Question 1

All the following are objectives of risk management except:

Accepted Answer

A)  to insure all exposures to loss 
B)  minimize reputation risk 
C)  minimize supply chain interruption 
D)  develop and maintain plant safety program 
A)  to insure all exposures to loss 
B)  minimize reputation risk 
C)  minimize supply chain interruption 
D)  develop and maintain plant safety program

Question 2

Which of the following is true about speculative risks?

Accepted Answer

A)  A firm cannot profit from its exposure to speculative risk. 
B)  The risk/return tradeoff is not applicable to speculative risks. 
C)  Risk managers must be tolerant of negative outcomes related to speculative risks. 
D)  Speculative risk is not a source of great concern for risk managers. 
A)  A firm cannot profit from its exposure to speculative risk. 
B)  The risk/return tradeoff is not applicable to speculative risks. 
C)  Risk managers must be tolerant of negative outcomes related to speculative risks. 
D)  Speculative risk is not a source of great concern for risk managers.

Question 3

If a private elementary school having a single building were to lose the building in a tornado, it is likely that the largest category of loss would be:

Accepted Answer

A)  property taxes 
B)  indirect loss of income and continuing expenses until school returns to its normal status 
C)  liability loss 
D)  key personnel loss 
A)  property taxes 
B)  indirect loss of income and continuing expenses until school returns to its normal status 
C)  liability loss 
D)  key personnel loss

Question 4

Which of the following is not a tort?

Accepted Answer

A)  Battery 
B)  Assault 
C)  Negligence 
D)  Breaking a contractual agreement 
A)  Battery 
B)  Assault 
C)  Negligence 
D)  Breaking a contractual agreement

Question 5

Workers' compensation insurance covers both job-related injuries and occupational diseases.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following would not normally be identified in the risk identification process?

Accepted Answer

A)  Property Risk 
B)  External Risk 
C)  Human Resource Risk 
D)  Pure Risk 
A)  Property Risk 
B)  External Risk 
C)  Human Resource Risk 
D)  Pure Risk

Question 7

From the employer's standpoint, workers' compensation insurance may be seen as a substitute for other types of liability insurance.

Accepted Answer

A) True 
 B)False

Question 8

Losses related to intangible property does not include:

Accepted Answer

A)  patents 
B)  inventory 
C)  human capital 
D)  reputation 
A)  patents 
B)  inventory 
C)  human capital 
D)  reputation

Question 9

The damage caused by an indirect loss can be greater in amount than the damage caused by direct loss in the same occurrence.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is an appropriate method for calculating the financial impact on the firm that results from the loss of a key employee?

Accepted Answer

A)  Research comparable salaries on employment data websites 
B)  Never let these employees be in the same building at the same time 
C)  A multiple of the key person's salary 
D)  Calculate the net present value of the future salary owed to the employee under his/her existing employment contract 
A)  Research comparable salaries on employment data websites 
B)  Never let these employees be in the same building at the same time 
C)  A multiple of the key person's salary 
D)  Calculate the net present value of the future salary owed to the employee under his/her existing employment contract

Question 11

Most financial risks are insurable.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is true about pure risks?

Accepted Answer

A)  The risk/return tradeoff is applicable to pure risks. 
B)  A firm cannot profit from its exposure to pure risk. 
C)  Risk managers must be tolerant of negative outcomes related to pure risks. 
D)  Pure risk is not a source of great concern for risk managers. 
A)  The risk/return tradeoff is applicable to pure risks. 
B)  A firm cannot profit from its exposure to pure risk. 
C)  Risk managers must be tolerant of negative outcomes related to pure risks. 
D)  Pure risk is not a source of great concern for risk managers.

Question 13

The Big Boy Toy Company's best seller is a futuristic radio-controlled car. The toy is manufactured using a custom mold designed especially for the company by a local artist. If anything were to happen to this mold, the company would have to stop manufacturing the toys until the artist could reproduce the mold. The risk manager's primary concern regarding damage to this mold is probably the:

Accepted Answer

A)  indirect loss that will result while production of the toy is halted 
B)  expense of paying the artist to reproduce the mold 
C)  extra cost of manufacturing additional toys while the car cannot be manufactured 
D)  direct damage to employees that will be laid off while production is halted 
A)  indirect loss that will result while production of the toy is halted 
B)  expense of paying the artist to reproduce the mold 
C)  extra cost of manufacturing additional toys while the car cannot be manufactured 
D)  direct damage to employees that will be laid off while production is halted

Question 14

Why do supply chains complicate the ERM process?

Accepted Answer

A)  They lead to higher human resource risk. 
B)  They lead to higher speculative risks. 
C)  A disruption somewhere in the supply chain affects the operations of a firm. 
D)  They do not complicate the ERM process at all. 
A)  They lead to higher human resource risk. 
B)  They lead to higher speculative risks. 
C)  A disruption somewhere in the supply chain affects the operations of a firm. 
D)  They do not complicate the ERM process at all.

Question 15

Foster is suing Geraldine and they are in a contributory negligence state. Foster's total injuries are $100,000, and the jury finds that he was 5% at fault in the incident. How much money will Foster be entitled to collect?

Accepted Answer

A)  $100,000 
B)  $95,000 
C)  $0 
D)  $90,000 
A)  $100,000 
B)  $95,000 
C)  $0 
D)  $90,000

Question 16

What is the difference between compensation for personal injuries and punitive damages?

Accepted Answer

Personal injury damages pay for damages

Question 17

Leasing is an example of risk identification.

Accepted Answer

A) True 
 B)False

Question 18

If assumption of the risk is established, it means the defendant usually must pay for damages.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is true about direct losses?

Accepted Answer

A)  Does not include smoke damage to a building 
B)  Is a non-financial loss 
C)  Has no direct liability consequences for the firm 
D)  Often is followed by an indirect loss due to business interruption 
A)  Does not include smoke damage to a building 
B)  Is a non-financial loss 
C)  Has no direct liability consequences for the firm 
D)  Often is followed by an indirect loss due to business interruption

Question 20

Why is the damage to the property of others also relevant for a firm?

Accepted Answer

A)  It is a speculative risk. 
B)  Since a firm needs to pay for the damage to the property of others 
C)  Due to the complex supply chains upon which firms rely 
D)  It is not relevant at all. 
A)  It is a speculative risk. 
B)  Since a firm needs to pay for the damage to the property of others 
C)  Due to the complex supply chains upon which firms rely 
D)  It is not relevant at all.

Exam 2: Risk Identification

All the following are objectives of risk management except:

Which of the following is true about speculative risks?

If a private elementary school having a single building were to lose the building in a tornado, it is likely that the largest category of loss would be:

Which of the following is not a tort?

Workers' compensation insurance covers both job-related injuries and occupational diseases.

Which of the following would not normally be identified in the risk identification process?

From the employer's standpoint, workers' compensation insurance may be seen as a substitute for other types of liability insurance.

Losses related to intangible property does not include:

The damage caused by an indirect loss can be greater in amount than the damage caused by direct loss in the same occurrence.

Which of the following is an appropriate method for calculating the financial impact on the firm that results from the loss of a key employee?

Most financial risks are insurable.

Which of the following is true about pure risks?

Why do supply chains complicate the ERM process?

Foster is suing Geraldine and they are in a contributory negligence state. Foster's total injuries are $100,000, and the jury finds that he was 5% at fault in the incident. How much money will Foster be entitled to collect?

What is the difference between compensation for personal injuries and punitive damages?

Leasing is an example of risk identification.

If assumption of the risk is established, it means the defendant usually must pay for damages.

Which of the following is true about direct losses?

Why is the damage to the property of others also relevant for a firm?

Introduction to Enterprise Risk Management and Insurance

Risk Assessment and Pooling

Risk-Handling Techniques: Loss Control, Risk Transfer, and Loss Financing

Risk-Handling Techniques: Diversification and Hedging

Fundamentals of Insurance

Insurable Perils and Insuring Organizations

Insurance Functions

Insurance Markets: Economics and Issues

Insurance Regulation

Insurance Contracts

The Personal Auto Policy

Homeowners Insurance

Professional Financial Planning

Life Insurance Policies

Standard Life Insurance Contract Provisions and Options

Annuities

Health Insurance and Disability Income

Employee Benefits

Social Security

Unemployment and Workers Compensation Insurance

Commercial Property Insurance

Commercial Liability Insurance

Filters