Question 1

Following good health habits can be categorized as

Accepted Answer

A) loss prevention. 
B) risk retention. 
C) noninsurance transfer. 
D) personal insurance. 
A) loss prevention. 
B) risk retention. 
C) noninsurance transfer. 
D) personal insurance. A

Question 2

A phrase that encompasses all of the major risks faced by a business firm is

Accepted Answer

A) financial risk. 
B) speculative risk. 
C) enterprise risk. 
D) pure risk. 
A) financial risk. 
B) speculative risk. 
C) enterprise risk. 
D) pure risk. C

Question 3

A risk that affects only individuals or small groups and not the entire economy is called a

Accepted Answer

A) diversifiable risk. 
B) pure risk. 
C) speculative risk. 
D) nondiversifiable risk. 
A) diversifiable risk. 
B) pure risk. 
C) speculative risk. 
D) nondiversifiable risk. A

Question 4

MLX Drug Company would like to market a new hypertension drug.While the Food and Drug Administration (FDA)was testing the drug,it discovered that the drug produced a harmful side effect.When MLX learned of the FDA's test result,MLX abandoned its plan to produce and distribute the drug.MLX's reaction illustrates

Accepted Answer

A) risk avoidance. 
B) hedging. 
C) risk transfer. 
D) risk retention. 
A) risk avoidance. 
B) hedging. 
C) risk transfer. 
D) risk retention.

Question 5

Ben is concerned that if he injures someone or damages someone's property he could be held legally responsible and required to pay damages.This type of risk is called a

Accepted Answer

A) speculative risk. 
B) liability risk. 
C) nondiversifiable risk. 
D) property risk. 
A) speculative risk. 
B) liability risk. 
C) nondiversifiable risk. 
D) property risk.

Question 6

Taylor Tobacco Company is concerned that the company may be held liable in a court of law and ordered to pay a large damage award.The characteristics of the judicial system that increase the frequency and severity of losses are known as

Accepted Answer

A) moral hazard. 
B) particular risk. 
C) speculative risk. 
D) legal hazard. 
A) moral hazard. 
B) particular risk. 
C) speculative risk. 
D) legal hazard.

Question 7

Williams Company installed smoke detectors,a sprinkler system,and fire extinguishers in its new manufacturing facility.These devices are all examples of

Accepted Answer

A) loss control. 
B) noninsurance transfer. 
C) risk avoidance. 
D) risk retention. 
A) loss control. 
B) noninsurance transfer. 
C) risk avoidance. 
D) risk retention.

Question 8

Which of the following statements about financial risk is (are)true?
I.Enterprise risk does not include financial risk.
II.Financial risk is easily addressed through the purchase of insurance.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 9

All of the following are methods of noninsurance transfer EXCEPT

Accepted Answer

A) entering into a hold-harmless agreement. 
B) avoiding dangerous activities. 
C) hedging risk using futures contracts. 
D) incorporating a business. 
A) entering into a hold-harmless agreement. 
B) avoiding dangerous activities. 
C) hedging risk using futures contracts. 
D) incorporating a business.

Question 10

Jim and Paula Franklin started a dry cleaning business.The business may be successful or it may fail.The type of risk that is present when either a profit or loss could occur is called

Accepted Answer

A) pure risk. 
B) subjective risk. 
C) nondiversifiable risk. 
D) speculative risk. 
A) pure risk. 
B) subjective risk. 
C) nondiversifiable risk. 
D) speculative risk.

Question 11

All of the following are commercial risks EXCEPT

Accepted Answer

A) the loss of business income. 
B) the risk of insufficient retirement income. 
C) the risk of being sued. 
D) the risk of property damage. 
A) the loss of business income. 
B) the risk of insufficient retirement income. 
C) the risk of being sued. 
D) the risk of property damage.

Question 12

Loss control includes which of the following?
I.Loss reduction
II.Loss prevention

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 13

The premature death of an individual is an example of a

Accepted Answer

A) pure risk. 
B) speculative risk. 
C) fundamental risk. 
D) physical hazard. 
A) pure risk. 
B) speculative risk. 
C) fundamental risk. 
D) physical hazard.

Question 14

Curt borrowed money from a bank to purchase a fishing boat.He purchased property insurance on the boat.Curt had difficulty making loan payments because he did not catch many fish,and fish prices were low.Curt intentionally sunk the boat,collected from his insurer,and paid off the loan balance.This scenario illustrates the problem of

Accepted Answer

A) adverse selection. 
B) moral hazard. 
C) nondiversifiable risk. 
D) attitudinal hazard. 
A) adverse selection. 
B) moral hazard. 
C) nondiversifiable risk. 
D) attitudinal hazard.

Question 15

Faking an accident to collect insurance proceeds is an example of a

Accepted Answer

A) physical hazard. 
B) objective risk. 
C) moral hazard. 
D) attitudinal hazard. 
A) physical hazard. 
B) objective risk. 
C) moral hazard. 
D) attitudinal hazard.

Question 16

An earthquake is an example of a

Accepted Answer

A) moral hazard. 
B) peril. 
C) physical hazard. 
D) objective risk. 
A) moral hazard. 
B) peril. 
C) physical hazard. 
D) objective risk.

Question 17

All of the following statements about risk retention are true EXCEPT

Accepted Answer

A) It may be used intentionally if commercial insurance is unavailable. 
B) It may be used passively because of ignorance. 
C) Its use is most appropriate for low-frequency,high-severity types of risks. 
D) Its use results in cost savings if losses are less than the cost of insurance. 
A) It may be used intentionally if commercial insurance is unavailable. 
B) It may be used passively because of ignorance. 
C) Its use is most appropriate for low-frequency,high-severity types of risks. 
D) Its use results in cost savings if losses are less than the cost of insurance.

Question 18

The extra expense incurred by a business to stay in operation following a fire is an example of a(n)

Accepted Answer

A) fundamental risk. 
B) speculative risk. 
C) direct loss. 
D) indirect loss. 
A) fundamental risk. 
B) speculative risk. 
C) direct loss. 
D) indirect loss.

Question 19

Which of the following statements about liability risks is (are)true?
I.Future income and assets can be attached to pay judgments if inadequate insurance is carried.
II.There is an upper limit on the amount of loss.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 20

Uncertainty based on a person's mental condition or state of mind is known as

Accepted Answer

A) objective risk. 
B) subjective risk. 
C) objective probability. 
D) subjective probability. 
A) objective risk. 
B) subjective risk. 
C) objective probability. 
D) subjective probability.

Exam 1: Risk in Our Society

Following good health habits can be categorized as

A phrase that encompasses all of the major risks faced by a business firm is

A risk that affects only individuals or small groups and not the entire economy is called a

Ben is concerned that if he injures someone or damages someone's property he could be held legally responsible and required to pay damages.This type of risk is called a

Taylor Tobacco Company is concerned that the company may be held liable in a court of law and ordered to pay a large damage award.The characteristics of the judicial system that increase the frequency and severity of losses are known as

Williams Company installed smoke detectors,a sprinkler system,and fire extinguishers in its new manufacturing facility.These devices are all examples of

Which of the following statements about financial risk is (are)true? I.Enterprise risk does not include financial risk. II.Financial risk is easily addressed through the purchase of insurance.

All of the following are methods of noninsurance transfer EXCEPT

Jim and Paula Franklin started a dry cleaning business.The business may be successful or it may fail.The type of risk that is present when either a profit or loss could occur is called

All of the following are commercial risks EXCEPT

Loss control includes which of the following? I.Loss reduction II.Loss prevention

The premature death of an individual is an example of a

Faking an accident to collect insurance proceeds is an example of a

An earthquake is an example of a

All of the following statements about risk retention are true EXCEPT

The extra expense incurred by a business to stay in operation following a fire is an example of a(n)

Which of the following statements about liability risks is (are)true? I.Future income and assets can be attached to pay judgments if inadequate insurance is carried. II.There is an upper limit on the amount of loss.

Uncertainty based on a person's mental condition or state of mind is known as

Insurance and Risk

Introduction to Risk Management

Advanced Topics in Risk Management

Types of Insurers and Marketing Systems

Insurance Company Operations

Financial Operations of Insurers

Government Regulation of Insurance

Fundamental Legal Principles

Analysis of Insurance Contracts

Life Insurance

Life Insurance Contractual Provisions

Buying Life Insurance

Annuities and Individual Retirement Accounts

Individual Health Insurance Coverages

Employee Benefits: Group Life and Health Insurance

Employee Benefits: Retirement Plans

Social Insurance

The Liability Risk

Homeowners Insurance,section I

Homeowners Insurance,section Ii

Auto Insurance

Auto Insurance and Society

Other Property and Liability Insurance Coverages

Commercial Property Insurance

Commercial Liability Insurance

Crime Insurance and Surety Bonds

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