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Questions and Answers
What is a key characteristic of fundamental risks?
What is a key characteristic of fundamental risks?
- They only affect single individuals.
- They affect the entire economy or large groups. (correct)
- They arise from individual actions.
- They can be insured easily.
Which of the following is an example of a particular risk?
Which of the following is an example of a particular risk?
- War
- Robbery (correct)
- Earthquake damage
- Hyperinflation
Dynamic risks are primarily caused by what?
Dynamic risks are primarily caused by what?
- Individual mismanagement.
- Changes in technology and the economy. (correct)
- Stable economic conditions.
- Natural disasters.
What distinguishes pure risk from speculative risk?
What distinguishes pure risk from speculative risk?
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Static risks are characterized by which of the following?
Static risks are characterized by which of the following?
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Which risk type is described as having no potential for monetary gain?
Which risk type is described as having no potential for monetary gain?
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Why are speculative risks generally not insurable?
Why are speculative risks generally not insurable?
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Which of the following is true about insurability?
Which of the following is true about insurability?
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Study Notes
Classifications of Risks
-
Fundamental Risk
- Affects the entire economy or large groups within it.
- Examples: hyperinflation, earthquakes, war.
- Typically not insurable due to their widespread nature.
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Particular Risk
- Impacts individuals rather than the whole community.
- Examples: robbery, fires, thefts.
- Generally insurable due to their localized impact.
-
Dynamic Risks
- Result from economic changes that may lead to financial losses.
- Notable in the tech field, causing some companies to fail while others succeed.
- Reflects the fluid nature of market conditions and technology.
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Static Risks
- Associated with losses that occur regardless of economic changes.
- Examples: mismanagement, dishonesty, floods.
- Confers only losses without societal benefits.
-
Pure Risk
- Involves scenarios with either a loss or no loss; no potential for gain.
- Key management aspects: the quantum of potential loss and the probability of loss occurrence.
- Focus of insurance, which deals exclusively with pure risks.
-
Speculative Risk
- Relates to investment scenarios, with potential for both loss and gain.
- Distinguished by the possibility of exceeding expected returns or suffering losses on principal.
- Not insurable; however, consequences resulting from speculative risks may be insurable (e.g., damage from a flood).
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