Quiz #1 – Risk Management and Insurance, 2026 – Study Material and
Practice Questions
risk - ANS✔✔ uncertainty concerning the occurrence of a loss
loss exposure - ANS✔✔ any situation or circumstance in which a loss is possible, regardless of
whether a loss occurs
Objective Risk - ANS✔✔ Defined as relative variation of actual loss from expected loss
subjective risk - ANS✔✔ is defined as uncertainty based on a person's mental condition or state
of mind
chance of loss - ANS✔✔ the probability that an event will occur
Objective Probability - ANS✔✔ refers to the long-run relative frequency of an event based on
the assumptions of an infinite number of observations and of no change in the underlying
conditions
subjective probability - ANS✔✔ is the individual's personal estimate of the chance of loss
peril - ANS✔✔ is defined as the cause of loss
hazard - ANS✔✔ is a condition that creates or increases the frequency or severity of loss
physical hazard - ANS✔✔ is a physical condition that increases the frequency or severity of loss
, moral hazard - ANS✔✔ is dishonesty or character defects in an individual that increase the
frequency or severity of loss
attitudinal hazard - ANS✔✔ is carelessness or indifference to a loss, which increases the
frequency or severity of a loss
legal hazard - ANS✔✔ refers to characteristics of the legal system or regulatory environment
that increase the frequency or severity of losses
classification of risk - ANS✔✔ pure and speculative risk, diversifiable risk and nondiversifiable
risk, enterprise risk, systemic risk
pure risk - ANS✔✔ is defined as a situation in which there are only the possibilities of loss or no
loss
speculative risk - ANS✔✔ is defined as a situation in which either profit or loss is possible
diversifiable risk - ANS✔✔ is a risk that affects only individuals or small groups and not the
entire economy
nondiversifiable risk - ANS✔✔ is a risk that affects the entire economy or large numbers of
persons or groups within the economy
enterprise risk - ANS✔✔ is a term that encompasses all major risks faced by a business firm.
Such risks include pure risk, speculative risk, strategic risk, operational risk and financial risk.
systemic risk - ANS✔✔ the risk of collapse of an entire system or entire market due to the
failure of a single entity or group of entities that can result in the breakdown of the entire
financial system
Practice Questions
risk - ANS✔✔ uncertainty concerning the occurrence of a loss
loss exposure - ANS✔✔ any situation or circumstance in which a loss is possible, regardless of
whether a loss occurs
Objective Risk - ANS✔✔ Defined as relative variation of actual loss from expected loss
subjective risk - ANS✔✔ is defined as uncertainty based on a person's mental condition or state
of mind
chance of loss - ANS✔✔ the probability that an event will occur
Objective Probability - ANS✔✔ refers to the long-run relative frequency of an event based on
the assumptions of an infinite number of observations and of no change in the underlying
conditions
subjective probability - ANS✔✔ is the individual's personal estimate of the chance of loss
peril - ANS✔✔ is defined as the cause of loss
hazard - ANS✔✔ is a condition that creates or increases the frequency or severity of loss
physical hazard - ANS✔✔ is a physical condition that increases the frequency or severity of loss
, moral hazard - ANS✔✔ is dishonesty or character defects in an individual that increase the
frequency or severity of loss
attitudinal hazard - ANS✔✔ is carelessness or indifference to a loss, which increases the
frequency or severity of a loss
legal hazard - ANS✔✔ refers to characteristics of the legal system or regulatory environment
that increase the frequency or severity of losses
classification of risk - ANS✔✔ pure and speculative risk, diversifiable risk and nondiversifiable
risk, enterprise risk, systemic risk
pure risk - ANS✔✔ is defined as a situation in which there are only the possibilities of loss or no
loss
speculative risk - ANS✔✔ is defined as a situation in which either profit or loss is possible
diversifiable risk - ANS✔✔ is a risk that affects only individuals or small groups and not the
entire economy
nondiversifiable risk - ANS✔✔ is a risk that affects the entire economy or large numbers of
persons or groups within the economy
enterprise risk - ANS✔✔ is a term that encompasses all major risks faced by a business firm.
Such risks include pure risk, speculative risk, strategic risk, operational risk and financial risk.
systemic risk - ANS✔✔ the risk of collapse of an entire system or entire market due to the
failure of a single entity or group of entities that can result in the breakdown of the entire
financial system
