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FIN 360 Exam 2 Questions And Answers
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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?
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?
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?
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?
Which of the following statements is (are) true with respect to the time value of money?
Which of the following statements about the risk of terrorism in the United States is (are) true?
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