Exam 23: Managing Risk

Antonio is a silversmith and works with various metals. At the end of the day, he reclaims and separates each metal by using an inexpensive toxic acid though other methods are available. The risk of fire as well as health dangers to Antonio is unknown. What should Antonio do?

________ is the armor individuals, businesses, and nonprofit organizations use to protect themselves from various financial risks.

A terrorist attack is an example of pure risk.

Explain what makes the acceptance of risk possible for insurance companies.

Companies adopt risk management procedures to minimize the chance of business failure due to unplanned events such as security breaches, terrorist attacks, and natural disasters.

Going bare is a much less risky strategy for self-insurance.

Disability insurance replaces part of your income if you become disabled and can no longer work, but you usually must be disabled for a specified period of time before benefits are provided.

An entrepreneur takes a speculative risk when starting a new business.

Atlanta Appliances produces all of its products in one gigantic production facility near an earthquake fault line. Atlanta Appliances is the classic example of a firm that should use self-insurance to manage its risks.

The federal government provides some insurance protection.

The best strategy for a profit-seeking insurance company would be to specialize in providing protection to people in a specific geographical area.

The law of large numbers states that if a large number of people are exposed to the same risk, a predictable number of losses will occur during a given period of time.

Risks such as global warming are the concern of businesses and governments primarily in the U.S.

A fidelity bond covers losses resulting from a second party's failure to fulfill a contract.

Citrus City Groves on Florida's Gulf Coast, harvests an assortment of citrus fruits. The owners of Citrus City are right to think about how the risk of climate change might impact their crops in the future.

There are two different kinds of risk: passive and active.

Insurable interest means that the policyholder is the one at risk to suffer a loss.

In an effort to minimize the cost of conventional property/casualty insurance, Epic Electronics decided to manage their risk by self-insuring. The most likely way Epic would try to do this would be to

Self-insurance makes more sense for firms that operate one large facility than it does for firms with facilities scattered all over the country.

Ernesto is opening a new car wash. The required investment of money and time is sizable and although he has high hopes, Ernesto is taking a speculative risk. What does this mean?