RISK MANAGEMENT QUIZ 1 EXAM QUESTIONS AND ANSWERS

RISK MANAGEMENT QUIZ 1 EXAM QUESTIONS AND ANSWERS Pure Risk - answer- loss, no loss Speculative Risk - answer- loss, no loss, gain - most of the time not insured Risk - answer- uncertainty about outcomes, with the possibility that some of the outcomes will be negative Risk Management - answer- helps organizations and individuals to avoid, prevent, reduce, or pay for the negative outcomes and risk, so that opportunities for reward can be pursued Subjective Risk - answer- opinion, perceived individuals view of uncertainty, attitude towards a situation, familiarity and control helps with examining these risks Objective Risk - answer- uncertainty concerning a loss, measurable, facts and data, includes (1) Probability (2) Variation Variation - answer- actual outcomes v. expected outcomes Probability - answer- the likelihood that something will happen, quantified Possibility - answer- the identification of risk, verifies that it is present Insurable Risks - answer- pure, objective, diversifiable Diversifiable Risk - answer- affects only some, not highly correlated and can be managed through diversification Nondiversifiable Risk - answer- affects a large segment of society at the same time, happens all at once Systemic Risk - answer- potential for a major disruption in the function of an entire market or financial system Expected Losses - answer- based on experience, data, or other means Actual Losses - answer- losses that actually occur, the problem is timing, always uncertain Static Risk - answer- risk that is always present, does not significantly change over time Dynamic Risk - answer- major threats, results from economic change and emerging risks, new, ex) regulatory, increased competition, climate change Hazards - answer- increases the frequency or severity of a loss, losses result from hazards Peril - answer- immediate cause of a loss (fire, flood, accident) Moral Hazard - answer- a condition that increases the likelihood that a person will intentionally cause or exaggerate a loss, deliberate, charity hazard (hurricane Sandy), the presence of insurance will make you use it Morale Hazard - answer- carelessness or indifference that increase the frequency or severity of loss To maximize Reward - answer- Minimize associated risk Quantifying Risk - answer- (1) Likelihood (2) Potential Magnitude Physical Hazard - answer- tangible characteristic that tends to increase the frequency or severity of loss (location, construction, use) Legal Hazard - answer- condition of the legal environment that increases loss frequency or severity Compounding Effect - answer- the possibility of multiple hazards Loss Frequency - answer- # of losses in a period, can be controlled Loss Severity - answer- $$$$ Variation Formula - answer- Actual Losses-Expected Losses/Expected Losses Risk Appetite - answer- total exposed amount that an organization wishes to undertake on the basis of risk-return trade-off for one or more desired and expected outcomes Intangible Property - answer- intellectual property Tangible property - answer- Real Estate/Real Property and Personal Property Real Estate/Real Property - answer- House/Building/Machine(equipment that's permanently attatched) Personal Property - answer- cars, commercial vehicles, electronics, documents Free on Board - answer- says where liability shifts Legal Interest in Property - answer- 1. Ownership, 2. Lease, 3. Secured Creditor, 4. Losses to goods in transit, 5. Bailment Liability loss e