Question 1

Which of the following statements best reflects the concept behind the rule of indemnity?

Accepted Answer

A)  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. 
B)  If a written contract exists between the insured and an insurance company, the insured is entitled to receive the maximum amount stated in the contract in the event of a loss. 
C)  If an insurance company's premiums generate excess funds, these excess funds must be returned to the policyholders in the form of dividends or reductions in future premiums. 
D)  An insured person cannot collect more than the actual loss from an insurable risk. 
A)  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. 
B)  If a written contract exists between the insured and an insurance company, the insured is entitled to receive the maximum amount stated in the contract in the event of a loss. 
C)  If an insurance company's premiums generate excess funds, these excess funds must be returned to the policyholders in the form of dividends or reductions in future premiums. 
D)  An insured person cannot collect more than the actual loss from an insurable risk.

Question 2

Marshall Manufacturing has decided to stop producing football helmets due to the potential size of losses involved in product liability cases. This is an example of "avoiding risk" as an alternative risk management strategy.

Accepted Answer

A) True 
 B)False

Question 3

________ risk involves a chance of either profit or loss.

Accepted Answer

A)  Insurable 
B)  Managed 
C)  Speculative 
D)  Pure 
A)  Insurable 
B)  Managed 
C)  Speculative 
D)  Pure

Question 4

Risk management is concerned only with risks to individuals and businesses.

Accepted Answer

A) True 
 B)False

Question 5

Risk management now includes the evaluation of

Accepted Answer

A)  worldwide risks such as global warming. 
B)  worldwide issues such as poverty. 
C)  European issues such as the value of the euro. 
D)  political risks in South America. 
A)  worldwide risks such as global warming. 
B)  worldwide issues such as poverty. 
C)  European issues such as the value of the euro. 
D)  political risks in South America.

Question 6

One advantage of health savings accounts is that healthy people can use tax-deferred money to save for their future medical needs.

Accepted Answer

A) True 
 B)False

Question 7

An uninsurable risk is one that no insurance company will cover.

Accepted Answer

A) True 
 B)False

Question 8

SpeedyTime Delivery Service is managing risk by requiring all drivers to wear seat belts and hold a commercial driver's license, by monitoring any moving violations each driver obtains, and by keeping that information in the employee records. Additionally, SpeedyTime carries an insurance policy with a very large deductible, preferring to pay for small damages to its trucks out-of-pocket. SpeedyTime has built enterprise risk management into their organization.

Accepted Answer

A) True 
 B)False

Question 9

Arturo is worried about the risk of potential flooding to his restaurant. He decides to buy insurance to cover this ________ risk.

Accepted Answer

A)  speculative 
B)  pure 
C)  uninsurable 
D)  managed 
A)  speculative 
B)  pure 
C)  uninsurable 
D)  managed

Question 10

There have been a series of large judgments in product liability cases against companies producing hair dryers. If this trend continues, insurance companies will respond by ________ the premiums charged for liability insurance for hair dryer manufacturers.

Accepted Answer

A)  lowering 
B)  canceling 
C)  increasing 
D)  underwriting 
A)  lowering 
B)  canceling 
C)  increasing 
D)  underwriting

Question 11

Amusement parks often have a minimum height restriction on some of their most thrilling rides. This risk management strategy is done in an effort to

Accepted Answer

A)  minimize the speculative risk associated with an injury. 
B)  reduce the risk associated with a potential accident. 
C)  self-insure against a catastrophic accident. 
D)  create the perception of a more exciting ride. 
A)  minimize the speculative risk associated with an injury. 
B)  reduce the risk associated with a potential accident. 
C)  self-insure against a catastrophic accident. 
D)  create the perception of a more exciting ride.

Question 12

Mini-Case
The Bookworm is a bookstore and café located on a busy downtown main street in Denver. The owner, Waata Reader, prides himself on the vast selection of books available in the store. The store has three stories, with both stairs and an elevator to each level. In the back of the first floor is the café, which serves pastries and coffee drinks. Many times customers will linger there over a cup of coffee, deciding which book to purchase. Waata has expanded several times and now has 22 people on the staff.
-When one of Waata's employees was stocking a particularly high shelf one morning; he reached a bit too far and fell off the ladder. Luckily he just broke his arm and returned to work later that day. His medical bills due to this accident were covered under

Accepted Answer

A)  workers' compensation. 
B)  disability insurance. 
C)  liability insurance. 
D)  his own health insurance. 
A)  workers' compensation. 
B)  disability insurance. 
C)  liability insurance. 
D)  his own health insurance.

Question 13

Risk management is

Accepted Answer

A)  only a consideration to insurance companies. 
B)  increasing in importance. 
C)  decreasing in importance. 
D)  used exclusively when engaging in global Internet business. 
A)  only a consideration to insurance companies. 
B)  increasing in importance. 
C)  decreasing in importance. 
D)  used exclusively when engaging in global Internet business.

Question 14

Risk management for business is critical due in part to

Accepted Answer

A)  natural disasters. 
B)  profitability. 
C)  legal requirements. 
D)  international requirements. 
A)  natural disasters. 
B)  profitability. 
C)  legal requirements. 
D)  international requirements.

Question 15

Mini-Case
The Bookworm is a bookstore and café located on a busy downtown main street in Denver. The owner, Waata Reader, prides himself on the vast selection of books available in the store. The store has three stories, with both stairs and an elevator to each level. In the back of the first floor is the café, which serves pastries and coffee drinks. Many times customers will linger there over a cup of coffee, deciding which book to purchase. Waata has expanded several times and now has 22 people on the staff.
-One of Waata's staff members has been out on sick leave because she had an emergency appendectomy. She brought the hospital bills in to Waata for his opinion. It seems she had been covered by two health insurance policies for some time and now she thinks she may be able to collect from both companies in payment for the operation. Waata assured his employee that

Accepted Answer

A)  she could look forward to a check from both companies once they had paid the medical bills. 
B)  because of the rule of indemnity she would not be able to profit from her operation. 
C)  because of the law of large numbers both insurance companies would pay her directly. 
D)  because her risk was insurable, she would be able to collect from both insurance policies. 
A)  she could look forward to a check from both companies once they had paid the medical bills. 
B)  because of the rule of indemnity she would not be able to profit from her operation. 
C)  because of the law of large numbers both insurance companies would pay her directly. 
D)  because her risk was insurable, she would be able to collect from both insurance policies.

Question 16

Risk is a term that refers to the chance of loss, the degree of probability of loss, and the amount of possible loss.

Accepted Answer

A) True 
 B)False

Question 17

Tom and Sarah are both 24 years old and looking for car insurance. While comparing numbers, they notice the car insurance premiums charged for young male drivers are higher than the premiums for young female drivers. This is due to the rule of indemnity.

Accepted Answer

A) True 
 B)False

Question 18

Firms can take out term life-insurance policies on their top executives.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

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

Question 20

Home-based business owners add a ________ to their homeowner's insurance policy to ensure that they have adequate coverage.

Accepted Answer

A)  deductible unit 
B)  compensation clause 
C)  rider 
D)  tag 
A)  deductible unit 
B)  compensation clause 
C)  rider 
D)  tag

Exam 23: Managing Risk

Which of the following statements best reflects the concept behind the rule of indemnity?

Marshall Manufacturing has decided to stop producing football helmets due to the potential size of losses involved in product liability cases. This is an example of "avoiding risk" as an alternative risk management strategy.

________ risk involves a chance of either profit or loss.

Risk management is concerned only with risks to individuals and businesses.

Risk management now includes the evaluation of

One advantage of health savings accounts is that healthy people can use tax-deferred money to save for their future medical needs.

An uninsurable risk is one that no insurance company will cover.

Arturo is worried about the risk of potential flooding to his restaurant. He decides to buy insurance to cover this ________ risk.

There have been a series of large judgments in product liability cases against companies producing hair dryers. If this trend continues, insurance companies will respond by ________ the premiums charged for liability insurance for hair dryer manufacturers.

Amusement parks often have a minimum height restriction on some of their most thrilling rides. This risk management strategy is done in an effort to

Risk management is

Risk management for business is critical due in part to

Risk is a term that refers to the chance of loss, the degree of probability of loss, and the amount of possible loss.

Tom and Sarah are both 24 years old and looking for car insurance. While comparing numbers, they notice the car insurance premiums charged for young male drivers are higher than the premiums for young female drivers. This is due to the rule of indemnity.

Firms can take out term life-insurance policies on their top executives.

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

Home-based business owners add a ________ to their homeowner's insurance policy to ensure that they have adequate coverage.

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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