From the viewpoint of the insurer, all of the following are characteristics of an ideally insurable risk EXCEPT A) The loss must be accidental. B) The loss should be catastrophic. C) The premium must be economically feasible. D) There must be a large number of exposure units. ANSWER Answer: B
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
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 […]
Date: September 19th, 2020
Five years ago, Shannon decided to start investing monthly in the common stock of ABC Telecom Company. Her financial well-being will be harmed if the price of ABC Telecom stock drops significantly. The risk of investment loss can be reduced if she invests in other companies and other types of financial assets. The risk Shannon […]
Date: September 19th, 2020
Rapid inflation, cyclical unemployment, war, hurricanes, and floods are all examples of A) diversifiable risks. B) physical hazards. C) nondiversifiable risks. D) speculative risks. ANSWER Answer: C
Date: September 19th, 2020
Which of the following statements about hedging is (are) true? I. Hedging is a form of risk transfer. II. Hedging is used to address the risk of unfavorable price fluctuations. A) I only B) II only C) both I and II D) neither I nor II ANSWER Answer: C
Date: September 19th, 2020
Some members of Congress are concerned that if one or two large U.S. banks fail, it could lead to the collapse of the entire U.S. financial sector. This risk is called A) objective risk. B) systemic risk. C) enterprise risk. D) subjective risk. ANSWER Answer: B
Date: September 19th, 2020
Cathy’s car hit a patch of ice on the road. The car skidded off the road and hit a tree. The presence of ice on the road is best described as a(n) A) peril. B) subjective risk. C) physical hazard. D) indirect loss. ANSWER Answer: C
Date: September 19th, 2020
Rather than storing all of its finished goods in a single location, Davis Company divides the finished goods between two warehouses. This simple risk control technique which is designed to limit losses should a warehouse fire occur is called A) duplication. B) risk transfer. C) separation. D) loss prevention. ANSWER Answer: C
Date: September 19th, 2020
Williams Company installed smoke detectors, a sprinkler system, and fire extinguishers in its new manufacturing facility. These devices are all examples of A) risk control. B) noninsurance transfer. C) risk avoidance. D) risk retention. ANSWER Answer: A
Date: September 19th, 2020
