Risk Management 2025 Exam 1 || All
Questions & Answers (Graded A)
Traditional risk management is concerned primarily with: - ANSWER - pure risks
Traditional risk management - ANSWER - draws on several other sziciplines but is a
distinct discipline and function
Financial risk management encompasses management of - ANSWER - pure risk,
speculative, and strategic
The law of large numbers - ANSWER - The more units exposed to loss, the greater will
be the predictability of future loss results.
Risk avoidance should be used in those instances in which - ANSWER - the exposure
has catastrophic potential and the risk cannot be reduced or transferred.
The type of retention that is always undesirable os - ANSWER - Unintentional retention
The two broad approaches to dealing with risk are - ANSWER - risk control and risk
financing
The step in risk management that is most likely to be overlooked is - ANSWER -
determination of objectives
The most difficult step in the risk management process is likely to be - ANSWER - risk
identification
The ultimate goal of risk management is to - ANSWER - minimize the adverse effects of
losses and uncertainty connected with risks.
From the insured's perspective, the purchase of insurance is an example of - ANSWER
- transfer
Although insurance may be defines in various ways, the two fundamental characteristics
of the insurance mechanism are - ANSWER - transfer and sharing
Probability may be defined as - ANSWER - a measure of likelihood of an occurrence
There are two basic approaches to the interpretation of probability. In insurance we are
primarily concerned with - ANSWER - a relative frequency interpretation
The term "hazard" refers to - ANSWER - A condition that increases the chance of loss.
, From the viewpoint of society and the economy, the most desirable means of dealing
with risk is - ANSWER - Loss prevention.
Hazards are usually classified into three categories. - ANSWER - Moral, morale, and
physical
To be technically correct, we should define "fire" as - ANSWER - A peril
Pure risk is characterized by - ANSWER - A chance of loss or no gain
The distinction between fundamental and particular risks is important because -
ANSWER - Whether a risk is fundamental or particular may determine how society will
deal with it.
The possibility of loss resulting from a good is an example of - ANSWER - A static
fundamental risk
Unemployment would generally be considered a - ANSWER - A dynamic fundamental
risk
A business with an inventory of obsolete stock and high notes payable might represent -
ANSWER - A moral hazard
Physical Hazard - ANSWER - A physical condition, such as ice on a sidewalk.
Moral Hazard - ANSWER - A dishonest tendency on the part of the person exposed to
loss.
Morale Hazard - ANSWER - Indifference on the part of the person exposed to loss as to
weather a loss occurs and/or the size of the loss. Neglecting to lock doors, speeding.
Pure risks are... - ANSWER - personal, property, liability, and risks arising out of the
failure of others.
Because she knows she has insurance to cover losses from theft, Jones rarely looks
the door to her house, Her behavior is an example of: - ANSWER - morale hazard
According to the law of large number, as the number of exposure units is increased -
ANSWER - the accuracy of predictions should be better
Adverse selection is a term used to describe - ANSWER - the tendency of the poorer
than average risks to seek insurance to a greater extent than do the better than average
risks.
Adverse selection - ANSWER - affects the accuracy of insurer's predictions
Questions & Answers (Graded A)
Traditional risk management is concerned primarily with: - ANSWER - pure risks
Traditional risk management - ANSWER - draws on several other sziciplines but is a
distinct discipline and function
Financial risk management encompasses management of - ANSWER - pure risk,
speculative, and strategic
The law of large numbers - ANSWER - The more units exposed to loss, the greater will
be the predictability of future loss results.
Risk avoidance should be used in those instances in which - ANSWER - the exposure
has catastrophic potential and the risk cannot be reduced or transferred.
The type of retention that is always undesirable os - ANSWER - Unintentional retention
The two broad approaches to dealing with risk are - ANSWER - risk control and risk
financing
The step in risk management that is most likely to be overlooked is - ANSWER -
determination of objectives
The most difficult step in the risk management process is likely to be - ANSWER - risk
identification
The ultimate goal of risk management is to - ANSWER - minimize the adverse effects of
losses and uncertainty connected with risks.
From the insured's perspective, the purchase of insurance is an example of - ANSWER
- transfer
Although insurance may be defines in various ways, the two fundamental characteristics
of the insurance mechanism are - ANSWER - transfer and sharing
Probability may be defined as - ANSWER - a measure of likelihood of an occurrence
There are two basic approaches to the interpretation of probability. In insurance we are
primarily concerned with - ANSWER - a relative frequency interpretation
The term "hazard" refers to - ANSWER - A condition that increases the chance of loss.
, From the viewpoint of society and the economy, the most desirable means of dealing
with risk is - ANSWER - Loss prevention.
Hazards are usually classified into three categories. - ANSWER - Moral, morale, and
physical
To be technically correct, we should define "fire" as - ANSWER - A peril
Pure risk is characterized by - ANSWER - A chance of loss or no gain
The distinction between fundamental and particular risks is important because -
ANSWER - Whether a risk is fundamental or particular may determine how society will
deal with it.
The possibility of loss resulting from a good is an example of - ANSWER - A static
fundamental risk
Unemployment would generally be considered a - ANSWER - A dynamic fundamental
risk
A business with an inventory of obsolete stock and high notes payable might represent -
ANSWER - A moral hazard
Physical Hazard - ANSWER - A physical condition, such as ice on a sidewalk.
Moral Hazard - ANSWER - A dishonest tendency on the part of the person exposed to
loss.
Morale Hazard - ANSWER - Indifference on the part of the person exposed to loss as to
weather a loss occurs and/or the size of the loss. Neglecting to lock doors, speeding.
Pure risks are... - ANSWER - personal, property, liability, and risks arising out of the
failure of others.
Because she knows she has insurance to cover losses from theft, Jones rarely looks
the door to her house, Her behavior is an example of: - ANSWER - morale hazard
According to the law of large number, as the number of exposure units is increased -
ANSWER - the accuracy of predictions should be better
Adverse selection is a term used to describe - ANSWER - the tendency of the poorer
than average risks to seek insurance to a greater extent than do the better than average
risks.
Adverse selection - ANSWER - affects the accuracy of insurer's predictions
