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Exam 1: Risk and Its Treatment

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Question 31

Multiple Choice

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Katelyn was just named Risk Manager of ABC Company. She has decided to create a risk management program which considers all of the risks faced by ABC-pure, speculative, operational, and strategic-in a single risk management program. Such a program is called a(n)

A) financial risk management program.
B) enterprise risk management program.
C) fundamental risk management program.
D) consequential risk management program.

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Question 32

Multiple Choice

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From the insured's perspective, the use of deductibles in insurance contracts is an example of

A) risk transfer.
B) risk control.
C) risk avoidance.
D) risk retention.

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Question 33

Multiple Choice

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Jim and Paula Franklin started a dry cleaning business. The business may be successful or it may fail. The type of risk that is present when either a profit or loss could occur is called

All of the following are burdens to society because of the presence of risk EXCEPT

All of the following are examples of personal risks EXCEPT

Dense fog that increases the chance of an automobile accident is an example of a

All of the following are programs to insure fundamental risks EXCEPT

The production facility for ABC Manufacturing is located in a flood plain. Although the risk of flood is low, ABC's risk manager is concerned that a flood could damage the plant and equipment. He received bids on flood insurance from two insurance agents, but decided the cost of coverage was too high relative to the risk. So he did not purchase flood insurance. Which risk management technique is ABC using with respect to the risk of flood?

Which of the following is (are) often consequences of long-term disability? I.Continuing medical expenses II.Loss or reduction of employee benefits

All of the following statements about risk retention are true EXCEPT

Five years ago, Shannon decided to start investing monthly in the common stock of ABC Telecom Company. Her financial well-being will be harmed if the price of ABC Telecom stock drops significantly. The risk of investment loss can be reduced if she invests in other companies and other types of financial assets. The risk Shannon faces with regard to her investments is a(n)

ABC Insurance Company plans to sell homeowners insurance in five Western states. ABC expects that 8 homeowners out of every 100, on average, will report claims each year. The variation between the rate of loss that ABC expects to occur and the rate of loss that actually occurs is called

Ben is concerned that if he injures someone or damages someone's property he could be held legally responsible and required to pay damages. This type of risk is called a

An insurance company estimates its objective risk for 10,000 exposures to be 10 percent. Assuming the probability of loss remains the same, what would happen to the objective risk if the number of exposures were to increase to 1 million?

The extra expense incurred by a business to stay in operation following a fire is an example of a(n)

ABC Insurance Company sells auto insurance in one state. Recently, the state legislature passed a law that limits the use of an individual's credit history by insurers when selecting applicants to insure. This change in law will increase the possibility of unprofitable results for ABC. This type of hazard is an example of

Frazier Electric keeps a paper copy of business records at the company's headquarters. The company also has two back-up copies of business records stored in electronic files. The electronic files are kept in the event the paper records are damaged or destroyed. The back-up files illustrate which of the following risk control techniques?

Traditionally, risk has been defined as

An earthquake is an example of a(n)