UGA RMIN 4000 Edmunds Exam 1
Questions and Answers
risk - Correct Answers -a calculated possibility of a negative outcome
calculated possibility - Correct Answers -a probabilistic outcome that is known or
estimated
negative outcome - Correct Answers -a loss that must be quantifiable
loss exposure - Correct Answers -any situation where a loss is possible (does not have
to occur)
loss frequency - Correct Answers -how often a loss occurs within a specific period
(probability)
formula to find frequency - Correct Answers -# of losses/# of exposures
loss severity - Correct Answers -how much does a loss cost when it occurs (a house fire
costs $x)
formula to find severity - Correct Answers -total losses in dollars/# of losses
Peril - Correct Answers -cause of loss (fire, windstorm, flood)
What are some advantages of an ERM program? - Correct Answers -increase
awareness of risk, integrated response to full range of risks, alignment with org.'s risk
tolerance and its strategies, fewer operational surprises and loses which increase value
of org., and greater compliance with regulations and improved accountability
Challenges/Barriers of an ERM Programs - Correct Answers -dynamic, lack of
commitment from senior leadership, resistance to change / disagreement over
responsibilities / turf war, and communication
Why use ERM? - Correct Answers -by combining all risks into a single risk management
program, the organization may be able to offset one risk against another, and reduce its
overall risk
Hazard - Correct Answers -condition that creates or increases the frequency and/or
severity of a loss
, At what probability is risk highest? - Correct Answers -0.5
Do risk and chance of loss mean the same? - Correct Answers -No, chance of loss is
the probability that an event will occur
What are the four types of hazards? - Correct Answers -Physical, Moral, Morale, and
Legal
Physical hazard - Correct Answers -a physical condition that increases the frequency or
severity of loss
moral hazard - Correct Answers -dishonesty or character defects in an individual that
increase the frequency or severity of loss (using a hammer to create "hail" damage to
your roof to get a claim)
Morale (Attitudinal) Hazard - Correct Answers -carelessness or indifference to a loss,
which increases the frequency or severity of a loss (leaving car unlocked leading to
theft)
Legal Hazard - Correct Answers -characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses (a jury in one district may
be more sympathetic than others)
pure risk - Correct Answers -a risk with a possibility of loss or no loss; no gain occurs
(auto accident, fire, flood, cancer)
speculative risk - Correct Answers -A chance of loss, no loss, or gain (investment,
gambling)
diversifiable risk - Correct Answers -a risk that affects only individuals or small groups
and not the entire economy, risks are not correlated
nondiversifiable risk - Correct Answers -a risk that affects the entire economy or large
numbers of persons or groups within the economy (war, inflation, business recession),
government assistance may be needed to insure, risks are correlated
what makes a risk diversifiable or not? - Correct Answers -it is diversifiable if it can be
reduced or eliminated by diversification
enterprise risk - Correct Answers -encompasses all major risks faced by a business firm
systemic risk - Correct Answers -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 and instability in the financial system due to the
interdependency between the players in the market
Questions and Answers
risk - Correct Answers -a calculated possibility of a negative outcome
calculated possibility - Correct Answers -a probabilistic outcome that is known or
estimated
negative outcome - Correct Answers -a loss that must be quantifiable
loss exposure - Correct Answers -any situation where a loss is possible (does not have
to occur)
loss frequency - Correct Answers -how often a loss occurs within a specific period
(probability)
formula to find frequency - Correct Answers -# of losses/# of exposures
loss severity - Correct Answers -how much does a loss cost when it occurs (a house fire
costs $x)
formula to find severity - Correct Answers -total losses in dollars/# of losses
Peril - Correct Answers -cause of loss (fire, windstorm, flood)
What are some advantages of an ERM program? - Correct Answers -increase
awareness of risk, integrated response to full range of risks, alignment with org.'s risk
tolerance and its strategies, fewer operational surprises and loses which increase value
of org., and greater compliance with regulations and improved accountability
Challenges/Barriers of an ERM Programs - Correct Answers -dynamic, lack of
commitment from senior leadership, resistance to change / disagreement over
responsibilities / turf war, and communication
Why use ERM? - Correct Answers -by combining all risks into a single risk management
program, the organization may be able to offset one risk against another, and reduce its
overall risk
Hazard - Correct Answers -condition that creates or increases the frequency and/or
severity of a loss
, At what probability is risk highest? - Correct Answers -0.5
Do risk and chance of loss mean the same? - Correct Answers -No, chance of loss is
the probability that an event will occur
What are the four types of hazards? - Correct Answers -Physical, Moral, Morale, and
Legal
Physical hazard - Correct Answers -a physical condition that increases the frequency or
severity of loss
moral hazard - Correct Answers -dishonesty or character defects in an individual that
increase the frequency or severity of loss (using a hammer to create "hail" damage to
your roof to get a claim)
Morale (Attitudinal) Hazard - Correct Answers -carelessness or indifference to a loss,
which increases the frequency or severity of a loss (leaving car unlocked leading to
theft)
Legal Hazard - Correct Answers -characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses (a jury in one district may
be more sympathetic than others)
pure risk - Correct Answers -a risk with a possibility of loss or no loss; no gain occurs
(auto accident, fire, flood, cancer)
speculative risk - Correct Answers -A chance of loss, no loss, or gain (investment,
gambling)
diversifiable risk - Correct Answers -a risk that affects only individuals or small groups
and not the entire economy, risks are not correlated
nondiversifiable risk - Correct Answers -a risk that affects the entire economy or large
numbers of persons or groups within the economy (war, inflation, business recession),
government assistance may be needed to insure, risks are correlated
what makes a risk diversifiable or not? - Correct Answers -it is diversifiable if it can be
reduced or eliminated by diversification
enterprise risk - Correct Answers -encompasses all major risks faced by a business firm
systemic risk - Correct Answers -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 and instability in the financial system due to the
interdependency between the players in the market
