Fundamentals of Risk: Chapter 1

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What is a situation called where an outcome is sure to happen?

Certainty (correct)
Uncertainty
Loss
Risk

What is the condition where a potential loss may or may not occur?

Risk
Loss Exposure (correct)
Uncertainty
Direct Loss

What is the term for a reduction in value that can be measured in monetary terms?

Certainty
Risk
Loss (correct)
Uncertainty

What is an example of an indirect loss?

Loss of revenue due to the cancellation of orders (C) Signup and view all the answers

What is the definition of risk?

An encounter with uncertainty and probable loss (B) Signup and view all the answers

What is an example of direct loss?

Damage to the building (D) Signup and view all the answers

What type of risk involves a gain as one of the possible outcomes?

Speculative risk (B) Signup and view all the answers

Which of the following types of risk is not a type of personal risk?

Non-diversifiable risk (D) Signup and view all the answers

What is the consequence of a person experiencing the risk of premature death?

The family may be left with certain financial responsibilities (D) Signup and view all the answers

What is the primary difference between pure risks and speculative risks?

The possibility of gain or loss (B) Signup and view all the answers

What type of risk is characterized by a possibility of minor ailments, such as a fever or cold?

Risk of poor health (A) Signup and view all the answers

What is the primary impact of income risk on an individual's finances?

A reduction in personal finances (B) Signup and view all the answers

What is the consequence of a factory's inability to operate as usual?

Disruption in production, sales, and normal profits (D) Signup and view all the answers

What is the peril in a situation where a fireman sustains burns while on duty?

The fire that caused the burns (D) Signup and view all the answers

What is an example of a physical hazard?

Worn out tires on a car (B) Signup and view all the answers

What is an example of a moral hazard?

Faking death to claim life insurance (A) Signup and view all the answers

What is another term for morale hazard?

Morale hazard is also known as attitudinal hazard (D) Signup and view all the answers

What is an example of a morale hazard?

Leaving the front door unlocked while no one is at home (D) Signup and view all the answers

What is the primary consequence of a firm being sued by a third party due to liability risk?

Substantial reduction in the value of the firm (C) Signup and view all the answers

Which of the following is an example of a loss of business income risk?

A fire in the plant of a manufacturing firm (C) Signup and view all the answers

What is the term for the risk of injury or illness to employees or death or disability to a key person in a business?

Human resource risk (D) Signup and view all the answers

Which of the following is an example of crime risk?

Theft by an employee (D) Signup and view all the answers

What is the primary consequence of a firm shutting down its operations due to property damage?

Decline in sales and loss of market share (A) Signup and view all the answers

Which of the following is a risk that can result in a decline in sales and loss of income?

Loss of business income risk (C) Signup and view all the answers

What is a risk that arises when a person lives longer than expected and faces financial difficulties in their old age?

Risk of Longevity (D) Signup and view all the answers

What type of risk arises from a firm's ownership of physical assets such as office buildings, plants, and machinery?

Property risk (C) Signup and view all the answers

What is the term for the risk of being sued by another person due to one's own negligence?

Liability risk (B) Signup and view all the answers

What type of losses are related to the cost of removing the ruins of a damaged house and its reconstruction?

Indirect losses (C) Signup and view all the answers

What happens to firms during a recession?

They take drastic measures by laying off some of their employees (A) Signup and view all the answers

What type of risk affects firms and causes a reduction in the firm's value?

Business risk (A) Signup and view all the answers