1、Principles of Risk Management and Insurance, 11e (Rejda)Chapter 3 Introduction to Risk Management1) Risk management is concerned withA) the identification and treatment of loss exposures.B) the management of speculative risks only.C) the management of pure risks that are uninsurable.D) the purchase

2、of insurance only.Answer: AQuestion Status: Previous Edition2) A situation or circumstance in which a loss is possible, regardless of whether a loss occurs, is called aA) deductible.B) loss exposure.C) loss avoidance.D) peril.Answer: BQuestion Status: Previous Edition3) All of the following are risk

3、 management objectives prior to the occurrence of loss EXCEPTA) analysis of the cost of different techniques for handling losses.B) continuing operations after a loss.C) reduction of anxiety.D) meeting externally imposed obligations.Answer: BQuestion Status: Previous Edition4) Preloss objectives of

4、risk management include which of the following?I.Preparing for potential losses in the most economical way.II.Reduction of anxiety.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: CQuestion Status: Previous Edition5) A risk manager is concerned withI.Identifying potential losses.II.Sele

5、cting the appropriate techniques for treating losses.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: CQuestion Status: Previous Edition6) Sources of information that can be used by a risk manager to identify pure loss exposures include all of the following EXCEPTA) risk analysis questi

6、onnaires.B) currency exchange rates. C) physical inspections.D) past losses.Answer: BQuestion Status: Previous Edition7) Loss severity is defined as theA) probable size of the losses which may occur during some period.B) probable number of losses which may occur during some period.C) probability tha

7、t any particular piece of property may be totally destroyed.D) probability that a liability judgment may exceed a firms net worth.Answer: AQuestion Status: Previous Edition8) Loss frequency is defined as theA) probable size of the losses that may occur during some period.B) probable number of losses

8、 that may occur during some period.C) probability that any particular piece of property may be totally destroyed.D) probability that a liability judgment may exceed a firms net worth.Answer: BQuestion Status: Previous Edition9) The worst loss that could ever happen to a firm is referred to as theA)

9、maximum possible loss.B) probable maximum loss.C) frequency of loss.D) severity of loss.Answer: AQuestion Status: Previous Edition10) The worst loss that is likely to happen is referred to as theA) maximum possible loss.B) probable maximum loss.C) frequency of loss.D) severity of loss.Answer: BQuest

10、ion Status: Previous Edition11) All of the following statements about avoidance are true EXCEPTA) Certain loss exposures are never acquired.B) Certain loss exposures may be abandoned.C) The chance of loss for certain loss exposures may be reduced to zero.D) It can be used for any loss exposure facin

11、g a firm.Answer: DQuestion Status: Previous Edition12) Abandoning an existing loss exposure is an example ofA) avoidance.B) retention.C) noninsurance transfer.D) insurance transfer.Answer: AQuestion Status: Previous Edition13) Which of the following conditions is (are) appropriate for using retentio

12、n?I.Losses are difficult to predict.II.The worst possible loss is not serious.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: BQuestion Status: Previous Edition14) Which of the following statements regarding the use of retention is (are) true? I.Retention is best used for loss exposure

13、s that have a low frequency and a high severity. II.A financially strong firm can have a higher retention level than a firm whose financial position is weak.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: BQuestion Status: Previous Edition15) All of the following statements about capti

14、ve insurers are true EXCEPTA) They may act as a profit center by insuring parties other than the parent company.B) They provide a way to obtain types of insurance that may be unavailable from commercial insurers.C) They increase the volatility of the parent companys earnings.D) They make it easier f

15、or a firm to have access to reinsurance.Answer: CQuestion Status: Previous Edition16) Which of the following statements about self-insurance is (are) true?I.It is a form of planned retention.II.State law usually prohibits its use for workers compensation.A) I onlyB) II onlyC) both I and IID) neither

16、 I nor IIAnswer: AQuestion Status: Previous Edition17) All of the following are potential advantages of retention EXCEPTA) lower expenses.B) increased cash flow.C) encouragement of loss prevention.D) protection from catastrophic losses.Answer: DQuestion Status: Previous Edition18) A restaurant owner

17、 leased a meeting room at the restaurant to a second party. The lease specified that the second party, not the restaurant owner, would be responsible for any liability arising out of the use of the meeting room, and that the restaurant owner would be held harmless for any damages. The restaurant own

18、ers use of the hold-harmless agreement is an example ofA) retention.B) self-insurance.C) insurance.D) noninsurance transfer.Answer: DQuestion Status: Previous Edition19) All of the following are disadvantages of noninsurance transfers EXCEPTA) The party to whom the potential loss is transferred may

19、be unable to pay.B) The transfer may fail because the contract language is ambiguous.C) The only potential losses that can be transferred are those that are not commercially insurable.D) The noninsurance transfer may be costly.Answer: CQuestion Status: Previous Edition20) ABC Insurance retains the f

20、irst $1 million of each property damage loss and purchases insurance for that part of any property loss that exceeds $1 million. The insurance for property losses above $1 million is calledA) excess insurance.B) liability insurance.C) coinsurance.D) primary insurance.Answer: AQuestion Status: Previo

21、us Edition21) Which of the following statements about the use of deductibles is (are) true?I.They represent risk retention by insurance purchasers.II.They tend to increase the cost of adjusting small claims.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: AQuestion Status: Previous Edit

22、ion22) Which of the following statements about an excess insurance plan is true?A) The insurer does not participate in a loss until it exceeds the amount the firm has decided to retain.B) The insurer pays first up to some specified level; the insured then pays all losses exceeding the insurers reten

23、tion level.C) Losses in excess of a specified amount are not covered.D) The insured and insurer share equally in any loss that occurs.Answer: AQuestion Status: Previous Edition23) Factors a risk manager must consider in selecting an insurer include which of the following?I.The availability of risk m

24、anagement services.II.The financial strength of the insurer.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: CQuestion Status: Previous Edition24) An insurance policy specifically written and designed to meet the needs of an insurance purchaser is called a(n)A) manuscript policy.B) bure

25、au policy.C) standard policy.D) excess policy.Answer: AQuestion Status: Previous Edition25) All of the following are disadvantages of using insurance in a risk management program EXCEPTA) There is an opportunity cost because premiums must be paid in advance.B) Considerable time and effort must be sp

26、ent selecting and negotiating coverages.C) It results in considerable fluctuations in earnings after losses occur.D) Attitudes toward loss control may become lax when losses are insured.Answer: CQuestion Status: Revised26) Which of the following types of loss exposures may be appropriately handled t

27、hrough the purchase of insurance?I.High-frequency, low-severityII.Low-frequency, high-severityA) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: BQuestion Status: Previous Edition27) Which of the following types of loss exposures are best handled by the use of avoidance?A) low-frequency,

28、low-severityB) low-frequency, high-severityC) high-frequency, low-severityD) high-frequency, high-severityAnswer: DQuestion Status: Previous Edition28) Low-frequency, low-severity loss exposures are best handled byA) avoidance.B) retention.C) insurance.D) noninsurance transfer.Answer: BQuestion Stat

29、us: Previous Edition29) All of the following statements about the administration of a risk management program are true EXCEPTA) The risk manager is an important part of a firms management team.B) A risk management policy statement can be used to educate top executives about the risk management proce

30、ss.C) If a risk management program is properly designed, periodic review of the program is unnecessary.D) In order to properly identify loss exposures, the risk manager needs the cooperation of other departments.Answer: CQuestion Status: Previous Edition30) Cal was just hired as XYZ Companys first r

31、isk manager. Cal would like to employ the risk management process. The first step in the process Cal should follow is toA) evaluate potential losses faced by XYZ Company.B) formulate a treatment plan for XYZ Companys loss exposures.C) identify potential losses faced by XYZ Company.D) implement and a

32、dminister a risk management plan for XYZ Company.Answer: CQuestion Status: Previous Edition31) Members of Mid-South Petroleum Distributors, a trade group, had trouble obtaining affordable pollution liability insurance. The members formed a group captive that is exempt from many state laws that apply

33、 to other insurers. This group captive is called a(n)A) reinsurance pool.B) Lloyds association.C) alien insurer.D) risk retention group.Answer: DQuestion Status: Previous Edition32) Acme Company has three identical manufacturing plants, one on the Texas Gulf Coast, one in southern Alabama, and one i

34、n Florida. Each plant is valued at $50 million. Acmes risk manager is concerned about the damage which could be caused by a single hurricane. The risk manager believes there is an extremely low probability that a single hurricane could destroy two or all three plants because they are located so far

35、apart. What is the probable maximum loss associated with a single hurricane?A) $0 millionB) $50 millionC) $100 millionD) $150 millionAnswer: BQuestion Status: Previous Edition33) Acme Company has three identical manufacturing plants, one on the Texas Gulf Coast, one in southern Alabama, and one in F

36、lorida. Each plant is valued at $50 million. Acmes risk manager is concerned about the damage which could be caused by a single hurricane. The risk manager believes there is an extremely low probability that a single hurricane could destroy two or all three plants because they are located so far apa

37、rt. What is the maximum possible loss associated with a single hurricane?A) $0 millionB) $50 millionC) $100 millionD) $150 millionAnswer: DQuestion Status: Previous Edition34) Laura Evans is risk manager of LMN Company. Laura decided to retain certain property losses. All of the following are method

38、s which Laura can use to fund retained property losses EXCEPTA) private insurance.B) current net income.C) funded reserve.D) borrowed funds.Answer: AQuestion Status: Previous Edition35) Parker Department Stores has been hurt in recent months by a large increase in shoplifting losses. Parkers risk ma

39、nager concluded that while the frequency of shoplifting losses was high, the severity is still relatively low. What is (are) the appropriate risk management technique(s) to apply to this problem?A) retentionB) loss control and retentionC) transfer through insuranceD) avoidanceAnswer: BQuestion Statu

40、s: Previous Edition36) Barb, who is self-employed, is the main breadwinner for her family. Barb does not have disability income insurance because she has never stopped to consider the impact of a long-term disability upon her family. Barbs treatment of the risk of disability is best described asA) r

41、isk transfer.B) passive retention.C) risk avoidance.D) active retention.Answer: BQuestion Status: Previous Edition37) Ryan decided to review his personal risk management program. His car is 10 years old, and he would receive little money from his insurer if the car was damaged or destroyed. Ryan dec

42、ided to drop the physical damage insurance on the car. From a risk management perspective, dropping the physical damage insurance on the car is best described asA) increasing the use of avoidance in the risk management program.B) increasing the use of noninsurance transfer in the risk management pro

43、gram.C) increasing the use of retention in the risk management program.D) increasing the use of risk control in the risk management program.Answer: CQuestion Status: Previous Edition38) To better understand her companys operations, a risk manager asked a production manager to draw a diagram tracing

44、the steps in the production and distribution of the companys products. Such a diagram, which is useful in risk identification, is called aA) financial statement.B) risk management matrix.C) flowchart.D) risk management audit.Answer: CQuestion Status: Previous Edition39) In reviewing his companys ope

45、rations, a risk manager noticed that all of the companys finished goods were stored in a single warehouse. The risk manager recommended that the finished goods be divided among three warehouses to prevent all of the finished goods from being destroyed by the same peril. Dividing the finished goods a

46、mong three warehouses illustratesA) risk avoidance.B) risk control.C) insurance.D) noninsurance transfer.Answer: BQuestion Status: Previous Edition40) Which of the following statements about a personal risk management program is (are) true?I.Insurance and retention are the only techniques used to ha

47、ndle potential losses.II.The steps in a personal risk management process are the same steps used by businesses.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: BQuestion Status: Previous Edition41) Bev lives in the suburbs and works downtown. She drives to work, and her most direct rout

48、e to work would require her to pass through an area where carjackings and drive-by-shootings are common. Bev does not drive through this area. Instead, she uses a route which adds 10 minutes to her commute. Which risk management technique is Bev using with respect to the risk of injury while driving

49、 through the dangerous area?A) noninsurance transferB) avoidanceC) passive retentionD) loss reductionAnswer: BQuestion Status: Previous Edition42) Brenda identified all of the pure loss exposures her family faces. Then she analyzed these loss exposures, developed a plan to treat these risks, and imp

50、lemented the plan. The process Brenda conducted is calledA) personal insurance programming.B) personal estate planning.C) personal financial planning.D) personal risk management.Answer: DQuestion Status: Previous Edition43) Which statement about a companys cost of risk is (are) true?I.Cost of risk i

51、ncludes insurance premiums and retained losses.II.Reducing the cost of risk increases profitability.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: CQuestion Status: Previous Edition44) A useful measure for an organization is the total of the organizations expenditures for treating loss exposures including retained losses, loss control expenses, insurance premiums, and othe