RMI 3011 exam 1 Question and answers
already passed
Definition of risk - correct answer ✔a situation involving exposure to danger;
uncertainty concerning the occurrence of a loss; the level of possibility that an
action or activity will lead to a loss or to an outcome. The risk may even pay
off and not lead to a loss; it may lead to a gain
classifications of risk - correct answer ✔SOS PS DND
>objective
>subjective
>speculative
>pure
>static
>dynamic
>fundamental/non diversifiable/non systematic
>particular/diversifiable/ systematic
Enterprise: enterprise risk management - correct answer ✔combines into a
single unified treatment program all major risks faced by the firm: PFOSS
>pure risk
>speculative risk
>strategic risk
>operational risk
>Financial risk
Operational risks - correct answer ✔*Loss of earnings
,*Assets damaged, destroyed or stolen
*Assets become obsolete
*Employee-related risks
*Legal liability
*Political risks
Financial risks: - correct answer ✔*Input price risk
*Output price risk
*Interest rate risk
*Credit (counterparty) risk
*Currency or foreign exchange rate risk
treatment of financial risks - correct answer ✔requires the use of complex
hedging
techniques, financial derivatives, futures contracts and other financial
instruments.
Financial consequences if loss occurs with pure risk (loss or no loss) - correct
answer ✔◦Property risks, such as damage to buildings, furniture and office
equipment.
◦Liability risks, such as suits for defective products, pollution, and sexual
harassment.
◦Loss of business income, when the firm must shut down for some time after a
physical damage loss.
>Objective risk - correct answer ✔difference between projected/expected
and actual loss
, >Subjective risk - correct answer ✔based on individual view point;
uncertainty based on a persons mental condition or state of mind ex) drunk
driving - I'm fine
>Speculative risk - correct answer ✔*gain or loss; gamble
>Pure risk - correct answer ✔loss or no loss ex) hurricane
sources of pure risk: - correct answer ✔>personal: premature death,
insufficient retirement income, poor health, unemployment
>property: destruction or theft of property; direct loss- physical damage;
indirect loss- financial loss outside of physical ex) rent expense while house is
being fixed
>liability: premises hazards, product liability, professional liability, contractual
liability, evr liability, employment-related practices liability
>static: - correct answer ✔characteristics that don't change much over time;
ex) age: between 16-19 there are a lot of accidents
>Dynamic: - correct answer ✔something that changes over time;
Risk financing - correct answer ✔techniques that provide for payment of
losses after they occur
Risk financing techniques: - correct answer ✔>retention:
>active retention:
>Self Insurance
>captive insurer
>passive retention
already passed
Definition of risk - correct answer ✔a situation involving exposure to danger;
uncertainty concerning the occurrence of a loss; the level of possibility that an
action or activity will lead to a loss or to an outcome. The risk may even pay
off and not lead to a loss; it may lead to a gain
classifications of risk - correct answer ✔SOS PS DND
>objective
>subjective
>speculative
>pure
>static
>dynamic
>fundamental/non diversifiable/non systematic
>particular/diversifiable/ systematic
Enterprise: enterprise risk management - correct answer ✔combines into a
single unified treatment program all major risks faced by the firm: PFOSS
>pure risk
>speculative risk
>strategic risk
>operational risk
>Financial risk
Operational risks - correct answer ✔*Loss of earnings
,*Assets damaged, destroyed or stolen
*Assets become obsolete
*Employee-related risks
*Legal liability
*Political risks
Financial risks: - correct answer ✔*Input price risk
*Output price risk
*Interest rate risk
*Credit (counterparty) risk
*Currency or foreign exchange rate risk
treatment of financial risks - correct answer ✔requires the use of complex
hedging
techniques, financial derivatives, futures contracts and other financial
instruments.
Financial consequences if loss occurs with pure risk (loss or no loss) - correct
answer ✔◦Property risks, such as damage to buildings, furniture and office
equipment.
◦Liability risks, such as suits for defective products, pollution, and sexual
harassment.
◦Loss of business income, when the firm must shut down for some time after a
physical damage loss.
>Objective risk - correct answer ✔difference between projected/expected
and actual loss
, >Subjective risk - correct answer ✔based on individual view point;
uncertainty based on a persons mental condition or state of mind ex) drunk
driving - I'm fine
>Speculative risk - correct answer ✔*gain or loss; gamble
>Pure risk - correct answer ✔loss or no loss ex) hurricane
sources of pure risk: - correct answer ✔>personal: premature death,
insufficient retirement income, poor health, unemployment
>property: destruction or theft of property; direct loss- physical damage;
indirect loss- financial loss outside of physical ex) rent expense while house is
being fixed
>liability: premises hazards, product liability, professional liability, contractual
liability, evr liability, employment-related practices liability
>static: - correct answer ✔characteristics that don't change much over time;
ex) age: between 16-19 there are a lot of accidents
>Dynamic: - correct answer ✔something that changes over time;
Risk financing - correct answer ✔techniques that provide for payment of
losses after they occur
Risk financing techniques: - correct answer ✔>retention:
>active retention:
>Self Insurance
>captive insurer
>passive retention
