FIN 428 Week 2 Quiz

FIN 428 Week 2 Quiz

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 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.
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