For public entities such as cities, counties and public utilities, which one of the following is normally the most important post-loss risk management
... [Show More] goal?
Choose one answer.
A. Growth
B. Profitability
C. Continuity of operations
D. Earnings stability - correct answerC. Continuity of operations
Which one of the following is the goal of enterprise-wide risk management (ERM)?
Choose one answer.
A. Coordinate loss reduction efforts
B. Reduce risk management costs
C. Decentralize control of business decisions
D. Maximize the organization's value - correct answerD. Maximize the organization's value
A risk management program must be monitored and periodically revised, and that revision involves four steps. Which one of the following is one of those four steps?
Choose one answer.
A. Establish results-based rather than activity-based standards of acceptable performance.
B. Compare actual results with the established performance standards.
C. Reduce any performance standards that have not been achieved by the actual results.
D. Return to the first step in the risk management process to identify new loss exposures. - correct answerB. Compare actual results with the established performance standards.
Risk can be classified as subjective or objective. Which one of the following statements is correct with respect to these risk classifications?
Choose one answer.
A. Subjective risk is risk associated with individuals; objective risk is risk associated with objects or things.
B. Risk managers focus on objective risk and attempt to avoid allowing subjective risk to affect their decisions.
C. Subjective risk can exist even where objective risk does not.
D. Individuals' subjective perception of risk in a given set of circumstances is typically much higher than the objective risk. - correct answerC. Subjective risk can exist even where objective risk does not.
JNL Construction is a general contractor. As the risk management professional for JNL, Marie should be aware of the company's contractual obligations, as well as the contractual obligations that others owe JNL. This knowledge is necessary for Marie to meet which one of the following pre-loss risk management goals?
Choose one answer.
A. Legality
B. Social responsibility
C. Tolerable uncertainty
D. Continuity of operations - correct answerA. Legality
Residual uncertainty is the level of risk that remains after organizations implement their risk management plans. Which one of the following statements is correct with respect to residual uncertainty?
Choose one answer.
A. Residual uncertainty is an objective measure, independent of an organization's subjective view of the
risks to which it is exposed.
B. The cost of residual uncertainty is relatively easy to calculate and comprises an important part of any cost of risk study.
C. Residual uncertainty can be minimized, but doing so is costly because more has to be spent on attempts to control or finance the risks involved.
D. Cost of residual uncertainty is a factor only in the case of speculative risk; it is not a consideration where pure risk is concerned. - correct answerC. Residual uncertainty can be minimized, but doing so is costly because more has to be spent on attempts to control or finance the risks involved.
Tania has been unemployed for six months, and her unpaid bills are mounting. She recently damaged the front fender of her vehicle after running off the road. When seeking repairs to the vehicle, she convinced the auto body shop to include damages from previous incidents in the estimate. This would allow her to collect extra money from her insurer. From an insurance and risk management perspective, Tania's behavior is indicative of a
Choose one answer.
A. Legal hazard.
B. Moral hazard.
C. Morale hazard.
D. Physical hazard. - correct answerB. Moral hazard.
Which one of the following describes how an effective risk management program should support an organization's pre-loss operational goals?
Choose one answer.
A. It should ensure that risk management costs are kept to a minimum.
B. It should eliminate uncertainty by identifying and managing loss exposures.
C. It should help ensure that the organization's legal obligations are satisfied.
D. It should ensure that no conflicts exist among the pre-loss goals. - correct answerC. It should help ensure that the organization's legal obligations are satisfied.
Which one of the following statements is true regarding risk management techniques?
Choose one answer.
A. Data based on objective risk factors are usually the only criteria considered in determining appropriate risk management techniques.
B. The risk management techniques selected by for-profit organizations should be both effective in meeting the organizations' goals and economical.
C. In support of the goal of economy of operations, the risk management techniques selected by most for-profit organizations should be the least expensive ones.
D. Nonfinancial considerations are usually disregarded in selecting risk management techniques because they cannot be factored into a cost/benefit analysis. - correct answerB. The risk management techniques selected by for-profit organizations should be both effective in meeting the organizations' goals and economical.
Which one of the following is an element of a loss exposure?
Choose one answer.
A. The verification of risk
B. A cause of loss
C. The probability of a loss
D. The occurrence of a loss - correct answerB. A cause of loss
The statement "There is a 5 percent chance that John will be injured in an automobile accident while driving to work tomorrow." is an example of
Choose one answer.
A. Quantifying risk.
B. Verifying risk.
C. Quantifying loss exposures.
D. Indentifying hazards. - correct answerA. Quantifying risk.
Dave owns a computer store. He stores backup media copies of confidential records off site in case there is a fire at the computer store. The risk control technique Dave is using to protect the confidential records is
Choose one answer.
A. Diversification.
B. Duplication.
C. Avoidance.
D. Separation. - correct answerB. Duplication.
Which one of the following statements regarding monitoring the results of a risk management program is true?
Choose one answer.
A. A results standard focuses on the quality and quantity of the risk management activities undertaken by the organization.
B. Risk management professionals generally prefer performance standards that are solely dependent on the organization's loss record.
C. Activities standards are necessary to obtain a complete picture of the success or failure of a risk management program.
D. When performance substantially exceeds the standard, the risk management professional knows that the standard has been appropriately set. - correct answerC. Activities standards are necessary to obtain a complete picture of the success or failure of a risk management program.
Delmond Manufacturing is opening a new manufacturing facility in a building that it purchased from a competitor. Using the information below, which one of the following represents the cost of risk of opening the new facility?
New building cost $60.0 million
Safety system upgrades $6.0 million
Insurance premiums $1.5 million
Retained losses $3.0 million
Risk management department budget at the site $1.0 million
Choose one answer.
A. $7.0 million
B. $10.0 million
C. $11.5 million
D. $71.5 million - correct answerC. $11.5 million
Achieving any post-loss goal involves expending risk management resources, which may conflict with the pre-loss goal of
Choose one answer.
A. Economy of operations.
B. Earnings stability.
C. Social responsibility.
D. Tolerable uncertainty. - correct answerA. Economy of operations.
Another term for cause of loss is
Choose one answer.
A. Negative outcome.
B. Exposure.
C. Peril.
D. Hazard. - correct answerC. Peril
Which one of the following financial consequences of loss can be established with a high degree of certainty fairly soon after the loss occurs?
Choose one answer.
A. The value of a pollution loss
B. The value of a building that has been damaged by fire
C. The value of business lost while the building damaged by fire is being restored
D. The value of liability claims related to a defective product - correct answerB. The value of a building that has been damaged by fire
Which one of the following statements is correct with respect to the expected cost of losses or gains?
Choose one answer.
A. The expected cost of gains or losses includes only the direct costs associated with a particular risk.
B. Calculating the expected cost of losses or gains for pure risks is more complex than for speculative risks.
C. Industrial accidents can illustrate the various costs that need to be accounted for in determining cost of losses.
D. The expected cost of losses is equal to the uninsured portion of any bodily injury or property damage. - correct answerC. Industrial accidents can illustrate the various costs that need to be accounted for in determining cost of losses.
An example of an intangible asset that an individual may possess is
Choose one answer.
A. An investment portfolio.
B. A unique skill set.
C. Money that is owed to them.
D. A rental property. - correct answerB. A unique skill set.
During the past year, International Toys has undertaken four capital projects. The company has renovated and refurbished one of its aging warehouse buildings. It has purchased the most recent version of its current order processing computer software. It has added two trucks to its fleet of delivery vehicles. Lastly, it has purchased a new production machine that will allow it to launch a new product line. Which one of the following company projects is the most speculative risk?
Choose one answer.
A. The warehouse refurbishment
B. The software upgrade
C. The two new trucks
D. The new production machine - correct answerD. The new production machine
Which one of the following is measurable and quantifies risk?
Choose one answer.
A. Uncertainty
B. Possibility
C. Probability
D. Feasibility - correct answerC. Probability
One enterprise risk management (ERM) approach to categorizing risks involves dividing risks into four risk quadrants. The risks categorized as hazard risks are
Choose one answer.
A. Traditionally managed by risk management professionals.
B. Speculative risks that fall outside the operational risk category.
C. Traditionally handled by the treasury function.
D. Fundamental to an organization's existence and business plans. - correct answerA. Traditionally managed by risk management professionals.
Question 23. Despite being frequently reminded otherwise, Laura was in the habit of leaving her car door unlocked, often with her purse inside. As a result, Laura's car was stolen, along with her purse. Laura's behavior is an example of a
Choose one answer.
A. Moral hazard.
B. Morale hazard.
C. Physical hazard.
D. Legal hazard. - correct answerB. Morale hazard.
Organizations find it difficult to establish a benchmark against which the performance of their risk management program can be assessed because it is difficult to assign a specific value to the
Choose one answer.
A. Cost of implementing and administering risk management.
B. Cost of losses not reimbursed by insurance.
C. Cost of residual uncertainty.
D. Cost of measures to prevent or reduce the size of potential losses. - correct answerC. Cost of residual uncertainty.
Which one of the following best explains the term "residual uncertainty"?
Choose one answer.
A. It is the level of risk that remains after implementing risk management plans.
B. It is the difference between estimated subjective risk and calculated objective risk.
C. It is the amount invested in risk management in order to eliminate concern.
D. It is uncertainty regarding the value of any residual salvage that would remain after a loss. - correct answerA. It is the level of risk that remains after implementing risk management plans.
While designing a display window, Adam, an employee of Mellfor Clothing Store, was injured when he fell from a ladder. Adam's accident was witnessed by several customers and employees. Adam suffered a broken leg and was unable to work for several weeks. Which one of the following represents a hidden cost to the clothing store resulting from Adam's accident?
Choose one answer.
A. Wages paid to Adam while he is unable to work
B. Medical costs paid to Adam
C. Time lost by employees who witnessed the accident
D. Time lost by customers who witnessed the accident - correct answerC. Time lost by employees who witnessed the accident
The focus of risk quadrants is different from the focus of risk classifications in general. While the classifications of risk focus on some aspect of the risk itself, the four quadrants of risk focus on
Choose one answer.
A. Pure and speculative risks.
B. Subjective and objective risks.
C. The determination of whether the risk is diversifiable.
D. The source of risk and who has traditionally managed it. - correct answerD. The source of risk and who has traditionally managed it.
Risk is a term that is regularly used and that is generally understood in context. As used in this discussion, which one of the following is one of the two elements within the definition of risk?
Choose one answer.
A. Uncertainty of outcome
B. Likelihood of injury or damage to property
C. Probability of financial loss
D. Opportunity for profit - correct answerA. Uncertainty of outcome
Every loss exposure has which one of the following elements?
Choose one answer.
A. Property exposed to loss
B. Possibility of direct loss
C. Financial consequences of loss
D. Tangible asset exposed to loss - correct answerC. Financial consequences of loss
Which one of the following statements is true regarding the effects of risk management on individuals, organizations, and society in general?
Choose one answer.
A. Organizations tend to exhibit a greater degree of risk aversion than do individuals.
B. Risk management tends to increase the deterrence effect of risk in organizations.
C. Risk management makes those who own or run an organization more willing to undertake risky activities.
D. The benefits that risk management efforts provide to individuals and organizations are not felt by society in general. - correct answerC. Risk management makes those who own or run an organization more willing to undertake risky activities.
Which one of the following statements is true regarding probability distributions?
Choose one answer.
A. Cumulative probabilities can be used to evaluate the effect of various deductibles and policy limits on insured loss exposures.
B. A probability distribution's median has a cumulative probability of 100.
C. Cumulative probabilities are calculated by multiplying the probability of one event by the probability of a second event.
D. The only way to determine the median in an array of loss data is to use the cumulative probability distribution. - correct answerA. Cumulative probabilities can be used to evaluate the effect of various deductibles and policy limits on insured loss exposures.
Which one of the following statements is correct with respect to continuous probability distributions?
Choose one answer.
A. They are typically used for loss frequency analysis rather than severity analysis.
B. There is a finite number of possible outcomes in a continuous probability distribution.
C. One way of presenting a continuous probability distribution is to divide the distribution into a countable number of bins.
D. They are most effectively illustrated using tables and pie charts. - correct answerC. One way of presenting a continuous probability distribution is to divide the distribution into a countable number of bins.
It is important that historical losses be adjusted so that all loss data is expressed in a consistent basis. If a fire damaged a building in 2002 and it cost $200,000 to repair the building in 2002, then $200,000 represents the value of the loss in
Choose one answer.
A. Nominal dollars.
B. Constant dollars.
C. Current dollars.
D. Real dollars. - correct answerA. Nominal dollars.
Probability analysis is particularly effective for projecting losses in organizations that have
Choose one answer.
A. Elected to estimate probabilities based on external data rather than their own.
B. A limited amount of historical loss data from which to project changes in loss costs.
C. Identified a relatively limited number of potential loss exposures.
D. A substantial volume of data on past losses and fairly stable operations. - correct answerD. A substantial volume of data on past losses and fairly stable operations.
The weighted average of all the possible outcomes of a theoretical probability distribution is the
Choose one answer.
A. Expected value.
B. Median.
C. Mode.
D. Dispersion. - correct answerA. Expected value.
Maria is a risk management professional trying to analyze workers compensation loss frequency by cause of loss. Which one of the following forms of probability distribution would be most appropriate for her to use?
Choose one answer.
A. Theoretical
B. Discrete
C. Cumulative
D. Continuous - correct answerB. Discrete
Which one of the following statements is true regarding the use of checklists and questionnaires to identify loss exposures?
Choose one answer.
A. The completion of standardized checklists helps identify loss exposures and shows how those loss exposures support or affect specific organizational goals.
B. The questions included in questionnaires and checklists developed by insurers relate mainly to loss exposures for which commercial insurance is generally available.
C. Standardized risk assessment questionnaires can be used as the sole method to uncover an organization's loss exposures and reveal key information about those exposures.
D. An advantage of risk assessment questionnaires is that they can be completed with relatively little expense, time, and effort. - correct answerB. The questions included in questionnaires and checklists developed by insurers relate mainly to loss exposures for which commercial insurance is generally available.
Claim adjuster Phyllis is reviewing fire losses. The dollar amounts of the losses are $2,000, $8,000, $10,000, $15,000, and $20,000. The median loss has an adjusted value of
Choose one answer.
A. $7,500.
B. $10,000
C. $11.000
D. $27,500 - correct answerB. $10,000
The outcomes in a continuous probability distribution are called probability
Choose one answer.
A. Severity distributions.
B. Density functions.
C. Distribution values.
D. Data points.
. - correct answerB. Density functions.
In Fred's large landscaping business, he knows that there is a point where equipment becomes unsafe and difficult to maintain. Fred realizes that after 2,000 miles of use, his costs for maintenance on his large mowers and sod busters dramatically rise. Using probability analysis Fred can better know
Choose one answer.
A. When to replace equipment.
B. When to schedule routine maintenance.
C. What type of equipment is needed for future projects.
D. Which equipment is likely to cause bodily injury to operators or customers. - correct answerA. When to replace equipment.
Which one of the following statements regarding probability is correct?
Choose one answer.
A. The probability of an event that is absolutely certain is 0.
B. Risk management professionals use theoretical probabilities because they are generally available for and applicable to claim analysis.
C. Probabilities associated with events such as coin tosses can be developed from theoretical considerations and are unchanging.
D. The accuracy of theoretical probabilities depends on the size and representative nature of the samples being studied. - correct answerC. Probabilities associated with events such as coin tosses can be developed from theoretical considerations and are unchanging.
Which one of the following refers to dollar values today and involves inflating historical values to reflect the effect of inflation?
Choose one answer.
A. Current dollars
B. Nominal dollars
C. Constant dollars
D. Actual dollars - correct answerA. Current dollars
Which one of the following is correct with respect to compliance reviews? [Show Less]