Question 1

The term objective risk is most often used in connection with pure static risks.

Accepted Answer

A) True 
 B)False  True

Question 2

Match the descriptions with their terms:
-_________________ are caused by societal changes.

Accepted Answer

A)  Dynamic risks 
B)  Financial risk 
C)  Hazards 
D)  Integrated risk management 
E)  moral hazard
F) morale hazard
G) objective risk
H) Peril
I) Pure risk
J) Risk
K) Risk management
L) Speculative risk
M) Static risk
N) Subjective risk 
A)  Dynamic risks 
B)  Financial risk 
C)  Hazards 
D)  Integrated risk management 
E)  moral hazard
F) morale hazard
G) objective risk
H) Peril
I) Pure risk
J) Risk
K) Risk management
L) Speculative risk
M) Static risk
N) Subjective risk A

Question 3

An insurer is least likely to insure

Accepted Answer

A)  static risk 
B)  pure risk 
C)  objective risk 
D)  speculative risk. 
A)  static risk 
B)  pure risk 
C)  objective risk 
D)  speculative risk. D

Question 4

Under which of the following conditions will objective risk decrease, assuming everything else remains constant?

Accepted Answer

A)  the number of exposure units increases 
B)  the chance of loss decreases 
C)  the number of exposure units decreases 
D)  the probable variation of actual from objective losses increases. 
A)  the number of exposure units increases 
B)  the chance of loss decreases 
C)  the number of exposure units decreases 
D)  the probable variation of actual from objective losses increases.

Question 5

The threat of Congress enacting a costly environmental regulation is an example of a risk that is both pure and dynamic.

Accepted Answer

A) True 
 B)False

Question 6

Match the descriptions with their terms:
-_________________ are those that would exist in an unchanging society that is in stable equilibrium.

Accepted Answer

A)  Dynamic risks 
B)  Financial risk 
C)  Hazards 
D)  Integrated risk management 
E)  moral hazard
F) morale hazard
G) objective risk
H) Peril
I) Pure risk
J) Risk
K) Risk management
L) Speculative risk
M) Static risk
N) Subjective risk 
A)  Dynamic risks 
B)  Financial risk 
C)  Hazards 
D)  Integrated risk management 
E)  moral hazard
F) morale hazard
G) objective risk
H) Peril
I) Pure risk
J) Risk
K) Risk management
L) Speculative risk
M) Static risk
N) Subjective risk

Question 7

Pure risk may be said to create an economic burden in all except which of the following ways?

Accepted Answer

A)  reserve funds may be necessitated that may not yield the highest rate of return available, 
B)  pure risk can result in feelings of mental unrest and worry that can drain human energies 
C)  pure risk results in gambling, which is a destructive social force 
D)  pure risk may deprive society of certain goods or services determined to bear excessive risk. 
A)  reserve funds may be necessitated that may not yield the highest rate of return available, 
B)  pure risk can result in feelings of mental unrest and worry that can drain human energies 
C)  pure risk results in gambling, which is a destructive social force 
D)  pure risk may deprive society of certain goods or services determined to bear excessive risk.

Question 8

Pure risk exists when there is uncertainty as to whether loss will occur.

Accepted Answer

A) True 
 B)False

Question 9

The purchase of a stock that has little chance of earnings growth or price appreciation is an example of the assumption of a speculative risk.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following does not involve a moral hazard?

Accepted Answer

A)  a dishonest employee 
B)  an employee known to falsify personal injury claims 
C)  a driver who drives recklessly because he feels that any damage to his car will be covered by insurance 
D)  a building owner who is considering torching the building. 
A)  a dishonest employee 
B)  an employee known to falsify personal injury claims 
C)  a driver who drives recklessly because he feels that any damage to his car will be covered by insurance 
D)  a building owner who is considering torching the building.

Question 11

Which of the following represent hazards that affect the level of Company ABC's liability risk?

Accepted Answer

A)  a large amount of debt in comparison with the level of ABC's assets and an award of a judgment against ABC 
B)  an award of judgment against ABC and the frequent occurrence of slippery spills on the floor of ABC's personnel department 
C)  the frequent occurrence of slippery spills on the floor of ABC's personnel department and a particularly toxic waste product that is temporarily stored in a vacant lot next to a large chemical factory 
D)  an award of judgment against ABC and a particularly toxic waste product that is temporarily stored in a vacant lot next to a large chemical factory. 
A)  a large amount of debt in comparison with the level of ABC's assets and an award of a judgment against ABC 
B)  an award of judgment against ABC and the frequent occurrence of slippery spills on the floor of ABC's personnel department 
C)  the frequent occurrence of slippery spills on the floor of ABC's personnel department and a particularly toxic waste product that is temporarily stored in a vacant lot next to a large chemical factory 
D)  an award of judgment against ABC and a particularly toxic waste product that is temporarily stored in a vacant lot next to a large chemical factory.

Question 12

Employee theft is an example of a morale hazard.

Accepted Answer

A) True 
 B)False

Question 13

In which of the following towns is the degree of objective risk from the peril of fire the highest?

Accepted Answer

A)  Town A has 10,000 homes with an average loss of 2 percent and a range of 100-250 losses per year 
B)  Town B has 100,000 homes with an average loss of 5 percent and a range of 400-500 losses per year 
C)  Town C has 1,000 homes with an average loss of 1 percent and a range of 7-15 losses per year 
D)  Town D has 10,000 homes with an average loss of 3 percent and a range of 150-350 losses per year. 
A)  Town A has 10,000 homes with an average loss of 2 percent and a range of 100-250 losses per year 
B)  Town B has 100,000 homes with an average loss of 5 percent and a range of 400-500 losses per year 
C)  Town C has 1,000 homes with an average loss of 1 percent and a range of 7-15 losses per year 
D)  Town D has 10,000 homes with an average loss of 3 percent and a range of 150-350 losses per year.

Question 14

Expressed as a percentage, what is the degree of objective risk if a company owns 1,000 cars, has averaged 25 collision losses per year, the collision losses will very likely range between 20 and 30, and last year's loss experience was 23?

Accepted Answer

A)  43.5 percent 
B)  92.0 percent 
C)  25.0 percent 
D)  40.0 percent. 
A)  43.5 percent 
B)  92.0 percent 
C)  25.0 percent 
D)  40.0 percent.

Question 15

A peril is a contingency that can cause a loss.

Accepted Answer

A) True 
 B)False

Question 16

The degree of risk is essentially the same concept as the chance of loss.

Accepted Answer

A) True 
 B)False

Question 17

An objective risk is the risk based on the mental state of an individual who experiences uncertainty as to the outcome of an event.

Accepted Answer

A) True 
 B)False

Question 18

Match the descriptions with their terms:
-_________________ does not include a chance of a gain and involves only uncertainty as to whether loss will occur.

Accepted Answer

A)  Dynamic risks 
B)  Financial risk 
C)  Hazards 
D)  Integrated risk management 
E)  moral hazard
F) morale hazard
G) objective risk
H) Peril
I) Pure risk
J) Risk
K) Risk management
L) Speculative risk
M) Static risk
N) Subjective risk 
A)  Dynamic risks 
B)  Financial risk 
C)  Hazards 
D)  Integrated risk management 
E)  moral hazard
F) morale hazard
G) objective risk
H) Peril
I) Pure risk
J) Risk
K) Risk management
L) Speculative risk
M) Static risk
N) Subjective risk

Question 19

Match the descriptions with their terms:
-_________________ arises from psychological uncertainty that is based on an individual's mental attitude or state of mind.

Accepted Answer

A)  Dynamic risks 
B)  Financial risk 
C)  Hazards 
D)  Integrated risk management 
E)  moral hazard
F) morale hazard
G) objective risk
H) Peril
I) Pure risk
J) Risk
K) Risk management
L) Speculative risk
M) Static risk
N) Subjective risk 
A)  Dynamic risks 
B)  Financial risk 
C)  Hazards 
D)  Integrated risk management 
E)  moral hazard
F) morale hazard
G) objective risk
H) Peril
I) Pure risk
J) Risk
K) Risk management
L) Speculative risk
M) Static risk
N) Subjective risk

Question 20

Match the descriptions with their terms:
-A risk management approach in which an organization's speculative and pure risks are both considered together is known as either enterprise or _________________ risk management.

Accepted Answer

A)  Dynamic risks 
B)  Financial risk 
C)  Hazards 
D)  Integrated risk management 
E)  moral hazard
F) morale hazard
G) objective risk
H) Peril
I) Pure risk
J) Risk
K) Risk management
L) Speculative risk
M) Static risk
N) Subjective risk 
A)  Dynamic risks 
B)  Financial risk 
C)  Hazards 
D)  Integrated risk management 
E)  moral hazard
F) morale hazard
G) objective risk
H) Peril
I) Pure risk
J) Risk
K) Risk management
L) Speculative risk
M) Static risk
N) Subjective risk

Exam 1: Introduction to Risk

The term objective risk is most often used in connection with pure static risks.

Match the descriptions with their terms: -_________________ are caused by societal changes.

An insurer is least likely to insure

Under which of the following conditions will objective risk decrease, assuming everything else remains constant?

The threat of Congress enacting a costly environmental regulation is an example of a risk that is both pure and dynamic.

Match the descriptions with their terms: -_________________ are those that would exist in an unchanging society that is in stable equilibrium.

Pure risk may be said to create an economic burden in all except which of the following ways?

Pure risk exists when there is uncertainty as to whether loss will occur.

The purchase of a stock that has little chance of earnings growth or price appreciation is an example of the assumption of a speculative risk.

Which of the following does not involve a moral hazard?

Which of the following represent hazards that affect the level of Company ABC's liability risk?

Employee theft is an example of a morale hazard.

In which of the following towns is the degree of objective risk from the peril of fire the highest?

Expressed as a percentage, what is the degree of objective risk if a company owns 1,000 cars, has averaged 25 collision losses per year, the collision losses will very likely range between 20 and 30, and last year's loss experience was 23?

A peril is a contingency that can cause a loss.

The degree of risk is essentially the same concept as the chance of loss.

An objective risk is the risk based on the mental state of an individual who experiences uncertainty as to the outcome of an event.

Match the descriptions with their terms: -_________________ does not include a chance of a gain and involves only uncertainty as to whether loss will occur.

Match the descriptions with their terms: -_________________ arises from psychological uncertainty that is based on an individual's mental attitude or state of mind.

Match the descriptions with their terms: -A risk management approach in which an organization's speculative and pure risks are both considered together is known as either enterprise or _________________ risk management.

Risk Identification and Evaluation

Property and Liability Loss Exposures

Life, Health, and Loss of Income Exposures

Risk Management Techniques: Noninsurance Methods

Insurance As a Risk Management Technique: Principles

Insurance As a Risk Management Technique: Policy Provisions

Selecting and Implementing Risk Management Techniques

Risk Management and Commercial Propertypart I

Risk Management and Commercial Propertypart II

Risk Management and Commercial Liability Risk

Workers Compensation and Alternative Risk Financing

Risk Management for Auto Ownerspart I

Risk Management for Auto Ownerspart II

Risk Management for Homeowners

Loss of Life

Loss of Health

Retirement Planning and Annuities

Employee Benefits: Life and Health Benefits

Employee Benefits: Retirement Plans

Financial and Estate Planning

Risk Management and the Insurance Industry

Functions and Organization of Insurers

Government Regulation of Risk Management and Insurance

Filters