Risk Management Quiz 1 And Answers

Pure Risk - ANS loss, no loss Speculative Risk - ANS loss, no loss, gain - most of the time not insured Risk - ANS uncertainty about outcomes, with the possibility that some of the outcomes will be negative Risk Management - ANS helps organizations and individuals to avoid, prevent, reduce, or pay for the negative outcomes and risk, so that opportunities for reward can be pursued Subjective Risk - ANS opinion, perceived individuals view of uncertainty, attitude towards a situation, familiarity and control helps with examining these risks Objective Risk - ANS uncertainty concerning a loss, measurable, facts and data, includes (1) Probability (2) Variation Variation - ANS actual outcomes v. expected outcomes Probability - ANS the likelihood that something will happen, quantified Possibility - ANS the identification of risk, verifies that it is present Insurable Risks - ANS pure, objective, diversifiable Diversifiable Risk - ANS affects only some, not highly correlated and can be managed through diversification Nondiversifiable Risk - ANS affects a large segment of society at the same time, happens all at once Systemic Risk - ANS potential for a major disruption in the function of an entire market or financial system Expected Losses - ANS based on experience, data, or other means Actual Losses - ANS losses that actually occur, the problem is timing, always uncertain Static Risk - ANS risk that is always present, does not significantly change over time Dynamic Risk - ANS major threats, results from economic change and emerging risks, new, ex) regulatory, increased competition, climate change Hazards - ANS increases the frequency or severity of a loss, losses result from hazards Peril - ANS immediate cause of a loss (fire, flood, accident) Moral Hazard - ANS a condition that increases the likelihood that a person will intentionally cause or exaggerate a loss, deliberate, charity hazard (hurricane Sandy), the presence of insurance will make you use it Morale Hazard - ANS carelessness or indifference that increase the frequency or severity of loss To maximize Reward - ANS Minimize associated risk Quantifying Risk - ANS (1) Likelihood (2) Potential Magnitude Physical Hazard - ANS tangible characteristic that tends to increase the frequency or severity of loss (location, construction, use) Legal Hazard - ANS condition of the legal environment that increases loss frequency or severity Compounding Effect - ANS the possibility of multiple hazards Loss Frequency - ANS # of losses in a period, can be controlled Loss Severity - ANS $$$$ Variation Formula - ANS Actual Losses-Expected Losses/Expected Losses Risk Appetite - ANS total exposed amount that an organization wishes to undertake on the basis of risk-return trade-off for one or more desired and expected outcomes Intangible Property - ANS intellectual property Tangible property - ANS Real Estate/Real Property and Personal Property Real Estate/Real Property - ANS House/Building/Machine(equipment that's permanently attatched) Personal Property - ANS cars, commercial vehicles, electronics, documents Free on Board - ANS says where liability shifts Legal Interest in Property - ANS 1. Ownership, 2. Lease, 3. Secured Creditor, 4. Losses to goods in transit, 5. Bailment Liability loss exposure - ANS any condition or situation where the business or individual will have financial consequences due to a legal responsibility Negligence - ANS failure to exercise the degree of care that a reasonable person in a similar situation would exercise to avoid harming others Negligence Per Se - ANS Drinking and Driving Intentional Tort - ANS Committed by a person who forces that his or her act will harm another person, purpose