Risk Definition and Types Quiz
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Questions and Answers

According to the American Academy of Actuaries, how is risk distinguished from uncertainty?

  • Risk and uncertainty both involve unknown or unestimated probabilities.
  • Risk and uncertainty both involve known or estimated probabilities.
  • Risk involves known or estimated probabilities, while uncertainty involves unknown or unestimated probabilities. (correct)
  • Risk involves unknown or unestimated probabilities, while uncertainty involves known or estimated probabilities.

    • What is loss exposure used for, according to corporate risk managers?

  • Avoiding potential losses
  • Estimating uncertainties
  • Managing acceptable risks
  • Identifying potential losses (correct)

    • Which type of risk involves situations where the probabilities of possible outcomes are known or can be estimated with some degree of accuracy?

  • Pure Risk (correct)
  • Diversifiable Risk
  • Speculative Risk
  • Nondiversifiable Risk

    • What is the term used for situations where the probabilities cannot be estimated?

    <p>Uncertainty</p> Signup and view all the answers

    How does the text define risk?

    <p>Risk is defined as uncertainty concerning the occurrence of a loss.</p> Signup and view all the answers

    What is the term used to describe the uncertainty concerning the occurrence of a loss?

    <p>Pure risk</p> Signup and view all the answers

    In which type of risk are the probabilities of possible outcomes known or can be estimated with some degree of accuracy?

    <p>Enterprise risk</p> Signup and view all the answers

    What term is used to identify potential losses by corporate risk managers?

    <p>Loss exposure</p> Signup and view all the answers

    According to the American Academy of Actuaries, which term is used in situations where such probabilities cannot be estimated?

    <p>Uncertainty</p> Signup and view all the answers

    What do we call risk that involves situations where the probabilities of possible outcomes can be estimated with some degree of accuracy?

    <p>Objective risk</p> Signup and view all the answers

    What is the essence of insurance based on the given text?

    <p>Pooling of losses</p> Signup and view all the answers

    What is substituted for actual loss in the process of pooling?

    <p>Average loss</p> Signup and view all the answers

    What is typically included in an insurance plan or arrangement based on the provided definition?

    <p>Transfer of risks</p> Signup and view all the answers

    Which characteristic is specifically excluded by most insurance policies based on the text?

    <p>Intentional losses</p> Signup and view all the answers

    What does the text identify as the social benefits of insurance?

    <p>Reduction of risk</p> Signup and view all the answers

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