RISK MANAGEMENT TEST BANK 2025 | DETAILED
QUESTION AND ANSWERS, GUARANTEED A+ SUCCESS
What is the definition of risk? - ☑️
CORRECT ANSWER No single definition of risk.
Uncertainty concerning the occurrence of a loss.
Any situation where there is uncertainty about what outcome will occur.
Variation of outcomes."
"What is loss exposure? - ☑️
CORRECT ANSWER Any situation or circumstance in
which a loss is possible, regardless of whether a loss occurs."
"What are the three different types of risk attitude? - ☑️CORRECT ANSWER
1. Risk Averse
2. Risk Neutral
3. Risk Taker (Lover)"
"What is a risk-averse? - ☑️ CORRECT ANSWER Avoid risk if and when possible.
(Will pay extra to remove risk from a set of outcomes.)"
"What is a risk neutral? - ☑️CORRECT ANSWER Will evaluate risk and will strive to
"pay" no more or less than the expected loss to avoid the risk."
"What is a risk taker? - ☑️
CORRECT ANSWER Will "gamble" on a big payout and not
take many precautions to avoid risk."
"What is an objective risk? - ☑️CORRECT ANSWER: Defined as the relative
variation of actual loss from expected loss, it can be statistically calculated by some
measure of dispersion. (Standard deviation)"
"What is the law of large numbers? - ☑️
CORRECT ANSWER States that as the
number of exposure units increases, the more closely the actual loss experience will
approach the expected loss experience."
"What is a subjective risk? - ☑️
CORRECT ANSWER Defined as the uncertainty
based on a person's mental condition or state of mind, it varies by individual. (Cannot be
measured)"
"What is the chance of loss? - ☑️CORRECT ANSWER: Defined as the probability
that an event will occur."
, "What is a peril? - ☑️
CORRECT ANSWER: Defined as the cause of the loss.
Ex. Your house burns because of fire; the peril, or cause of loss, is the fire."
"What is a hazard? - ☑️
CORRECT ANSWER: Cause of peril, a condition that creates
or increases the frequency or severity of loss.
Ex. Your house burns because of a fire because of wood, wood is the hazard."
"What are the four major types of hazards? - ☑️CORRECT ANSWER
1. Physical hazard
2. Moral hazard
3. Attitudinal hazard (Morale hazard)
4. Legal hazard"
"What is a physical hazard? - ☑️
CORRECT ANSWER A physical condition that
increases the frequency or severity of loss.
Ex. Icy road that increases the chance of an auto insurance."
"What is a moral hazard? - ☑️ CORRECT ANSWER Dishonesty or character defects
in an individual that increase the frequency or severity of loss.
Ex-post vs. Ex-ante
Ex. Faking an accident to collect from insurers, intentional murder to collect life
insurance."
"What is ex-post and ex-ante? - ☑️
CORRECT ANSWER Ex-post is when you
exaggerate after a loss, and ex-ante is when you lie that you don't have problems with
health insurance."
"What is an attitudinal hazard (morale hazard)? - ☑️CORRECT ANSWER
Carelessness or indifference to a loss which increases the frequency or severity of a
loss.
Ex. Leaving car keys in an unlocked car."
"What is a legal hazard? - ☑️CORRECT ANSWER Refers to characteristics of the
legal system or regulatory environment that increase the frequency or severity of
losses."
"What are the different kinds of risks? - ☑️CORRECT ANSWER
1. Pure and speculative risk
2. Diversifiable risk and nondiversifiable risk
QUESTION AND ANSWERS, GUARANTEED A+ SUCCESS
What is the definition of risk? - ☑️
CORRECT ANSWER No single definition of risk.
Uncertainty concerning the occurrence of a loss.
Any situation where there is uncertainty about what outcome will occur.
Variation of outcomes."
"What is loss exposure? - ☑️
CORRECT ANSWER Any situation or circumstance in
which a loss is possible, regardless of whether a loss occurs."
"What are the three different types of risk attitude? - ☑️CORRECT ANSWER
1. Risk Averse
2. Risk Neutral
3. Risk Taker (Lover)"
"What is a risk-averse? - ☑️ CORRECT ANSWER Avoid risk if and when possible.
(Will pay extra to remove risk from a set of outcomes.)"
"What is a risk neutral? - ☑️CORRECT ANSWER Will evaluate risk and will strive to
"pay" no more or less than the expected loss to avoid the risk."
"What is a risk taker? - ☑️
CORRECT ANSWER Will "gamble" on a big payout and not
take many precautions to avoid risk."
"What is an objective risk? - ☑️CORRECT ANSWER: Defined as the relative
variation of actual loss from expected loss, it can be statistically calculated by some
measure of dispersion. (Standard deviation)"
"What is the law of large numbers? - ☑️
CORRECT ANSWER States that as the
number of exposure units increases, the more closely the actual loss experience will
approach the expected loss experience."
"What is a subjective risk? - ☑️
CORRECT ANSWER Defined as the uncertainty
based on a person's mental condition or state of mind, it varies by individual. (Cannot be
measured)"
"What is the chance of loss? - ☑️CORRECT ANSWER: Defined as the probability
that an event will occur."
, "What is a peril? - ☑️
CORRECT ANSWER: Defined as the cause of the loss.
Ex. Your house burns because of fire; the peril, or cause of loss, is the fire."
"What is a hazard? - ☑️
CORRECT ANSWER: Cause of peril, a condition that creates
or increases the frequency or severity of loss.
Ex. Your house burns because of a fire because of wood, wood is the hazard."
"What are the four major types of hazards? - ☑️CORRECT ANSWER
1. Physical hazard
2. Moral hazard
3. Attitudinal hazard (Morale hazard)
4. Legal hazard"
"What is a physical hazard? - ☑️
CORRECT ANSWER A physical condition that
increases the frequency or severity of loss.
Ex. Icy road that increases the chance of an auto insurance."
"What is a moral hazard? - ☑️ CORRECT ANSWER Dishonesty or character defects
in an individual that increase the frequency or severity of loss.
Ex-post vs. Ex-ante
Ex. Faking an accident to collect from insurers, intentional murder to collect life
insurance."
"What is ex-post and ex-ante? - ☑️
CORRECT ANSWER Ex-post is when you
exaggerate after a loss, and ex-ante is when you lie that you don't have problems with
health insurance."
"What is an attitudinal hazard (morale hazard)? - ☑️CORRECT ANSWER
Carelessness or indifference to a loss which increases the frequency or severity of a
loss.
Ex. Leaving car keys in an unlocked car."
"What is a legal hazard? - ☑️CORRECT ANSWER Refers to characteristics of the
legal system or regulatory environment that increase the frequency or severity of
losses."
"What are the different kinds of risks? - ☑️CORRECT ANSWER
1. Pure and speculative risk
2. Diversifiable risk and nondiversifiable risk
