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rmin 2005 exam 1 Questions and Correct
Answers
Which of the following would be an example of a pure risk? Ans:
The risk of fire damage to a restaurant
Pure risk Ans: Involves uncertainty as to whether loss will occur
Speculative Risk Ans: Involves uncertainty about an event that
could produce either a profit or loss
Static Risk Ans: Risks that would exist that would exist in an
unchanging society that is in stable equilibrium
Dynamic Risk Ans: Risks caused by societal changes
Subjective Risk Ans: Risks that arise from psychological
uncertainty that is based on an individual's mental attitude or
state of mind
Objective Risk Ans: Risk that is precisely observable and
measurable
Amber has insurance on her women's boutique in downtown
Monroe. She is considering opening up a second location in West
Monroe but decides not to because of the risks that would be
involved in having a second location. What components of risk do
the insurance Amber buys and her decision to not open a second
location fall into (respectively)? Ans: Expenses to finance loss and
opportunity costs
Liability risk Ans: A company getting sued for discrimination
Property risk Ans: A warehouse being destroyed by a tornado
Financial risk Ans: A rise in borrowing costs
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Loss of income risk Ans: A person becoming unemployed
Peril Ans: Collision
Physical hazard Ans: Malfunctioning traffic light
Moral hazard Ans: Burning down your own building to collect
insurance money
Morale hazard Ans: Not using a phone case because you know
that you have insurance to cover your phone if it breaks
What are the 4 steps of the risk management process in the proper
order Ans: 1. Identify risks
2. Evaluate risks
3. Select risk management techniques
4. Implement and review decisions
peril Ans: A specific contingency that may cause loss (lower case)
Hazard Ans: A condition that introduces or increases the chance
of loss
Example of a peril Ans: Fire
Example of a hazard Ans: A dishonest employee
Which of the following is NOT one of the four steps of risk
management? Ans: Speculate about risks
A drunk captain of an oil tanker Ans: Collision or oil spill
A poorly constructed dam Ans: Flood
A highly flammable material Ans: Fire or explosion
© 2025 All rights reserved
rmin 2005 exam 1 Questions and Correct
Answers
Which of the following would be an example of a pure risk? Ans:
The risk of fire damage to a restaurant
Pure risk Ans: Involves uncertainty as to whether loss will occur
Speculative Risk Ans: Involves uncertainty about an event that
could produce either a profit or loss
Static Risk Ans: Risks that would exist that would exist in an
unchanging society that is in stable equilibrium
Dynamic Risk Ans: Risks caused by societal changes
Subjective Risk Ans: Risks that arise from psychological
uncertainty that is based on an individual's mental attitude or
state of mind
Objective Risk Ans: Risk that is precisely observable and
measurable
Amber has insurance on her women's boutique in downtown
Monroe. She is considering opening up a second location in West
Monroe but decides not to because of the risks that would be
involved in having a second location. What components of risk do
the insurance Amber buys and her decision to not open a second
location fall into (respectively)? Ans: Expenses to finance loss and
opportunity costs
Liability risk Ans: A company getting sued for discrimination
Property risk Ans: A warehouse being destroyed by a tornado
Financial risk Ans: A rise in borrowing costs
© 2025 All rights reserved
, 2 | Page
Loss of income risk Ans: A person becoming unemployed
Peril Ans: Collision
Physical hazard Ans: Malfunctioning traffic light
Moral hazard Ans: Burning down your own building to collect
insurance money
Morale hazard Ans: Not using a phone case because you know
that you have insurance to cover your phone if it breaks
What are the 4 steps of the risk management process in the proper
order Ans: 1. Identify risks
2. Evaluate risks
3. Select risk management techniques
4. Implement and review decisions
peril Ans: A specific contingency that may cause loss (lower case)
Hazard Ans: A condition that introduces or increases the chance
of loss
Example of a peril Ans: Fire
Example of a hazard Ans: A dishonest employee
Which of the following is NOT one of the four steps of risk
management? Ans: Speculate about risks
A drunk captain of an oil tanker Ans: Collision or oil spill
A poorly constructed dam Ans: Flood
A highly flammable material Ans: Fire or explosion
© 2025 All rights reserved
