RMI 211 EXAM 1 – Meek Questions With
Correct Answers
Uncertainty concerning the occurrence of a loss - answer✔✔Risk
the property or life that is being considered for insurance - answer✔✔Insurance form of risk
any situation or circumstance in which a loss is possible, regardless of whether a loss occurs -
answer✔✔Loss exposure
the relative variation of actual loss from expected loss - answer✔✔Objective risk
uncertainty based on a person's mental condition or state of mind - answer✔✔Subjective
(perceived) risk
the probability that an event will occur; can be same for two outcomes but may have different
objective risks - answer✔✔Chance of loss
refers to the long-run relative frequency of an event based on the assumptions of an infinite
number of observations and of no change in the underlying conditions - answer✔✔Objective
probability
the individual's personal estimate of a chance of loss - answer✔✔Subjective probability
the cause of a loss - answer✔✔Peril
a condition that increases the chance of loss - answer✔✔Hazard
a physical condition that increases the frequency or severity of a loss - answer✔✔Physical
hazard
dishonesty or character defects in an individual that increases the frequency or severity of a loss -
answer✔✔Moral hazard
carelessness or indifference to a loss, which increases the frequency or severity of a loss -
answer✔✔Attitudinal hazard
refers to characteristics of the legal system or regulatory environment that increase the frequency
or severity of losses - answer✔✔Legal hazard
a situation in which there are only the possibilities of loss or no loss (earthquake) -
answer✔✔Pure risk
a situation in which either profit or loss is possible (gambling) - answer✔✔Speculative risk
affects only individuals or small groups; can be reduced or eliminated by diversification (car
theft) - answer✔✔Diversifiable risk
affects the entire economy or large numbers of persons or groups within an economy; also called
a fundamental risk (hurricane) - answer✔✔Non-diversifiable risk
encompasses all major risks faced by a business firm, which include: pure, speculative, strategic,
operational, and financial risk - answer✔✔Enterprise risk
refers to uncertainty regarding the firm's financial goals and objectives - answer✔✔Strategic risk
results from the firm's business operations - answer✔✔Operational risk
refers to the uncertainty of loss because of adverse changes in commodity prices, interest rates,
foreign exchange rates, and the value of money - answer✔✔Financial risk
the risk of collapse of an entire system or market due to the failure of a single entity or group of
entities that can result in the breakdown of the entire financial system - answer✔✔Systemic risk
risks that directly affect an individual or family; involve the possibility of a loss or reduction in
income, extra expenses or depletion of financial assets due to premature death, inadequate
retirement income, poor health, or unemployment - answer✔✔Personal risks
involve the possibility of losses associated with the destruction or theft of property -
answer✔✔Property risks
a financial loss that results from the physical damage, destruction, or theft of the property, such
as fire damage to a home - answer✔✔Direct loss
a financial loss that results indirectly from the occurrence of a direct physical damage or theft
loss (EX: additional living expenses after fire) - answer✔✔indirect or consequential loss
involve the possibility of being held legally liable for bodily injury or property damage to
someone else - answer✔✔Liability risks
-Need for larger emergency funds
-Risk of liability lawsuit may discourage innovation and deprive public of goods/services
-Fear and worry - answer✔✔Burden of risk on society
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