Exam 24: Extension: Managing Risk

Abraham is excited about opening his car wash facility. The required investment of money and time is sizable and although he has high hopes, Abraham is taking a speculative risk. This means that:

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:

Green Gardens Sprinkler Systems Company 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 Green Gardens?

A stock insurance company is owned by its policyholders.

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

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

________ risk involves the threat of loss with no chance for profit.

Nancy owns a high-fashion boutique and one source of competitive advantage in the past has been her ability to spot the latest trends, stock the store with those items, and sell out before the next new trend becomes popular. Unfortunately, this year Nancy missed on what would be "hot" and is now stuck with mountains of clothing and accessories that did not sell. All of her cash is invested in this clothing and at the moment she is unable to restock the store with the next season's clothes. Nancy is likely not worried because:

Risk management is:

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

A well-designed and implemented risk-prevention program can eliminate the potential of loss.

Jonathon is in charge of risk management for Learnit Corp., a large chain of preschools in the midwest. He has decided to build enterprise risk management into the organization. The first step Jonathon should take is to:

Professional liability insurance is also sometimes known as malpractice insurance.

Harold owns several gas stations. He realizes that among the several risks associated with this type of business is the risk of minor damage to cars from dirty or contaminated fuel. He also knows that there is a small chance of a major loss if a fire occurred at one of his gas stations. Harold wants to control his insurance costs while still maintaining a reasonable risk management program. He is considering self-insurance. If he decides to use this approach, he will probably:

Product liability insurance covers liability arising out of defective products sold.

A mutual insurance company is owned by its policyholders.

Explain the benefits of workers' compensation. Who is required to carry this type of insurance?

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

The type of risk that is of most concern to businesspeople is speculative risk.

Rebecca received a letter in the mail from her employer's insurance company inquiring if her children had health insurance coverage from another provider. According to the _____________ the insurance provider has the right to this information.