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ARM 402 FINAL EXAM PREP: QUESTIONS WITH SOLUTIONS (A+)
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ARM 402 FINAL EXAM PREP: QUESTIONS WITH SOLUTIONS (A+)
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ARM 402 FINAL EXAM PREP: QUESTIONS WITHSOLUTIONS (A+)
Which one of the following business decisions represents procurement risk?
Right Ans - A fabricator of steel beams decides to switch from its long-time
supplier of raw materials to a new supplier that promises faster delivery and
lower prices.
ABC Automobiles specializes in manufacturing gasoline powered vehicles for
commercial fleets. The Executive Board of ABC Automobiles suggests taking a
more aggressive approach to the company's risk appetite by investing in a line
of high horsepower electric vehicles to expand their customer base and
increase competitiveness. ABC provides the board with quarterly financials
listing the risk-adjusted return on capital for all new projects. The board is
advised by the treasurer that based on financial forecasts, ABC would need to
begin selling vehicles in one year or it will have a negative financial impact on
other ABC operations.
As ABC Automobiles increases its risk appetite, which one of the following
should it consider doing next? Right Ans - Develop KRI's based on a risk
appetite between the high-end and low-end risk tolerance thresholds.
A significant disadvantage of self-insurance for liability loss exposures
compared to property loss exposures is that Right Ans - Tax deductions for
liability losses are likely to be deferred for a longer time.
A trademark is a Right Ans - Distinctive design or set of words that legally
identifies a product or service as belonging to a certain organization.
A contract that obligates one party to buy and another party to sell a specific
financial instrument or physical commodity at a specified future date and
price is a Right Ans - Forward contract.
To determine the minimum amount of capital an insurer needs to support its
operation given the insurer's risk characteristics, the National Association of
Insurance Commissioners developed its Right Ans - Risk-based capital
system.
, For a loss exposure to be ideally insurable it must be definite in Right Ans -
Time, cause, and location.
Which one of the following statements is true regarding patent creation?
Right Ans - Three criteria for patent creation are that the invention must be
new, useful, and nonobvious.
Investors in contingent capital arrangements Right Ans - Become creditors
of the organization following a loss.
JKL Company retains general liability claims up to $100,000 per occurrence.
The company purchased excess liability insurance that provides both specific
and aggregate excess coverage on an annual basis. After the $100,000
retention, the specific excess limit is $500,000 per occurrence. The aggregate
excess limit is $5 million. During the year this excess arrangement was in
place, JKL sustained three general liability claims. These three occurrences
resulted in settlements of $700,000, $50,000, and $400,000. How much of
these three settlements will JKL's excess insurer pay in total? Right Ans -
800,000
$500,000 + 0 + $300,000 = $800,000; JKL's excess insurer will pay $800,000.
The duration of a design patent is Right Ans - Fourteen years from the date
of issuance.
Jill's Dress Cottage recently added an elaborate sprinkler system which cost
$9,000. Jill is hoping that she will be able to obtain a discount on her property
insurance as a result of making her property safer. Jill's decision to add the
sprinkler system is an example of which one of the following risk management
techniques? Right Ans - Loss reduction
In reviewing its business results, Tops Company, a manufacturer of sports
hats, experienced sales that far exceeded expectations. Celebrity sports figures
were frequently seen wearing Tops Company's distinctive hats creating an
unexpected demand for its products. In a SWOT analysis, how would Caps
Company categorize its unexpected demand for its products? Right Ans -
Opportunity
Reinsurance is best described as Right Ans - An agreement by a reinsurer
to indemnify a primary insurer for losses.
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