RMIN 4000 UGA test 1|111 Answered
Questions A+ Graded
What is risk? - -a calculated possibility of a negative outcome
- What is calculated possibility? - -a probabilistic outcome that is known or
estimated (ranges from 0% to 100%)
- What is a negative outcome? - -a loss that must be quantifiable
- What is frequency? - -how often a loss occurs (frequency= number of
losses / number of exposures)
- What is severity? - -How much a loss costs when it occurs (severity = total
losses ($) / number of losses)
- What is a peril? - -a cause of a loss (fire, tornado, collision)
- What is a hazard? - -a condition that creates to increases the frequency
and/or severity of a loss but does not cause the loss
- What are the four types of hazards? - -- physical
- moral
- morale
- legal
- What is a physical hazard? - -a physical condition that increases the
frequency and/or severity of a loss (corrosion on pipes, too many wires
plugged in to an outlet)
- what is a moral hazard? - -dishonesty in an individual that increases the
frequency or severity of a loss. the presence of insurance changes the
behavior of the insured (causing "hail" damage with a hammer)
- What is a morale hazard? - -carelessness or indifference to a loss, which
increases the frequency and/or severity of a loss (leaving the car keys in
your unlocked car)
- What is a legal hazard? - -characteristics of the legal systems or regulatory
environment that increase the frequency and/or severity of a loss (juries
being more sympathetic in some areas)
- What is a pure risk? - -a risk in which there is no gain. the outcomes are
either loss or no loss
, - what is speculative risk? - -a risk in which there is a possibility for gain. the
outcomes are either loss, no change, or gain.
- What is the difference between pure and speculative risk? - -with
speculative risk, there is a chance of gain, whereas there is no chance for
gain with pure risk
- can you buy insurance for pure risks? - -yes
- can you buy insurance for speculative risks? - -No
- What is diversifiable risk? - -a risk that affects only individuals or small
groups, not the entire economy. risk is not correlated
- How do you reduce/eliminate diversifiable risk? - -diversification
- What is nondiversifiable risk? - -a risk that affects the entire economy or a
large group of people. this cannot be reduced/eliminated through
diversification. this risk is correlated.
- What is enterprise risk? - -encompasses all major risks faced by a business
firm:
- pure risk
- speculative risk
- strategic risk
- operational risk
- financial risk
- What is systemic risk? - -the risk of collapse of an entire system or market
due to failure of a single entity or group of entities that can result in the
breakdown of the entire financial system. this is due to the interdependency
between the players in the system
- What are the major types of pure risk? - -- personal risk
- property risk
- liability risk
- loss of business income
- cyber security
- What is personal risk? - -a risk that directly affects an individual or family;
involves the possibility of loss of income, extra expenses, or depletion of
financial assets (death, unemployment, disability, injury, inadequate
retirement income)
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