Enterprise Risk Management And Related Topics

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Question 1
Free
Multiple Choice

Which of the following is a financial risk that may be faced by a business organization?

Choose correct answer/s
A

injuries suffered by employees at the workplace

B

lost income after a fire loss

C

product liability risk

D

currency exchange rate risk

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Question 2
Free
Multiple Choice

Which of the following statements about the scope of risk management is (are) true?
I)Traditionally, risk management was limited in scope to speculative loss exposures.
II)In the 1990s, some businesses began to expand the scope of risk management to include financial risks.

Choose correct answer/s
A

I only

B

II only

C

both I and II

D

neither I nor II

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Question 3
Free
Multiple Choice

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)

Choose correct answer/s
A

currency exchange rate risk.

B

property risk.

C

commodity price risk.

D

interest rate risk.

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Question 4
Free
Multiple Choice

An integrated risk management program is a risk management program which combines

Choose correct answer/s
A

pure and speculative risks.

B

property and liability risks.

C

personnel-related risk and property risk.

D

direct and indirect loss risk.

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Question 5
Free
Multiple Choice

Regional Airline (RA) spends millions of dollars each year on jet fuel. The company also has significant liability exposures. RA can retain a large portion of its liability exposure if fuel costs are low. The company can pay high fuel costs if retained liability losses are low. RA cannot, however, absorb both high fuel costs and high retained liability claims. RA's insurer designed an insurance program where the insurer pays only if both contingencies (high fuel costs and high retained liability claims) occur. The contract the insurer designed is called a(n)

Choose correct answer/s
A

double indemnity rider.

B

double trigger option.

C

multiple protection policy.

D

other insurance provision.

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Question 6
Multiple Choice

Which statement is (are) true with respect to enterprise risk management programs?
I)They address traditional property, liability, and personnel loss exposures.
II)They do not address financial risks.

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A
I only
B
II only
C
both I and II
D
neither I nor II
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Question 7
Multiple Choice

A comprehensive risk management program that addresses an organization's pure risks, speculative risks, strategic risks, and operational risks is called a(n)

Choose correct answer/s
A
risk management information system.
B
financial risk management plan.
C
speculative risk management plan.
D
enterprise risk management plan.
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Question 8
Multiple Choice

The property and liability insurance industry is characterized by a repetitive pattern of loose underwriting standards with low premiums followed by tight underwriting standards with high premiums. This repetitive pattern is called the

Choose correct answer/s
A
underwriting by exception method.
B
business cycle.
C
underwriting cycle.
D
account underwriting method.
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Question 9
Multiple Choice

Which statement is (are) true regarding property and liability insurance market conditions?
I)Premiums are high when the insurance market is "hard."
II)Underwriting standards are tight when the insurance market is "soft."

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
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Question 10
Multiple Choice

Which of the following statements is true regarding insurance market conditions and underwriting results?

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A
A combined ratio greater than one (or 100 percent) indicates profitable underwriting.
B
In a "soft" insurance market, more retention is used than in a "hard" insurance market.
C
Insurance rates are high and underwriting standards are tight when the insurance market is "hard."
D
Property and liability insurance premiums and underwriting standards do not fluctuate over time.
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Question 11
Multiple Choice

The relative level of surplus in the insurance industry is called the industry's

Choose correct answer/s
A
capacity.
B
liabilities.
C
reserves.
D
admitted assets.
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Question 12
Multiple Choice

Which of the following statements is (are) true regarding investment returns and the underwriting cycle?
I)Investment returns have no impact upon the underwriting cycle.
II)Investment returns can lengthen the duration of a soft market by offsetting underwriting losses.

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
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Question 13
Multiple Choice

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

Choose correct answer/s
A
insurance company consolidation.
B
cross-industry consolidation.
C
financial risk management.
D
insurance brokerage consolidation.
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Question 14
Multiple Choice

A company has a fleet of 200 vehicles. On average, 50 vehicles per year experience property damage. What is the probability that any vehicle will be damaged in any given year?

Choose correct answer/s
A
10 percent
B
20 percent
C
25 percent
D
50 percent
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Question 15
Multiple Choice

RST Company has production facilities in Salt Lake City and Cleveland. The probability that in any given year a fire will damage the production facility in Salt Lake City is 5 percent. The probability that in any given year a fire will damage the Cleveland production facility is 4 percent. What is the probability that BOTH production facilities will be damaged by fire in any given year?

Choose correct answer/s
A
0.20 percent
B
2.00 percent
C
4.50 percent
D
9.00 percent
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Question 16
Multiple Choice

RST Company has production facilities in Salt Lake City and Cleveland. The probability that in any given year a fire will damage the production facility in Salt Lake City is 5 percent. The probability that in any given year a fire will damage the Cleveland production facility is 4 percent. What is the probability that AT LEAST ONE of the production facilities will be damaged by fire in any given year?

Choose correct answer/s
A
0.20 percent
B
2.00 percent
C
8.80 percent
D
9.00 percent
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Question 17
Multiple Choice

Some events cannot occur together because the occurrence of one event makes the occurrence of the second event impossible. Such events are called

Choose correct answer/s
A
dependent events.
B
independent events.
C
conditional events.
D
mutually exclusive events.
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Question 18
Multiple Choice

Two buildings are located close together at a production facility. The probability that either of these buildings will experience a fire loss is 4 percent. However, if one building has a fire, the probability that the second building will have a fire is 60 percent. What is the probability that both buildings will have a fire?

Choose correct answer/s
A
1.6 percent
B
2.4 percent
C
8.0 percent
D
64.0 percent
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Question 19
Multiple Choice

Which of the following statements is (are) true with regard to probability analysis?
I)If two events are independent, the occurrence of one event does not affect the occurrence of the second event.
II)If two events are dependent, the occurrence of one event affects the occurrence of the second event.

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
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Question 20
Multiple Choice

Jane is risk manager of ABC Manufacturing Company. She is trying to decide whether to self-insure her company's workers compensation exposure or to purchase insurance. Jane would like to use regression analysis to predict the number of workers compensation claims that will occur next year. The number of claims will be the dependent variable in the regression. All of the following would be reasonable independent variables to use EXCEPT

Choose correct answer/s
A
number of employees.
B
number of hours worked.
C
total assets.
D
payroll.
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