1. All of the following are financial risks which may be faced by business organizations EXCEPT
(a) interest rate risk.
(b) commodity price risk.
(c) product liability risk.
(d) currency exchange rate risk.
2. 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.
(a) I only
(b) II only
(c) both I and II
(d) neither I nor II
3. 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 Beefs operations is a(n)
(a) currency exchange rate risk.
(b) property risk.
(c) commodity price risk.
(d) interest rate risk.
4. An integrated risk program is a risk management program which combines
(a) pure and speculative risks.
(b) property and liability risks.
(c) interest rate risk and currency exchange rate risk.
(d) commodity price risk and interest rate risk.
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5. Regional Airline (RA) is looking for an effective way of handling its risk exposures. The company spends millions of dollars 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. RAs insurer designed an insurance program that pays only if both contingencies (high fuel costs and high retained liability claims) occur. The contract the insurer designed is called a(n)
(a) double indemnity rider.
(b) double trigger option.
(c) multiple protection policy.
(d) other insurance provision.
6. 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.
(a) I only
(b) II only
(c) both I and II
(d) neither I nor II
7. A comprehensive risk management plan that addresses an organizations pure risks, speculative risks, strategic risks, and operational risks is called a(n)
(a) risk management information system.
(b) financial risk management plan.
(c) speculative risk management plan.
(d) enterprise risk management plan.
8. 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
(a) ratemaking oscillation.
(b) business cycle.
(c) underwriting cycle.
(d) claims circulation.
9. 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.
(a) I only
(b) II only
(c) both I and II
(d) neither I nor II