Assignment: Risk Management Quiz

Assignment: Risk Management Quiz

Assignment: Risk Management Quiz

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Week 2 Quiz

FIN 428 Week 2 Quiz

Financial risk management encompasses management of

• operational risk, strategic risk, and credit risk
• credit risk, market risk, and liquidity risk
• compliance risk, credit risk, and strategic risk
• pure risk, speculative risk, and strategic risk

 

There are two basic approaches to the interpretation of probability.  In insurance we are primarily concerned with

• the relative frequency interpretation.
• the a priori interpretation.
• the Bayesian interpretation.
• the subjective interpretation.

 

A peril, as distinguished from a hazard, is defined as

• the cause of a loss.
• the same thing as risk.
• a condition that increases the likelihood of loss.
• a type of legal liability.

 

The definition of  risk suggested in the text views risk as

• a condition of the real world.
• an opportunity for gain or loss.
• subjective uncertainty.
• a state of mind.

 

The evolution of risk management is traceable to

• insurance marketing campaigns.
• legal cases which set the precedent for risk management practices.
• systems safety in the aerospace program.
• the introduction of decision theory in business college curricula.

From the insured’s perspective, the purchase of insurance is an example of

 

Probability may be defined as

• a measure of the likelihood of an occurrence.
• an unquantifiable measure.
• a measure of the degree of uncertainty.
• the number of losses that occur annually.

 

Risk management contributes to organization profit

• by reducing organization’s operating costs with staff reductions.
• by allowing the organization to engage in certain speculative risks.
• by reducing the cost of losses.
• by reducing the organization’s operating effectiveness.

 

An insurer insures 1000 houses, with 10 expected losses and a standard deviation of 2.  Other things being equal, the insurer may be 99% certain that the number of losses will be

• 10.
• between 0 and 22.
• between 7 and 13.
• between 4 and 16.

 

The four elements of an insurable risk

• must be present or the exposure cannot be insured.
• include the requirement of economic feasibility.
• are desirable, but some insurable risks do not possess them.
• require that the probability of loss be known.

 

The term hazard refers to

• the same thing as the term peril.
• uncertainty regarding loss.
• a condition that increases the chance of loss
• the same thing as probability of loss

 

Which of the following techniques for dealing with risk may be said to represent a special variation of other techniques?

• Transfer
• Retention
• Reduction
• Sharing

 

From the insurer’s perspective, the operation of the insurance mechanism is an example of

 

The possibility of loss resulting from a flood is an example of

• a static fundamental risk.
• a static particular risk.
• a dynamic particular risk.
• a dynamic fundamental risk.

 

Pure risk is characterized by

• a chance of loss or no loss only.
• the chance of gain or no loss only.
• a chance of gain and a chance of gain.
• a chance of loss and a chance of gain.

 

From the viewpoint of society and the economy, the most desirable means of dealing with risk is

• loss prevention.

 

The distinction between fundamental and particular risks is important because

• normally only particular risks are insurable
• whether a risk is fundamental or particular may determine how society will deal with it.
• fundamental risks are a source of gain to society.
• particular risk policies only allow for partial coverage, whereas fundamental risk policies allow full coverage.

 

Traditional risk management is concerned primarily with

• dynamic risks.
• pure risks.
• fundamental risks.
• speculative risks.

 

The term enterprise risk management refers to

• management of risks for profit-making organizations.
• management of risks related to derivatives and futures.
• integrated management of a firm’s pure and speculative risks.
• management of financial risks.

 

Property insurance policies typically exclude coverage for losses caused by war.  This is because

• insuring war creates an adverse selection problem.
• it is impossible to determine which warring faction actually caused the damage.
• the courts have defined the term war broadly.
• losses from war are potentially catastrophic.

 

According to the law of large numbers, as the number of exposure units is increased

• the chance or probability of loss increases.
• the chance of loss declines.
• the accuracy of predictions should be better.
• the accuracy of predictions should remain about the same.

 

Hazards are usually classified into three categories.  They are:

• perils, risks, and uncertainties.
• personal, property, and liability.
• physical, mental, and moral.
• moral, morale, and physical.

 

Involuntary retention occurs when

• insurance covers the intended exposure.
• the risk is recognized.
• loss control measures are improperly implemented.
• loss control measures are properly implemented.

 

To be technically correct, we should define fire as

• a hazard.
• a peril.
• peril, hazard and risk are all equally correct definitions.
• a risk.

 

Adverse selection is a term used to describe

• a loss situation in which the chance of loss cannot be determined.
• the tendency of the poorer than average risks to seek insurance to a greater extent than do the better than average risks.
• the choice of the wrong insurance to fit a specific need.
• an underwriting error on the part of an insurance company.

 

Although insurance may be defined in various ways, the two fundamental characteristics of the insurance mechanism are

• combination and sharing.
• transfer and sharing.
• premiums and policies.
• loss prevention and transfer.

Assignment: Risk Management Quiz

The risk that a firm’s IT systems will fail is an example of

• compliance risk.
• strategic risk.
• operational risk.
• credit risk.

 

Henri Fayol’s place in the history of risk management arises from

• his work in the field of systems safety.
• his work in the field of operations research.
• his introduction of the term risk management.
• his recognition of risk management as one of six broad functions of business.

 

Unemployment would generally be considered to be

• a dynamic particular risk.
• a static particular risk.
• a static fundamental risk.
• a dynamic fundamental risk.

 

Traditional risk management

• is somewhat narrower in scope than insurance management.
• is synonymous with corporate insurance buying.
• is somewhat greater in scope than insurance management.

draws on several other disciplines but is a distinct discipline and function.