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RMIN 4000 UGA test 1 Questions and Answers.
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RMIN 4000 UGA test 1 Questions and Answers.
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RMIN 4000 UGA test 1 Questions and AnswersWhat is risk? - (correct answer) -a calculated possibility of a negative outcome
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What is calculated possibility? - (correct answer) -a probabilistic outcome that is known or estimated
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(ranges from 0% to 100%)
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What is a negative outcome? - (correct answer) -a loss that must be quantifiable
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What is frequency? - (correct answer) -how often a loss occurs (frequency= number of losses / number
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of exposures)
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What is severity? - (correct answer) -How much a loss costs when it occurs (severity = total losses ($) /
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number of losses)
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What is a peril? - (correct answer) -a cause of a loss (fire, tornado, collision)
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What is a hazard? - (correct answer) -a condition that creates to increases the frequency and/or
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severity of a loss but does not cause the loss
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What are the four types of hazards? - (correct answer) -- physical
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- moral
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- morale
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- legal
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What is a physical hazard? - (correct answer) -a physical condition that increases the frequency and/or
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severity of a loss (corrosion on pipes, too many wires plugged in to an outlet)
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what is a moral hazard? - (correct answer) -dishonesty in an individual that increases the frequency or
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severity of a loss. the presence of insurance changes the behavior of the insured (causing "hail"
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damage with a hammer)
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What is a morale hazard? - (correct answer) -carelessness or indifference to a loss, which increases the
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frequency and/or severity of a loss (leaving the car keys in your unlocked car)
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, What is a legal hazard? - (correct answer) -characteristics of the legal systems or regulatory
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environment that increase the frequency and/or severity of a loss (juries being more sympathetic in
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some areas)
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What is a pure risk? - (correct answer) -a risk in which there is no gain. the outcomes are either loss or
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no loss
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what is speculative risk? - (correct answer) -a risk in which there is a possibility for gain. the outcomes
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are either loss, no change, or gain.
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What is the difference between pure and speculative risk? - (correct answer) -with speculative risk,
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there is a chance of gain, whereas there is no chance for gain with pure risk
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can you buy insurance for pure risks? - (correct answer) -yes
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can you buy insurance for speculative risks? - (correct answer) -No
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What is diversifiable risk? - (correct answer) -a risk that affects only individuals or small groups, not the
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entire economy. risk is not correlated
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How do you reduce/eliminate diversifiable risk? - (correct answer) -diversification
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What is nondiversifiable risk? - (correct answer) -a risk that affects the entire economy or a large group
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of people. this cannot be reduced/eliminated through diversification. this risk is correlated.
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What is enterprise risk? - (correct answer) -encompasses all major risks faced by a business firm:
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- pure risk
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- speculative risk
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- strategic risk
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- operational risk
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- financial risk
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What is systemic risk? - (correct answer) -the risk of collapse of an entire system or market due to
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failure of a single entity or group of entities that can result in the breakdown of the entire financial
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system. this is due to the interdependency between the players in the system
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What are the major types of pure risk? - (correct answer) -- personal risk
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- property risk
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- liability risk
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- loss of business income
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