk based on an individual's or organization's opinion. objective risk - answer - the measurable variation in uncertain outcomes based on facts and data diversifiable risk - answer - a risk that affects only some individuals, businesses, or small groups; not highly correlated, its gains or losses tend to occur randomly and be isolated systemic risk - answer - The potential for a major disruption in the function of an entire market or financial system. hazard risk - answer - arise from property, liability, or personnel loss exposures and are generally the subject of insurance (pure risk) operational risk - answer - arise from people or a failure in processes, systems, or controls, including those involving information technology (pure risk) financial risk - answer - arise from the affect of market forces on financial assets or liabilities and include market risk, credit risk, liquidity risk, and price risk (speculative risk) market risk - answer - Uncertainty about an investment's future value because of potential changes in the market for that type of investment liquidity risk - answer - The risk that an asset cannot be sold on short notice without incurring a loss strategic risk - answer - Arise from trends in the economy and society, including changes in the economic, political, and competitive environments, as well as from demographic shifts (speculative risk) exposure - answer - Any condition that presents a possibility of gain or loss, whether or not an actual loss occurs; provides a measure of the maximum potential damage associated with an occurrence volatility - answer - Frequent fluctuations, such as in the price of an asset; provides a basic measure that can be applied to risk outcomes likelihood - answer - A qualitative estimate of the certainty with which the outcome of a specific event can be predicted. consequences - answer - the effects, positive or negative, of an occurrence time horizon - answer - estimated duration correlation - answer - a relationship between variables covariance - answer - The relative association between variables to move in tandem or independently of each other. Monte Carlo simulation - answer - A computerized statistical model that simulates the effects of various types of uncertainty; generates a probability distribution of outcomes that can occur after applying a range of random conditions (or variables) to simulate an event or series of events hundreds or even thousands of times causality - answer - the relationship between two events, where the second is brought about by the first; defines and measures cause and effect trend analysis - answer - An analysis that identifies patterns in past data and then projects these patterns into the future. regression analysis - answer - A statistical technique that is used to estimate relationships between variables. linear regression analysis - answer - A form of regression analysis that assumes that the change in the dependent variable is constant for each unit of change in the independent variable. probability analysis - answer - A technique for forecasting events, such as accidental and business losses, on the assumption that they are governed by an unchanging probability distribution. probability distribution - answer - A presentation (table, chart, or graph) of probability estimates of a particular set of circums