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RMIN 4000 Ragin Test 1|Questions with Verified Answers
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RMIN 4000 Ragin Test 1|Questions with Verified Answers
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RMIN 4000 Ragin Test 1|Questions withVerified Answers
risk - -a calculated possibility of a negative outcome (loss and probability)
- possibility - -a probabilistic outcome that is known or estimated
- loss - -must be quantifiable, typically in dollar amounts
- pure risk - -risk with only two future potential states of the world (ex.
flood, time of death, cancer)
- speculative risk - -risk with three potential states of the world: loss, break
even, or gain (ex. investments, gambling)
- moral hazard - -idea that if you have insurance, you are more likely to
take larger risks and change your behavior (ex. bugatti veyron, RAND Health
Insurance Experiment - 1984)
- fundamental risk - -risk that every firm/person in a sample face at the
same time and to a similar extent (ex. inflation, unemployment, major
catastrophes)
- systemic risk - -instability in the financial system caused by
interdependency between players and the market
- particular risk - -risk that only applies to one or a small number of
people/firms at the same time (ex. fire, theft, collision)
- risk averse - -don't like risk, will pay money to offload risk
- risk seeking - -like risk, will pay money to take on risk (ex. skydiving,
poker, Google)
- frequency of loss - -how often do losses happen?
- severity of loss - -how much are losses in dollar amounts when they do
occur?
- exposure - -the asset that could be lost
- perils - -the immediate cause of the loss (action verb)
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