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RMIN 4000 TEST 1 BROWN UGA 1.pdf
Question 1: Exposures
CORRECT ANSWER : things of value (assets) that could be lost
Question 2: Perils
CORRECT ANSWER: things that cause injury or loss
Question 3: risk
CORRECT ANSWER : a calculated possibility of a negative
outcome
Question 4: Frequency
CORRECT ANSWER : the number of losses (such as fire or
theft) that occur within a specified time period. aka the probability of a loss
Question 5: Severity
CORRECT ANSWER : the dollar amount of a loss for a specific
peril (fire, theft, collision) aka How much does it cost when the loss does occur?
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Question 6: Hazard
CORRECT ANSWER : a condition that creates or increases the
frequency or severity of loss but does NOT cause the loss.
Question 7: Physical Hazard
CORRECT ANSWER : a physical condition that increases the
frequency or severity of loss
Question 8: Moral Hazard
CORRECT ANSWER : the presence of insurance changes the
behavior of the insured. ex: making hail damage to get a check
Question 9: Morale hazard (attitudinal hazard)
CORRECT ANSWER : A condition of carelessness or
indifference that increases the frequency or severity of loss.
Question 10: Legal Hazard
CORRECT ANSWER : characteristics of the legal system or
regulatory environment that increase the frequency or severity of losses
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Question 11: Georgia's Diminution in value is an example of a
CORRECT ANSWER : legal hazard because it increases the
severity on property losses
Question 12: Pure Risk
CORRECT ANSWER : A chance of loss or no loss, but no
chance of gain. Insurance can be bought for this
Question 13: Speculative Risk
CORRECT ANSWER : A chance of loss, no loss, or gain.
Question 14: Diversifiable risk
CORRECT ANSWER : a risk that affects only individuals or
small groups and not the entire economy. It can be eliminated/ reduced through diversification. the risks are not correlated
Question 15: Developing cancer or your house being caught on
fire are two examples of what kind of risk?
CORRECT ANSWER : Pure Risk
Question 16: diversifiable risk
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CORRECT ANSWER : A risk that affects only some
individuals, businesses, or small groups. they can be reduced/eliminated through diversification. the risks are not correlated
Question 17: Non-Diversifiable Risk
CORRECT ANSWER : affects the entire economy or large
numbers of persons or groups within the economy (hurricane, flood), risks are correlated (inflation, unemployment) cannot be eliminated through diversification
Question 18: Enterprise Risk
CORRECT ANSWER : encompasses all major risks faced by a
business firm, which include: pure risk, speculative risk,
strategic risk, operational risk, and financial risk
Question 19: systemic risk
CORRECT ANSWER : the risk that the failure of one financial
institution can bring down other institutions as well. instability in the financial system due to the interdependency between the players in the market