Question 1

An entrepreneur takes a speculative risk when starting a new business.

Accepted Answer

A) True 
 B)False

Question 2

Antonio is a silversmith and works with various metals. At the end of the day, he reclaims and separates each metal by using an inexpensive toxic acid though other methods are available. The risk of fire as well as health dangers to Antonio is unknown. What should Antonio do?

Accepted Answer

A)   Dispose of the used acid by pouring it down the drain since the government will take care of any environmental issues that come from polluting the water.
B)   Get a fire insurance policy and make sure to visit the doctor regularly.
C)   Switch to another potentially less dangerous method of separating each metal.
D)   Pour it out in back of the studio in the gutter.E) A) and B)
F) A) and C)

Question 3

Self-insurance makes more sense for firms that operate one large facility than it does for firms with facilities scattered all over the country.

Accepted Answer

A) True 
 B)False

Question 4

________ is the armor individuals, businesses, and nonprofit organizations use to protect themselves from various financial risks.

Accepted Answer

A)   A good accountant
B)   Investment in AAA bonds
C)   Insurance
D)   IndemnityE) A) and B)
F) All of the above

Question 5

Ernesto is opening a new car wash. The required investment of money and time is sizable and although he has high hopes, Ernesto is taking a speculative risk. What does this mean?

Accepted Answer

A)   His investment involves a chance of profit or loss.
B)   His risk can be shifted to an insurance company if he buys product liability insurance.
C)   He would be best advised to self-insure his exposure to malpractice liability.
D)   His insurance premium would be based on the law of large numbers.E) None of the above
F) C) and D)

Question 6

A fidelity bond covers losses resulting from a second party's failure to fulfill a contract.

Accepted Answer

A) True 
 B)False

Question 7

Going bare is a much less risky strategy for self-insurance.

Accepted Answer

A) True 
 B)False

Question 8

The federal government provides some insurance protection.

Accepted Answer

A) True 
 B)False

Question 9

Explain what makes the acceptance of risk possible for insurance companies.

Accepted Answer

The law of large numbers states that if ...

Question 10

In an effort to minimize the cost of conventional property/casualty insurance, Epic Electronics decided to manage their risk by self-insuring. The most likely way Epic would try to do this would be to

Accepted Answer

A)   cover small and medium-sized losses itself, and carry conventional insurance only for catastrophic losses.
B)   carry insurance for the small, routine losses and pay for any highly unusual major losses with its own funds.
C)   buy an insurance policy that covers all risks.
D)   establish a well-monitored loss-prevention program.E) All of the above
F) B) and C)

Question 11

The best strategy for a profit-seeking insurance company would be to specialize in providing protection to people in a specific geographical area.

Accepted Answer

A) True 
 B)False

Question 12

The law of large numbers states that if a large number of people are exposed to the same risk, a predictable number of losses will occur during a given period of time.

Accepted Answer

A) True 
 B)False

Question 13

A terrorist attack is an example of pure risk.

Accepted Answer

A) True 
 B)False

Question 14

Disability insurance replaces part of your income if you become disabled and can no longer work, but you usually must be disabled for a specified period of time before benefits are provided.

Accepted Answer

A) True 
 B)False

Question 15

Companies adopt risk management procedures to minimize the chance of business failure due to unplanned events such as security breaches, terrorist attacks, and natural disasters.

Accepted Answer

A) True 
 B)False

Question 16

Citrus City Groves on Florida's Gulf Coast, harvests an assortment of citrus fruits. The owners of Citrus City are right to think about how the risk of climate change might impact their crops in the future.

Accepted Answer

A) True 
 B)False

Question 17

Insurable interest means that the policyholder is the one at risk to suffer a loss.

Accepted Answer

A) True 
 B)False

Question 18

There are two different kinds of risk: passive and active.

Accepted Answer

A) True 
 B)False

Question 19

Atlanta Appliances produces all of its products in one gigantic production facility near an earthquake fault line. Atlanta Appliances is the classic example of a firm that should use self-insurance to manage its risks.

Accepted Answer

A) True 
 B)False

Question 20

Risks such as global warming are the concern of businesses and governments primarily in the U.S.

Accepted Answer

A) True 
 B)False

Exam 23: Managing Risk

Self-insurance makes more sense for firms that operate one large facility than it does for firms with facilities scattered all over the country.

Correct AnswerverifiedShow Answer

Explain what makes the acceptance of risk possible for insurance companies.

Correct AnswerverifiedThe law of large numbers states that if ...View AnswerShow Answer

Antonio is a silversmith and works with various metals. At the end of the day, he reclaims and separates each metal by using an inexpensive toxic acid though other methods are available. The risk of fire as well as health dangers to Antonio is unknown. What should Antonio do?

Correct AnswerverifiedShow Answer

An entrepreneur takes a speculative risk when starting a new business.

Correct AnswerverifiedShow Answer

A terrorist attack is an example of pure risk.

Correct AnswerverifiedShow Answer

Risks such as global warming are the concern of businesses and governments primarily in the U.S.

Correct AnswerverifiedShow Answer

Atlanta Appliances produces all of its products in one gigantic production facility near an earthquake fault line. Atlanta Appliances is the classic example of a firm that should use self-insurance to manage its risks.

Correct AnswerverifiedShow Answer

The federal government provides some insurance protection.

Correct AnswerverifiedShow Answer

The best strategy for a profit-seeking insurance company would be to specialize in providing protection to people in a specific geographical area.

Correct AnswerverifiedShow Answer

A fidelity bond covers losses resulting from a second party's failure to fulfill a contract.

Correct AnswerverifiedShow Answer

Disability insurance replaces part of your income if you become disabled and can no longer work, but you usually must be disabled for a specified period of time before benefits are provided.

Correct AnswerverifiedShow Answer

In an effort to minimize the cost of conventional property/casualty insurance, Epic Electronics decided to manage their risk by self-insuring. The most likely way Epic would try to do this would be to

Correct AnswerverifiedShow Answer

Companies adopt risk management procedures to minimize the chance of business failure due to unplanned events such as security breaches, terrorist attacks, and natural disasters.

Correct AnswerverifiedShow Answer

Citrus City Groves on Florida's Gulf Coast, harvests an assortment of citrus fruits. The owners of Citrus City are right to think about how the risk of climate change might impact their crops in the future.

Correct AnswerverifiedShow Answer

Ernesto is opening a new car wash. The required investment of money and time is sizable and although he has high hopes, Ernesto is taking a speculative risk. What does this mean?

Correct AnswerverifiedShow Answer

________ is the armor individuals, businesses, and nonprofit organizations use to protect themselves from various financial risks.

Correct AnswerverifiedShow Answer

Going bare is a much less risky strategy for self-insurance.

Correct AnswerverifiedShow Answer

There are two different kinds of risk: passive and active.

Correct AnswerverifiedShow Answer

Insurable interest means that the policyholder is the one at risk to suffer a loss.

Correct AnswerverifiedShow Answer

The law of large numbers states that if a large number of people are exposed to the same risk, a predictable number of losses will occur during a given period of time.

Correct AnswerverifiedShow Answer

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The law of large numbers states that if ...
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