FIN 428 WEEK 2 Week 2 Quiz

FIN 428 WEEK 2 Week 2 Quiz Buy Solutions: https://goo.gl/V8kLEW FIN 428 WEEK 2 Week 2 Quiz FIN 428 WEEK 2 Week 2 Quiz FIN 428 WEEK 2 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. 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. V031618 FIN 428 WEEK 2 Week 2 Quiz