IRM 4030 Exam 1 - Multiple Choice
Questions & Answers16
What is the first step in the risk management process?
A) Risk management implementation
B) Risk evaluation
C) Risk treatment
D) Risk identification - ANSWERS-Risk identification
When evaluating risk exposures, risk managers often try to estimate the risk's
A) Frequency and velocity
B) Frequency and severity
C) Frequency and reoccurrence
D) Frequency and resilience - ANSWERS-Frequency and severity
What type of risk is best managed through the purchase of insurance or risk transfer?
A) High frequency, low resilience
B) Low frequency, low velocity
C) Low frequency, high severity
D) High frequency, high severity - ANSWERS-Low frequency, high severity
Which type of risk is best managed through risk avoidance?
A) High frequency, high severity
B) Low frequency, low velocity
C) Low frequency, high severity
,D) High frequency, low resilience - ANSWERS-High frequency, high severity
Purchasing health insurance illustrates the use of which personal risk management technique?
A) avoidance
B) risk transfer
C) risk control
D) risk retention - ANSWERS-risk transfer
The U.S. government is concerned that terrorists might try to crash a vehicle filled with
explosives into a U.S. embassy in a foreign country. Inside the gate to the embassy, they
installed steel and cement posts in the road. These posts can be raised up from the ground to
form a barrier against suicide bombers. The posts can be lowered back into the ground to allow
safe vehicles to pass. This physical barrier system illustrates which risk management technique?
A) risk avoidance
B) insurance transfer
C) loss prevention
D) noninsurance transfer - ANSWERS-loss prevention
What measures the Value at Risk?
The worst likelihood of a major loss event.
The expected loss within 1% of the loss distribution.
The worst loss that will not be exceeded with 99% probability.
The variance of the worst case scenario within a loss distribution. - ANSWERS-The worst loss
that will not be exceeded with 99% probability.
($\mu-\sigma$)-indifference lines for a risk neutral individual are
, vertical
concave
convex
changing in curvature - ANSWERS-vertical
An earthquake is an example of
adverse selection
a peril
a speculative risk
a hazard - ANSWERS-a speculative risk
The use of fire-resistive materials when constructing a building is an example of
risk transfer
risk control
risk avoidance
risk retention - ANSWERS-risk control
All of the following statements about risk control are true EXCEPT
it may be used intentionally if commercial insurance is unavailable
it may not be used because of ignorance
its use is most appropriate for low-frequency-high-severity types of risks
its use results in cost savings if losses are less than the cost of insurance - ANSWERS-its use is
most appropriate for low-frequency-high-severity types of risks
Questions & Answers16
What is the first step in the risk management process?
A) Risk management implementation
B) Risk evaluation
C) Risk treatment
D) Risk identification - ANSWERS-Risk identification
When evaluating risk exposures, risk managers often try to estimate the risk's
A) Frequency and velocity
B) Frequency and severity
C) Frequency and reoccurrence
D) Frequency and resilience - ANSWERS-Frequency and severity
What type of risk is best managed through the purchase of insurance or risk transfer?
A) High frequency, low resilience
B) Low frequency, low velocity
C) Low frequency, high severity
D) High frequency, high severity - ANSWERS-Low frequency, high severity
Which type of risk is best managed through risk avoidance?
A) High frequency, high severity
B) Low frequency, low velocity
C) Low frequency, high severity
,D) High frequency, low resilience - ANSWERS-High frequency, high severity
Purchasing health insurance illustrates the use of which personal risk management technique?
A) avoidance
B) risk transfer
C) risk control
D) risk retention - ANSWERS-risk transfer
The U.S. government is concerned that terrorists might try to crash a vehicle filled with
explosives into a U.S. embassy in a foreign country. Inside the gate to the embassy, they
installed steel and cement posts in the road. These posts can be raised up from the ground to
form a barrier against suicide bombers. The posts can be lowered back into the ground to allow
safe vehicles to pass. This physical barrier system illustrates which risk management technique?
A) risk avoidance
B) insurance transfer
C) loss prevention
D) noninsurance transfer - ANSWERS-loss prevention
What measures the Value at Risk?
The worst likelihood of a major loss event.
The expected loss within 1% of the loss distribution.
The worst loss that will not be exceeded with 99% probability.
The variance of the worst case scenario within a loss distribution. - ANSWERS-The worst loss
that will not be exceeded with 99% probability.
($\mu-\sigma$)-indifference lines for a risk neutral individual are
, vertical
concave
convex
changing in curvature - ANSWERS-vertical
An earthquake is an example of
adverse selection
a peril
a speculative risk
a hazard - ANSWERS-a speculative risk
The use of fire-resistive materials when constructing a building is an example of
risk transfer
risk control
risk avoidance
risk retention - ANSWERS-risk control
All of the following statements about risk control are true EXCEPT
it may be used intentionally if commercial insurance is unavailable
it may not be used because of ignorance
its use is most appropriate for low-frequency-high-severity types of risks
its use results in cost savings if losses are less than the cost of insurance - ANSWERS-its use is
most appropriate for low-frequency-high-severity types of risks
