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FIN 360 Exam 2 Questions And Answers, Exams of Finance

FIN 360 Exam 2 Questions And Answers

Typology: Exams

2024/2025

Available from 07/04/2025

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FIN 360 Exam 2 Questions And Answers
Risk management is concerned with -
correct answer the identification and treatment of loss exposures
Preloss objectives of risk management include which of the
following?
1. Preparing for potential losses in the most economical way
2. Reduction of anxiety -
correct answer both I and II
A risk manager is concerned with which of the following?
1. Identifying potential losses
2. Selecting the appropriate techniques for treating loss exposures -
correct answer both I and II
Loss severity is defined as -
correct answer the probable size of the losses which may occur
during some period
Loss frequency is defined as -
correct answer the probable number of losses that may occur
during some period
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Risk management is concerned with - correct answer ✅the identification and treatment of loss exposures Preloss objectives of risk management include which of the following?

  1. Preparing for potential losses in the most economical way
  2. Reduction of anxiety - correct answer ✅both I and II A risk manager is concerned with which of the following?
  3. Identifying potential losses
  4. Selecting the appropriate techniques for treating loss exposures - correct answer ✅both I and II Loss severity is defined as - correct answer ✅the probable size of the losses which may occur during some period Loss frequency is defined as - correct answer ✅the probable number of losses that may occur during some period

All of the following statements about avoidance are true EXCEPT - correct answer ✅It can be used for any loss exposure facing a firm Which of the following conditions is (are) appropriate for using retention?

  1. Losses are difficult to predict.
  2. The worst possible loss is not serious. - correct answer ✅II only Which of the following statements about self-insurance is (are) true?
  3. It is a form of planned retention.
  4. State law usually prohibits its use for workers compensation. - correct answer ✅I only All of the following are potential advantages of retention EXCEPT - correct answer ✅protection from catastrophic losses A restaurant owner 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

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 to other insurers. This group captive is called a(n) - correct answer ✅risk retention group Acme Company has three identical manufacturing plants, one on the Texas Gulf Coast, one in southern Alabama, and one in Florida. Each plant is valued at $200 million. Acme's 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 apart. What is the maximum possible loss associated with a single hurricane? - correct answer ✅$600 million Laura Evans is risk manager of LMN Company. Laura decided to retain certain property loss exposures. Which of the following is a method that Laura can use to fund the retained property losses? - correct answer ✅current net income 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. Barb's treatment of the risk of disability is best described as - correct answer ✅passive retention To better understand her company's operations, a risk manager asked a production manager to draw a diagram tracing the steps in the production and distribution of the company's products. Such a diagram, which is useful in risk identification, is called a - correct answer ✅flowchart Which of the following statements about a personal risk management program is (are) true?

  1. Insurance and retention are the only techniques used to handle potential losses.
  2. The steps in a personal risk management process are the same steps used by businesses. - correct answer ✅II only 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 implemented the plan. The process Brenda

Which of the following statements concerning the selection of risk management techniques and insurance market conditions is (are) true? It's easier to purchase affordable insurance during a "soft " market than during a "hard" market. Retention is used more during a "soft" market than during a "hard" market. - correct answer ✅I only The property and liability insurance industry fluctuates between periods of increasing insurance rates and tight underwriting standards, and decreasing insurance rates and loose underwriting standards. Profitability in the industry follows these cyclical movements. What is this pattern of fluctuations called? - correct answer ✅the underwriting cycle A risk manager was asked to review all the loss exposures his company faces. The risk manager noted that the company obtained over 90 percent of its raw materials from one supplier. He voiced concern about business interruption if that supplier was closed for some reason. Acting on his recommendation, the company began to purchase raw materials from two other suppliers. Using multiple suppliers illustrates which risk control technique? - correct answer ✅diversification

Which of the following is a financial risk that may be faced by a business organization? - correct answer ✅currency exchange rate risk Mid-States Beef is a commercial feedlot business. Currently, the company has over 10,000 cattle in feedlots. Mid-States is concerned that the price of corn, the grain fed to the cattle, will increase significantly. The risk that the price of corn may increase and harm the profitability of Mid-States Beef's operations is a(n) - correct answer ✅commodity price risk. An integrated risk management program is a risk management program which combines - correct answer ✅pure and speculative risks. Which of the following statements about the scope of risk management is (are) true?

  1. Traditionally, risk management was limited in scope to speculative loss exposures.
  2. In the 1990s, some businesses began to expand the scope of risk management to include financial risks. - correct answer ✅II only
  1. Investment returns have no impact upon the underwriting cycle.
  2. Investment returns can lengthen the duration of a soft market by offsetting underwriting losses. - correct answer ✅II only A large property and liability insurance company merged with a bank and then acquired a stock brokerage company. This type of merger and acquisition activity is categorized as - correct answer ✅cross-industry consolidation. Which of the following statements is (are) true with regard to probability analysis?
  3. If two events are independent, the occurrence of one event does not affect the occurrence of the second event.
  4. If two events are dependent, the occurrence of one event affects the occurrence of the second event. - correct answer ✅both I and II A table showing losses that could occur and the corresponding chance that each loss could occur is called a(n) - correct answer ✅loss distribution.

Which of the following statements is (are) true with respect to the time value of money?

  1. Money received today is worth more than the same amount of money received in the future.
  2. The present value of a future amount is greater than the future amount. - correct answer ✅I only Calculating the present value of a future amount is called - correct answer ✅discounting. Which of the following statements is (are) true regarding the net present value of a capital investment?
  3. Net present value does not consider time value of money.
  4. A positive net present value represents an increase in value to the firm. - correct answer ✅II only Which of the following statements is (are) true with regard to the use of technology in risk management programs?
  5. Risk management Intranets are networks intended for an internal audience.

Which of the following statements about the risk of terrorism in the United States is (are) true?

  1. Congress created a federal backstop for terrorism claims.
  2. Coverage for losses attributable to terrorism is not marketed by private insurers in the U.S. - correct answer ✅I only The first step in the enterprise risk management process is - correct answer ✅risk identification. A bank stores depositor data electronically. The data include financial account values, social security numbers, and other information. An outside party was able to gain access to the bank's customer data through unauthorized access to the bank's computer system. The outside party was able to steal money from the accounts and to sell customer data, including social security numbers, to others. This scenario illustrates - correct answer ✅cyber-liability risk. A risk manager analyzed fleet accident data to help determine which loss control measures would provide the greatest safety incentives for drivers. Examining data to generate information that

will help make more informed decisions is called - correct answer ✅predictive analytics. West Coast Insurance writes property and liability insurance in California, Oregon, and Washington. These states are all susceptible to earthquakes. To help determine how much reinsurance to purchase, West Coast Insurance hired an organization to use a computer algorithm to estimate what its insured losses would be if a severe earthquake occurred. West Coast Insurance based its purchase of reinsurance on the loss estimates. This scenario illustrates using - correct answer ✅catastrophe modeling. Palmer Polymers is changing from a traditional risk management program to an enterprise risk management program. As a first step, the risk manager determined all the risks that the organization faces. Next, she created a grid with loss frequency on the x-axis and loss severity on the y-axis. Then she plotted all of the loss exposures based on frequency and severity. The grid and the plotted loss exposures are called a - correct answer ✅risk map. Uncertainty pertaining to the organization's goals and objectives and the organization's strengths, weaknesses, opportunities, and