Exam 1: Risk and Its Treatment

Following good health habits can be categorized as

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

An individual's personal estimate of the chance of loss is a(n)

Faking an accident to collect insurance proceeds is an example of

A pure risk is defined as a situation in which there is

Rather than storing all of its finished goods in a single location, Davis Company divides the finished goods between two warehouses. This simple risk control technique which is designed to limit losses should a warehouse fire occur is called

A special form of planned retention by which part or all of a give loss exposure is retained by the firm is called

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 to a smoker harmed by the company's cigarettes. The characteristics of the judicial system that increase the frequency and severity of loss are known as

Which of the following is an example of a commercial risk?

The premature death of an individual is an example of a

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.

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.

The use of fire-resistive materials when constructing a building is an example of

Which of the following is an example of a noninsurance risk transfer?

Some members of Congress are concerned that if one or two large U.S. banks fail, it could lead to the collapse of the entire U.S. financial sector. This risk is called

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

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

Cathy's car hit a patch of ice on the road. The car skidded off the road and hit a tree. The presence of ice on the road is best described as a(n)

A peril is

One of the speculative financial risks considered in an enterprise risk management program is the risk of loss because of adverse changes in commodity prices, interest rates, foreign exchange rates, and the value of money. This risk is called