Question 1

According to the rule of indemnity, an insured person cannot collect more than the actual loss from an insurable risk.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Trevino 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 Trevino is unknown. Trevino should:

Accepted Answer

A)  dispose of the used acid by pouring it down the drain since the government will take care of any environmental issues that come from polluting the water. 
B)  get a fire insurance policy and make sure to visit the doctor regularly. 
C)  switch to another potentially less dangerous method of separating each metal. 
D)  pour it out in back of the studio in the gutter. 
A)  dispose of the used acid by pouring it down the drain since the government will take care of any environmental issues that come from polluting the water. 
B)  get a fire insurance policy and make sure to visit the doctor regularly. 
C)  switch to another potentially less dangerous method of separating each metal. 
D)  pour it out in back of the studio in the gutter.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Question 6

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

Accepted Answer

A)  cover small and medium-sized losses itself, and carry conventional insurance only for catastrophic losses. 
B)  carry insurance for the small, routine losses and pay for any highly unusual major losses with its own funds. 
C)  buy an insurance policy that covers all risks. 
D)  establish a well-monitored loss-prevention program. 
A)  cover small and medium-sized losses itself, and carry conventional insurance only for catastrophic losses. 
B)  carry insurance for the small, routine losses and pay for any highly unusual major losses with its own funds. 
C)  buy an insurance policy that covers all risks. 
D)  establish a well-monitored loss-prevention program.

Question 7

An enterprise risk management (ERM) program has a goal of defining which risks the program will manage.

Accepted Answer

A) True 
 B)False

Question 8

Businesses can often reduce the risk to which they are exposed.

Accepted Answer

A) True 
 B)False

Question 9

Alberto 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

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 11

The risk of environmental harm is __________ in its proportions on issues such as global warming.

Accepted Answer

A)  local 
B)  regional 
C)  national 
D)  international 
A)  local 
B)  regional 
C)  national 
D)  international

Question 12

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

Accepted Answer

A)  A good accountant 
B)  Investment in AAA bonds 
C)  Insurance 
D)  Indemnity 
A)  A good accountant 
B)  Investment in AAA bonds 
C)  Insurance 
D)  Indemnity

Question 13

An insurance company would not be willing to insure a risk if it:

Accepted Answer

A)  results from political disruptions. 
B)  has a measurable loss. 
C)  results from an accident. 
D)  has a low probability of occurring. 
A)  results from political disruptions. 
B)  has a measurable loss. 
C)  results from an accident. 
D)  has a low probability of occurring.

Question 14

The ________ says that an insured person cannot collect more than the actual loss from an insurable risk.

Accepted Answer

A)  law of large numbers 
B)  rule of indemnity 
C)  law of diminishing returns 
D)  rule of finite loss coverage 
A)  law of large numbers 
B)  rule of indemnity 
C)  law of diminishing returns 
D)  rule of finite loss coverage

Question 15

Product recalls can reduce risk.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

The law of large numbers states that if

Question 18

It's good advice for doctors and lawyers to carry malpractice insurance.

Accepted Answer

A) True 
 B)False

Question 19

When a firm that is self-insuring against risk decides to cover losses straight out of its budget, it is said to be "going bare."

Accepted Answer

A) True 
 B)False

Question 20

A characteristic of a health savings account that distinguishes it from other types of health care coverage is that it:

Accepted Answer

A)  is not tax-deferred. 
B)  allows people to save money for medical expenses in a tax-deferred account. 
C)  covers only emergency procedures. 
D)  provides unlimited access to routine medical services (such as office visits) and minor medical tests and procedures (such as blood tests and X-rays) at no cost. 
A)  is not tax-deferred. 
B)  allows people to save money for medical expenses in a tax-deferred account. 
C)  covers only emergency procedures. 
D)  provides unlimited access to routine medical services (such as office visits) and minor medical tests and procedures (such as blood tests and X-rays) at no cost.

Exam 24: Extension: Managing Risk

According to the rule of indemnity, an insured person cannot collect more than the actual loss from an insurable risk.

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

Trevino 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 Trevino is unknown. Trevino should:

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

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

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

An enterprise risk management (ERM) program has a goal of defining which risks the program will manage.

Businesses can often reduce the risk to which they are exposed.

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

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:

The risk of environmental harm is __________ in its proportions on issues such as global warming.

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

An insurance company would not be willing to insure a risk if it:

The ________ says that an insured person cannot collect more than the actual loss from an insurable risk.

Product recalls can reduce risk.

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

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

It's good advice for doctors and lawyers to carry malpractice insurance.

When a firm that is self-insuring against risk decides to cover losses straight out of its budget, it is said to be "going bare."

A characteristic of a health savings account that distinguishes it from other types of health care coverage is that it:

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 Union and 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

Managing the Marketing Mix: Product, Price, Place and Promotion

Extension: Working Within the Legal Environment

Extension: Using Technology to Manage Information

Extension: Managing Personal Finances

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