Introduction to Risk Management - Quiz Questions ch. 1 & 2 And Answers

Risk is a term that is regularly used and that is generally understood in context. As used in this discussion, which one of the following is one of the two elements within the definition of risk? A. Uncertainty of outcome B. Likelihood of injury or damage to property C. Probability of financial loss D. Opportunity for profit - ANS A. Uncertainty of outcome Uncertainty of outcome is one of the two elements within the definition of risk as used in this discussion. To understand risk, one needs to know the probability of an outcome or event occurring. Which one of the following statements is correct with respect to probability? Choose one answer. A. It is typically expressed verbally rather than numerically. B. It can be used to decide which activities to undertake. C. It verifies that risk is present, but does not quantify it. D. It identifies what can be lost when a negative outcome occurs. - ANS B. It can be used to decide which activities to undertake. It can be used to decide which activities to undertake. Which one of the following is measurable and quantifies risk? Choose one answer. A. Uncertainty B. Possibility C. Probability D. Feasibility - ANS C. Probability Probability is measurable and quantifies risk. In the context of risk, the chance of being injured while driving to and from work, loading a truck at work, moving furniture at home, or falling in an icy parking lot at the mall are all examples of Choose one answer. A. Possibilities. B. Uncertainties. C. Probabilities. D. Losses. - ANS A. Possibilities. In the context of risk, the chance of being injured while driving to and from work, loading a truck at work, moving furniture at home, or falling in an icy parking lot at the mall are all examples of possibilities. Company G is a manufacturer of high profile golf equipment. The risk management professional for Company G is concerned about loss of business related to product design. Failing to respond to changing customer demand and preferences in the design of golf clubs could cost Company G significant market share. Categorized according to the quadrants of risk, this exposure to loss is classified as Choose one answer. A. A hazard risk. B. An operational risk. C. A financial risk. D. A strategic risk. - ANS D. A strategic risk. Categorized according to the quadrants of risk, this exposure to loss is classified as a strategic risk. Classifying risk appropriately can help in managing risk. Which one of the following statements is correct with respect to the classifications of risk? Choose one answer. A. Risk classifications are mutually exclusive, and only one can be applied to any given risk. B. A pure risk is a chance of loss or no loss, but no chance of gain. C. Insurance deals primarily with speculative risk, rather than with pure risk. D. Usually, pure risks and speculative risks can be managed using the same techniques. - ANS B. A pure risk is a chance of loss or no loss, but no chance of gain. A pure risk is a chance of loss or no loss, but no chance of gain. Risk can be classified as subjective or objective. Which one of the following statements is correct with respect to these risk classifications? Choose one answer. A. Subjective risk is risk associated with individuals; objective risk is risk associated with objects or things. B. Risk managers focus on objective risk and attempt to avoid allowing subjective risk to affect their decisions. C. Subjective risk can exist even where objective risk does not. D. Individuals' subjective perception of risk in a given set of circumstances is typically much higher than the objective risk. - ANS C. Subjective risk can exist even where objective risk does not. Subjective risk can exist even where objective risk does not. George has received an inheritance and is deciding what to do with the money. He has limited his options to four choices: donate all the money to his favorite charity, use the entire inheritance to buy a yacht, invest the inheritance in a small rental property, or use the entire amount to purchase T-bills. Which one of the following statements is true regarding the risk involved in George's options? Choose one answer. A. Donating his inheritance to charity is a pure risk; there is no uncertainty that the money will be gone and George will have no chance of profit. B. Buying a boat is a nondiversifiable risk because George can only afford to purchase a single yacht. C. The rental property presents both pure and speculative risk; property values may increase, but the building could burn down.