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UGA RMIN 4000 Edmunds Exam 1|90 questions & Solutions
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UGA RMIN 4000 Edmunds Exam 1|90 questions & Solutions
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UGA RMIN 4000 Edmunds Exam 1|90questions & Solutions
risk - -uncertainty concerning the occurrence of a loss (or calculated
possibility of a negative outcome)
- loss exposure - -any situation where a loss is possible (does not have to
occur)
- loss frequency - -how often a loss occurs within a specific period
(probability)
- formula to find frequency - -# of losses/# of exposures
- loss severity - -how much does a loss cost when it occurs (a house fire
costs $x)
- formula to find severity - -total losses in dollars/# of losses
- Peril - -cause of loss (fire, windstorm, flood)
- Hazard - -an event that creates or increases the chance of a loss without
causing
- At what probability is risk highest? - -0.5
- Do risk and chance of loss mean the same? - -No, chance of loss is the
probability that an event will occur
- What are the four types of hazards? - -Physical, Moral, Morale, and Legal
- Physical hazard - -a physical condition that increases the frequency or
severity of loss
- moral hazard - -dishonesty or character defects in an individual that
increase the frequency or severity of loss (using a hammer to create "hail"
damage to your roof to get a claim)
- Morale (Attitudinal) Hazard - -carelessness or indifference to a loss, which
increases the frequency or severity of a loss (leaving car unlocked leading to
theft)
, - Legal Hazard - -characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses (a jury in one
district may be more sympathetic than others)
- pure risk - -a risk with a possibility of loss or no loss; no gain occurs
- speculative risk - -A chance of loss, no loss, or gain
- diversifiable risk - -a risk that affects only individuals or small groups and
not the entire economy
- nondiversifiable risk - -a risk that affects the entire economy or large
numbers of persons or groups within the economy (war, inflation, business
recession)
- what makes a risk diversifiable or not? - -it is diversifiable if it can be
reduced or eliminated by diversification
- enterprise risk - -encompasses all major risks faced by a business firm
- systemic risk - -the risk that the failure of one financial institution can
bring down other institutions as well
- What are the major types of pure risk? - -personal, property, and liability
- personal risk - -A risk that directly affects an individual or family (peril, like
unemployment, causes loss of income)
- property risk - -possibility of losses associated with the destruction or theft
of property (can be direct or indirect-financial loss result of direct loss)
- legal liability risk - -financial consequences from injuries or damages you
caused to someone else (defense costs; liens on income or assets seized as
punishment)
- What are the techniques of managing risks? - -risk control and risk
financing
- risk control - -techniques that reduce the frequency or severity of losses
- risk financing - -techniques for funding losses
- what are some risk control tactics? - -loss prevention (employee training
or safety equipment to reduce frequency), loss reduction (sprinkler heads for
fires to reduce severity) , duplication, separation, diversification, and
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