Which of the following statements regarding insurance and gambling is (are) true? I. Insurance is used to handle existing pure risks, while gambling creates a new speculative risk. II. Insurance usually involves risk avoidance, while gambling typically involves only risk reduction. A) I only B) II only C) both I and II D) neither I […]
Ben is concerned that if he injures someone or damages someone’s property he could be held legally responsible and required to pay damages. This type of risk is called a A) speculative risk. B) liability risk. C) nondiversifiable risk. D) property risk. ANSWER Answer: B
MLX Drug Company would like to market a new hypertension drug. While the Food and Drug Administration (FDA) was testing the drug, it discovered that the drug produced a harmful side effect. When MLX learned of the FDA’s test result, MLX abandoned its plan to produce and distribute the drug. MLX’s reaction illustrates A) risk […]
ABC Insurance Company sells auto insurance in one state. Recently, the state legislature passed a law that limits the use of an individual’s credit history by insurers when selecting applicants to insure. This change in law will increase the possibility of unprofitable results for ABC. This type of hazard is an example of A) physical […]
A risk that affects only individuals or small groups and not the entire economy is called a A) diversifiable risk. B) pure risk. C) speculative risk. D) nondiversifiable risk. ANSWER Answer: A
Which of the following is an example of a commercial risk? A) the risk of insufficient retirement income B) the loss of business income C) the risk of premature death D) the risk of being unemployed ANSWER Answer: B
Which of the following statements about chance of loss and risk is (are) true? I. If the chance of loss is identical for two groups, the objective risk must be the same. II. Two individuals may perceive differently the risk inherent in a given activity. A) I only B) II only C) both I and […]
A special form of planned retention by which part or all of a give loss exposure is retained by the firm is called A) hedging. B) self-insurance. C) passive retention. D) noninsurance transfer. ANSWER Answer: B
The production facility for ABC Manufacturing is located in a flood plain. Although the risk of flood is low, ABC’s risk manager is concerned that a flood could damage the plant and equipment. He received bids on flood insurance from two insurance agents, but decided the cost of coverage was too high relative to the […]
Frazier Electric keeps a paper copy of business records at the company’s headquarters. The company also has two back-up copies of business records stored in electronic files. The electronic files are kept in the event the paper records are damaged or destroyed. The back-up files illustrate which of the following risk control techniques? A) loss […]
