Traditional Risk Management

1. (TCO 1) Traditional risk management is concerned primarily with: (Points : 3)
dynamic risks.
pure risks.
fundamental risks.
speculative risks.
particular risks.

2. (TCO 1) Many of the risks facing businesses today: (Points : 3)
represent new liability exposures that did not previously exist.
result from advances in technology.
reflect increased capital investment and dependence on technology.
are the same as those that have existed in previous eras.
all of the above.

3. (TCO 2) Risk avoidance should be used in those instances in which: (Points : 3)
no other alternative is available.
the exposure has catastrophic potential and the risk cannot be reduced or transferred.
the frequency of loss is low.
the probability or frequency cannot be determined.
more than one of the above.

4. (TCO 2) The two broad approaches to dealing with risk are: (Points : 3)
risk retention and risk transfer.
risk avoidance and risk transfer.
loss prevention and risk transfer.
risk control and risk financing.
insurance management and risk management.

5. (TCO 2) The term enterprise risk management refers to: (Points : 3)
risks related to derivatives and futures.
financial risk management.
combining pure, speculative, and operational risks into a single portfolio.
risks or profit-making organizations.
none of the above.

6. (TCO 3) Probability may be defined as: (Points : 3)
a measure of the likelihood of an occurrence.
similar to risk.
a measure of the degree of uncertainty.
the number of losses that occur annually.
all of the above.

7. (TCO 3) The combination of a large number of exposure units by an insurer is important for the operation of insurance because: (Points : 3)
it reduces uncertainty in the aggregate.
it allows the insurer to make accurate predictions.
it spreads losses among the members of the group.
it makes the insurer’s aggregate risk less than a summation of the risks of the individuals.
all of the above.

8. (TCO 3) There are two basic approaches to the interpretation of probability. In insurance, we are primarily concerned with: (Points : 3)
the subjective interpretation.
the a priori interpretation.
the relative frequency interpretation.
the Bayesian interpretation.
none of the above.

9. (TCOs 1-3) What are the key steps in the risk management process? (Points : 6)