Math1280 Midterm Exam - Questions With
Comprehensive Solutions
Risk Correct Answer - An uncertainty in regards to the occurrence of a
loss
Loss Exposure Correct Answer - A situation where a loss is possible,
regardless of whether a loss occurs
Objective Risk Correct Answer - The relative variation (measurable
difference) of actual loss from expected loss. A way to quantify risk based on
real data
Subjective Risk Correct Answer - uncertainty based on an individual's
mental condition or state of mind. Varies from person to person on what can
be viewed as a risk.
Chance of loss Correct Answer - the probability that an event will occur
Peril Correct Answer - the cause of loss
Hazard Correct Answer - something that increases the chances of a loss
occurring
4 types of hazards Correct Answer - Physical, Moral, Attitudinal,Legal
Physical hazard Correct Answer - a physical condition that increases the
frequency or severity of loss
Moral hazard Correct Answer - dishonesty or character defects in a
person that increase the chance of loss
Attitudinal Hazard Correct Answer - carelessness or indifference to a loss,
which increases the frequency or severity of a loss
Legal Hazard Correct Answer - characteristics of the legal system or
regulatory environment that increase the frequency or severity of losses
, Pure risk Correct Answer - a risk that presents the chance of loss but no
opportunity for gain
Speculative risk Correct Answer - a situation where either profit or loss is
possible
Diversifiable risk Correct Answer - A risk that affects only some
individuals or small groups. Can be reduced/eliminated by diversification
Non-diversifiable risk Correct Answer - A risk that affects a large segment
of society (inflation, war, recession). Cannot be eliminated or reduced by
diversification
Enterprise risk Correct Answer - encompasses all major risks faced by a
business firm, which include: pure risk, speculative risk, strategic risk,
operational risk, and financial risk
Financial risk Correct Answer - the uncertainty of loss due to adverse
changes in commodity prices, interest rates, foreign exchange rates or the
value of money
Systemic risk Correct Answer - the risk of collapse of an entire
system/market in which the failure of one entity/group can result in a
breakdown of the entire financial system
Types of pure risks Correct Answer - personal, property, liability
Personal risks Correct Answer - risks that directly affect an individual;
premature death, poor health, unemployment, addictions
Direct loss to property Correct Answer - financial loss that results form
physical damage, destruction or theft of property
indirect loss Correct Answer - financial loss that results indirectly from
the occurrence of direct physical damage or theft loss
Liability risks Correct Answer - have no maximum upper limit on the
amount of the loss, a lien could be placed on income by court order, legal fees
Comprehensive Solutions
Risk Correct Answer - An uncertainty in regards to the occurrence of a
loss
Loss Exposure Correct Answer - A situation where a loss is possible,
regardless of whether a loss occurs
Objective Risk Correct Answer - The relative variation (measurable
difference) of actual loss from expected loss. A way to quantify risk based on
real data
Subjective Risk Correct Answer - uncertainty based on an individual's
mental condition or state of mind. Varies from person to person on what can
be viewed as a risk.
Chance of loss Correct Answer - the probability that an event will occur
Peril Correct Answer - the cause of loss
Hazard Correct Answer - something that increases the chances of a loss
occurring
4 types of hazards Correct Answer - Physical, Moral, Attitudinal,Legal
Physical hazard Correct Answer - a physical condition that increases the
frequency or severity of loss
Moral hazard Correct Answer - dishonesty or character defects in a
person that increase the chance of loss
Attitudinal Hazard Correct Answer - carelessness or indifference to a loss,
which increases the frequency or severity of a loss
Legal Hazard Correct Answer - characteristics of the legal system or
regulatory environment that increase the frequency or severity of losses
, Pure risk Correct Answer - a risk that presents the chance of loss but no
opportunity for gain
Speculative risk Correct Answer - a situation where either profit or loss is
possible
Diversifiable risk Correct Answer - A risk that affects only some
individuals or small groups. Can be reduced/eliminated by diversification
Non-diversifiable risk Correct Answer - A risk that affects a large segment
of society (inflation, war, recession). Cannot be eliminated or reduced by
diversification
Enterprise risk Correct Answer - encompasses all major risks faced by a
business firm, which include: pure risk, speculative risk, strategic risk,
operational risk, and financial risk
Financial risk Correct Answer - the uncertainty of loss due to adverse
changes in commodity prices, interest rates, foreign exchange rates or the
value of money
Systemic risk Correct Answer - the risk of collapse of an entire
system/market in which the failure of one entity/group can result in a
breakdown of the entire financial system
Types of pure risks Correct Answer - personal, property, liability
Personal risks Correct Answer - risks that directly affect an individual;
premature death, poor health, unemployment, addictions
Direct loss to property Correct Answer - financial loss that results form
physical damage, destruction or theft of property
indirect loss Correct Answer - financial loss that results indirectly from
the occurrence of direct physical damage or theft loss
Liability risks Correct Answer - have no maximum upper limit on the
amount of the loss, a lien could be placed on income by court order, legal fees
