Risk transfer is the process of accepting the consequences of risk. True or false?
Understand the Problem
The question is asking whether the statement about risk transfer, which suggests that it involves accepting the consequences of risk, is true or false. Understanding the definition of risk transfer and its distinction from risk acceptance is key to answering this question.
Answer
False.
False. Risk transfer involves shifting responsibility for losses from one party to another, typically through mechanisms like insurance.
Answer for screen readers
False. Risk transfer involves shifting responsibility for losses from one party to another, typically through mechanisms like insurance.
More Information
Risk transfer is a mechanism to manage risk by reallocating potential losses to a third party, often in exchange for payment, which is different from simply accepting the consequences of risk.
Tips
A common mistake is confusing risk transfer with acceptance. Acceptance involves acknowledging and dealing with risk internally, while transfer involves shifting the risk to another party.
Sources
- Risk Transfer - Definition, How It Works, and Methods - corporatefinanceinstitute.com
- Investopedia on Risk Transfer - investopedia.com
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