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BUSFIN 3300 Exam 1 Questions with Correct Answers
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BUSFIN 3300 Exam 1 Questions with Correct Answers
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BUSFIN 3300 Exam 1 Questions with CorrectAnswers
Traditional definition of risk Correct Answer-uncertainty concerning the
occurrence of a loss
Insurance definition of risk Correct Answer-used to identify the property
or life that is being considered for insurance
uncertainty Correct Answer-used in situations where such probabilities
cannot be estimated
Loss Exposure Correct Answer-any situation or circumstance in which a
loss is possible, regardless of whether a loss occurs
Objective Risk Correct Answer-the relative variation of actual loss from
expected loss
- it can be statistically calculated by some measure of dispersion, such as
the standard deviation
Subjective (perceived) risk Correct Answer-uncertainty based on a
person's mental condition or state of mind
Chance of Loss Correct Answer-the probability that an event that causes
a loss will occur
,Objective Probability Correct Answer-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
subjective probability Correct Answer-the individual's personal estimate
of the chance of loss
peril Correct Answer-The cause of a loss (Fire, windstorm, lightning, or
damage to your car because of a collision)
Hazard Correct Answer-A condition that increases the frequency or
severity of a loss.
Physical Hazard Correct Answer-a physical condition that increases the
frequency or severity of loss
Moral Hazard Correct Answer-is dishonesty or character defects in an
individual that increase the frequency or severity of loss
Attitudinal Hazard (Morale Hazard) Correct Answer-carelessness or
indifference to a loss, which increases the frequency or severity of a loss
Legal Hazard Correct Answer-characteristics of the legal system or
regulatory environment that increase the frequency or severity of losses
, Pure Risk Correct Answer-A situation in which there are only the
possibilities of loss or no loss (earthquake)
Speculative Risk Correct Answer-a situation in which either profit or
loss is possible (gambling)
diversifiable risk Correct Answer-A risk that affects only some
individuals, businesses, or small groups (car theft). It can be reduced or
eliminated by diversification
nondiversifiable risk Correct Answer-a risk that affects the entire
economy or large numbers of persons or groups within the economy
(hurricane). It is also called fundamental risk
-government assistance may be necessary to insure nondiversifiable
risks
Enterprise Risk Correct Answer-encompasses all major risks faced by a
business firm, which include: pure risk, speculative risk, strategic risk,
operational risk, and financial risk
Strategic Risk Correct Answer-uncertainty regarding the firm's financial
goals and objectives
Operational Risk Correct Answer-results from the firm's business
operations
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