Question 1

AutoPROs recalled thousands of tires when several people died in traffic accidents blamed on faulty tires. This is an example of which of the following?

Accepted Answer

A)  avoiding the risk 
B)  self-insuring against the risk 
C)  reducing the risk 
D)  a loss-prevention program 
A)  avoiding the risk 
B)  self-insuring against the risk 
C)  reducing the risk 
D)  a loss-prevention program C

Question 2

Aqua Sprinkler Systems experienced increasing sales for several years. The firm expanded its product offerings, and now serves both commercial and residential customers. Which of the following situations would be considered an uninsurable risk for Aqua Sprinkler Systems?

Accepted Answer

A)  a fire that destroys its warehouse 
B)  employee sues company due to injury on the job 
C)  equipment theft that causes work downtime 
D)  drought-resistant grass technology that disrupts sales 
A)  a fire that destroys its warehouse 
B)  employee sues company due to injury on the job 
C)  equipment theft that causes work downtime 
D)  drought-resistant grass technology that disrupts sales D

Question 3

Organizations spend about ________ percent of gross domestic product on insurance premiums.

Accepted Answer

A)  2 
B)  5 
C)  10 
D)  20 
A)  2 
B)  5 
C)  10 
D)  20 C

Question 4

Risk management involves minimizing the losses from unexpected events.

Accepted Answer

A) True 
 B)False

Question 5

Outsourcing helps some companies avoid risk.

Accepted Answer

A) True 
 B)False

Question 6

An insurance policy is a written contract.

Accepted Answer

A) True 
 B)False

Question 7

Health savings accounts are managed care plans that have a high deductible.

Accepted Answer

A) True 
 B)False

Question 8

Explain the difference between speculative risk and pure risk. Which type of risk is of more concern to businesspeople?

Accepted Answer

Pure risk is of more concern to business

Question 9

Pure risk involves the chance of either a profit or a loss.

Accepted Answer

A) True 
 B)False

Question 10

Federal Housing Administration (FHA) insurance provides insurance to property owners in high-crime areas.

Accepted Answer

A) True 
 B)False

Question 11

Some businesses will set aside money to cover routine losses and buy "catastrophe" policies to cover big losses. This is an example of which of the following?

Accepted Answer

A)  avoiding the risk 
B)  self-insuring against the risk 
C)  reducing the risk 
D)  loss-prevention program 
A)  avoiding the risk 
B)  self-insuring against the risk 
C)  reducing the risk 
D)  loss-prevention program

Question 12

Typically, the only option that firms have to deal with pure risk is to buy insurance.

Accepted Answer

A) True 
 B)False

Question 13

Self-insurance is the practice of setting aside money to cover routine claims and buying only "catastrophe" policies to cover big losses.

Accepted Answer

A) True 
 B)False

Question 14

Workers' compensation insurance guarantees payment of wages, medical care, and rehabilitation services for employees who are injured on the job.

Accepted Answer

A) True 
 B)False

Question 15

One way to lower the need for outside insurance is to self-insure.

Accepted Answer

A) True 
 B)False

Question 16

________ insurance provides benefits to the survivors of workers who die as a result of work-related injuries.

Accepted Answer

A)  Health 
B)  Professional liability 
C)  Workers' compensation 
D)  Malpractice 
A)  Health 
B)  Professional liability 
C)  Workers' compensation 
D)  Malpractice

Question 17

Workers' compensation insurance is required in all states except Louisiana.

Accepted Answer

A) True 
 B)False

Question 18

Water sprinklers and smoke detectors can be used to minimize speculative risks.

Accepted Answer

A) True 
 B)False

Question 19

A surety bond protects employers from employee dishonesty.

Accepted Answer

A) True 
 B)False

Question 20

A firm that chooses to self-insure and cover losses out of its budget is said to

Accepted Answer

A)  fly blind. 
B)  roll boxcars. 
C)  go bare. 
D)  internalize risk. 
A)  fly blind. 
B)  roll boxcars. 
C)  go bare. 
D)  internalize risk.

Exam 23: Managing Risk

AutoPROs recalled thousands of tires when several people died in traffic accidents blamed on faulty tires. This is an example of which of the following?

Aqua Sprinkler Systems experienced increasing sales for several years. The firm expanded its product offerings, and now serves both commercial and residential customers. Which of the following situations would be considered an uninsurable risk for Aqua Sprinkler Systems?

Organizations spend about ________ percent of gross domestic product on insurance premiums.

Risk management involves minimizing the losses from unexpected events.

Outsourcing helps some companies avoid risk.

An insurance policy is a written contract.

Health savings accounts are managed care plans that have a high deductible.

Explain the difference between speculative risk and pure risk. Which type of risk is of more concern to businesspeople?

Pure risk involves the chance of either a profit or a loss.

Federal Housing Administration (FHA) insurance provides insurance to property owners in high-crime areas.

Some businesses will set aside money to cover routine losses and buy "catastrophe" policies to cover big losses. This is an example of which of the following?

Typically, the only option that firms have to deal with pure risk is to buy insurance.

Self-insurance is the practice of setting aside money to cover routine claims and buying only "catastrophe" policies to cover big losses.

Workers' compensation insurance guarantees payment of wages, medical care, and rehabilitation services for employees who are injured on the job.

One way to lower the need for outside insurance is to self-insure.

________ insurance provides benefits to the survivors of workers who die as a result of work-related injuries.

Workers' compensation insurance is required in all states except Louisiana.

Water sprinklers and smoke detectors can be used to minimize speculative risks.

A surety bond protects employers from employee dishonesty.

A firm that chooses to self-insure and cover losses out of its budget is said to

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding Economics and How It Affects Business

Doing Business in Global Markets

Demanding Ethical and Socially Responsible Behavior

How to Form a Business

Entrepreneurship and Starting a Small Business

Management and Leadership

Structuring Organizations for Todays Challenges

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Employeemanagement Issues

Marketing: Helping Buyers Buy

Developing and Pricing Goods and Services

Distributing Products

Using Effective Promotions

Understanding Accounting and Financial Information

Financial Management

Using Securities Markets for Financing and Investing Opportunities

Money, Financial Institutions, and the Federal Reserve

Working Within the Legal Environment

Using Technology to Manage Information

Managing Personal Finances

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