financial risk - Correct Answer risk associated with a monetary outlay; includes the initial cost of the purchase, as well as the costs of using the item or service
hazard - Correct Answer A condition that creates or increases frequency or severity of loss
Hedging - Correct Answer a tec...
BUSFIN 3300 Exam 1 prep Questions Correctly
Answered
financial risk - Correct Answer risk associated with a monetary outlay; includes the initial cost of the
purchase, as well as the costs of using the item or service
hazard - Correct Answer A condition that creates or increases frequency or severity of loss
Hedging - Correct Answer a technique for transferring the risk of unfavorable price fluctuations to a
speculator by purchasing and selling futures contracts on an organized exchange
hold harmless clause - Correct Answer policy that the patient is not responsible for paying what the
insurance plan denies.
Human Life Value - Correct Answer an individuals economic worth, measured by the sum of the
individuals future earnings that is devoted to the individuals family.
Incorporation - Correct Answer A process that extended the protections of the Bill of Rights against the
actions of state and local governments
Indirect Loss/Consequential Loss - Correct Answer A financial loss that results indirectly from the
occurrence of a direct physical damage or theft loss (ex. additional living expenses after a fire)
Law of Large Numbers - Correct Answer the larger the number of individuals that are randomly drawn
from a population, the more representative the resulting group will be of the entire population
Legal Hazard - Correct Answer characteristics of the legal system or regulatory environment that
increase the frequency or severity of losses
Liability Risk - Correct Answer relates to harm or injury to other people or their property because of
your actions
,Loss Exposure - Correct Answer any situation or circumstance in which a loss is possible, regardless of
whether a loss occurs
Loss Prevention - Correct Answer A risk control technique that reduces the frequency of a particular
loss.
Moral Hazard - Correct Answer Arises when people behave recklessly because they know they will be
saved if things go wrong
nondiversifiable risk - Correct Answer a risk that affects the entire economy or large numbers of
persons or groups within the economy
noninsurance transfers - Correct Answer methods other than insurance by which a pure risk and its
potential financial consequences are transferred to another party
Objective Probability - Correct Answer 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
Can be determined in 2 ways:
- deductive reasoning: probability of getting a heads from a single coin flip is 1/2
- inductive reasoning: probability a 21 year old will die before 26
Objective Risk - Correct Answer the relative variation of actual loss from expected loss
Operational Risk - Correct Answer The risk of direct or indirect loss of operations due to inadequate or
failed internal processes, people or systems, or as a result of external events. Public perception that a
bank is not able to manage its operational risk effectively can disrupt or harm the business of the bank.
peril - Correct Answer cause of loss
Personal Risk - Correct Answer a risk that can result in personal losses such as health and personal well-
being
, Physical Hazard - Correct Answer A tangible characteristic of property, persons, or operations that tends
to increase the frequency or severity of loss.
premature death - Correct Answer the death of a family head with outstanding unfulfilled financial
obligations
Property Risks - Correct Answer involve the possibility of losses associated with the destruction or theft
of property
Pure Risk - Correct Answer a risk that presents the chance of loss but no opportunity for gain
retention - Correct Answer means that an individual or a business firm retains part of all of the losses
that can result from a given risk.
Active Retention - Correct Answer means that an individual is aware of the risk and deliberately plans to
retain all or part of it
Passive Retention - Correct Answer means risks may be unknowingly retained because of ignorance,
indifference, or laziness
risk - Correct Answer is defined as uncertainty concerning the occurrence of a loss.
Risk Control - Correct Answer A conscious act or decision not to act that reduces the frequency and/or
severity of losses or makes losses more predictable.
Risk Control Techniques - Correct Answer 1. Avoidance
2. Loss Prevention
3. Loss Reduction
4. Separation
5. Duplication
6. Diversification
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