- Description
FIN 428 Week 2 Quiz
- Correct answerquestion1
Although insurance may be defined in various ways, the two fundamental characteristics of the insurance mechanism are
premiums and policies.
combination and sharing.
loss prevention and transfer.
transfer and sharing.
- Correct answerquestion2
The term hazard refers to
the same thing as the term peril.
a condition that increases the chance of loss.
the same thing as probability of loss.
uncertainty regarding loss.
- Correct answerquestion3
From the viewpoint of society and the economy, the most desirable means of dealing with risk is
loss prevention.
transfer.
sharing.
retention.
- Correct answerquestion4
Adverse selection is a term used to describe
the tendency of the poorer than average risks to seek insurance to a greater extent than do the better than average risks.
an underwriting error on the part of an insurance company.
the choice of the wrong insurance to fit a specific need.
a loss situation in which the chance of loss cannot be determined.
- Correct answerquestion5
Pure risk is characterized by
a chance of loss or no loss only.
a chance of loss and a chance of gain.
a chance of gain and a chance of gain.
the chance of gain or no loss only.
- Correct answerquestion6
The definition of risk suggested in the text views risk as
subjective uncertainty.
a state of mind.
a condition of the real world.
an opportunity for gain or loss.
- Correct answerquestion7
Financial risk management encompasses management of
credit risk, market risk, and liquidity risk
pure risk, speculative risk, and strategic risk
operational risk, strategic risk, and credit risk
compliance risk, credit risk, and strategic risk
- Correct answerquestion8
The distinction between fundamental and particular risks is important because
particular risk policies only allow for partial coverage, whereas fundamental risk policies allow full coverage.
whether a risk is fundamental or particular may determine how society will deal with it.
fundamental risks are a source of gain to society.
normally only particular risks are insurable.
- Correct answerquestion9
The term enterprise risk management refers to
management of risks for profit-making organizations.
management of financial risks.
integrated management of a firm’s pure and speculative risks.
management of risks related to derivatives and futures.
- Correct answerquestion10
From the viewpoint of society and the economy, the most desirable means of dealing with risk is
sharing.
transfer.
loss prevention.
retention.
- Correct answerquestion11
Pure risk is characterized by
a chance of loss and a chance of gain.
a chance of loss or no loss only.
a chance of gain and a chance of gain.
the chance of gain or no loss only.
- Correct answerquestion12
The term hazard refers to
a condition that increases the chance of loss.
the same thing as the term peril.
uncertainty regarding loss.
the same thing as probability of loss.
- Correct answerquestion13
The four elements of an insurable risk
include the requirement of economic feasibility.
must be present or the exposure cannot be insured.
are desirable, but some insurable risks do not possess them.
require that the probability of loss be known.
- Correct answerquestion14
According to the law of large numbers, as the number of exposure units is increased
the chance or probability of loss increases.
the accuracy of predictions should be better.
the chance of loss declines.
the accuracy of predictions should remain about the same.
- Correct answerquestion15
The risk that a firm’s IT systems will fail is an example of
strategic risk.
compliance risk.
credit risk.
operational risk.
- Correct answerquestion16
The possibility of loss resulting from a flood is an example of
a static fundamental risk.
a dynamic particular risk.
a static particular risk.
a dynamic fundamental risk.
- Correct answerquestion17
Risk management contributes to organization profit
by reducing the organization’s operating effectiveness.
by reducing organization’s operating costs with staff reductions.
by allowing the organization to engage in certain speculative risks.
by reducing the cost of losses.
- Correct answerquestion18
The risk that a firm’s IT systems will fail is an example of
compliance risk.
operational risk.
credit risk.
strategic risk.
- Correct answerquestion19
The distinction between fundamental and particular risks is important because
fundamental risks are a source of gain to society.
normally only particular risks are insurable.
particular risk policies only allow for partial coverage, whereas fundamental risk policies allow full coverage.
whether a risk is fundamental or particular may determine how society will deal with it.
- Correct answerquestion20
The possibility of loss resulting from a flood is an example of
a static fundamental risk.
a dynamic particular risk.
a dynamic fundamental risk.
a static particular risk.
- Correct answerquestion21
Risk management contributes to organization profit
by reducing organization’s operating costs with staff reductions.
by reducing the cost of losses.
by allowing the organization to engage in certain speculative risks.
by reducing the organization’s operating effectiveness.
- Correct answerquestion22
There are two basic approaches to the interpretation of probability. In insurance we are primarily concerned with
the subjective interpretation.
the relative frequency interpretation.
the a priori interpretation.
the Bayesian interpretation.
- Correct answerquestion23
Financial risk management encompasses management of
operational risk, strategic risk, and credit risk
pure risk, speculative risk, and strategic risk
credit risk, market risk, and liquidity risk
compliance risk, credit risk, and strategic risk
- Correct answerquestion24
The four elements of an insurable risk
are desirable, but some insurable risks do not possess them.
include the requirement of economic feasibility.
require that the probability of loss be known.
must be present or the exposure cannot be insured.
- Correct answerquestion25
Although insurance may be defined in various ways, the two fundamental characteristics of the insurance mechanism are
transfer and sharing.
premiums and policies.
combination and sharing.
loss prevention and transfer.
- Correct answerquestion26
The definition of risk suggested in the text views risk as
subjective uncertainty.
an opportunity for gain or loss.
a state of mind.
a condition of the real world.
- Correct answerquestion27
There are two basic approaches to the interpretation of probability. In insurance we are primarily concerned with
the relative frequency interpretation.
the Bayesian interpretation.
the subjective interpretation.
the a priori interpretation.
- Correct answerquestion28
The term enterprise risk management refers to
management of risks related to derivatives and futures.
management of risks for profit-making organizations.
management of financial risks.
integrated management of a firm’s pure and speculative risks.
- Correct answerquestion29
According to the law of large numbers, as the number of exposure units is increased
the accuracy of predictions should remain about the same.
the chance of loss declines.
the accuracy of predictions should be better.
the chance or probability of loss increases.
- Correct answerquestion30
Adverse selection is a term used to describe
an underwriting error on the part of an insurance company.
a loss situation in which the chance of loss cannot be determined.
the choice of the wrong insurance to fit a specific need.
the tendency of the poorer than average risks to seek insurance to a greater extent than do the better than average risks.