Question 1

Which of the following is not an example of risk retention?

Accepted Answer

A)   self-insurance,
B)   using a disclaimer of warranties clause on product packaging,
C)   failure to identify a risk,
D)   use of a reserve fund to prefund physical damage to company cars.E) C) and D)
F) A) and B)

Question 2

Match the descriptions with their terms:
-Risks that are considered too great to retain and too expensive to transfer might best be handled by means of _________________.

Accepted Answer

A)   frequency reduction
B)   hedging
C)   hold-harmless agreement
D)   loss control
E)   risk avoidanceF)  risk retentionG)  risk transferH)  self-insuranceI)  separationJ)  severity reductionK)  speculatorL)  unplanned retentionM) B) and F)
N) D) and K)

Question 3

Risk retention can be planned or unplanned.

Accepted Answer

A) True 
 B)False

Question 4

Hold-harmless agreements reduce the original risk for the transferee.

Accepted Answer

A) True 
 B)False

Question 5

Match the descriptions with their terms:
-One who assumes risk that is typically associated with a business venture is a/an _________________.

Accepted Answer

A)   frequency reduction
B)   hedging
C)   hold-harmless agreement
D)   loss control
E)   risk avoidanceF)  risk retentionG)  risk transferH)  self-insuranceI)  separationJ)  severity reductionK)  speculatorL)  unplanned retentionM) I) and K)
N) F) and K)

Question 6

The difference between the limited form and the intermediate form of hold-harmless agreements involves clauses about the losses the transferee pays for.

Accepted Answer

A) True 
 B)False

Question 7

A sprinkler system is a concurrent loss control measure.

Accepted Answer

A) True 
 B)False

Question 8

Funded retention involves making various pre-loss arrangements to ensure that money is readily available to pay for losses.

Accepted Answer

A) True 
 B)False

Question 9

Hedging is

Accepted Answer

A)   insurance,
B)   used for speculative risks,
C)   used for pure risks,
D)   gambling.E) None of the above
F) B) and D) B

Question 10

When an entity avoids a risk

Accepted Answer

A)   the chance of a loss is zero,
B)   the chance of a loss is only moderately reduced,
C)   the probability of a loss due to that risk is zero,
D)   the chance of a loss for that entity due to that risk is reduced to zero.E) All of the above
F) C) and D)

Question 11

Risk retention means the voluntary assumption of risk.

Accepted Answer

A) True 
 B)False

Question 12

The four basic techniques available for handling risk are:

Accepted Answer

A)   risk avoidance, loss control, risk retention, and risk transfer,
B)   risk avoidance, diversification, frequency reduction, and severity reduction,
C)   risk retention, risk transfer, self-insurance, and loss control,
D)   risk retention, loss control, self-insurance, and diversification.E) A) and D)
F) A) and C)

Question 13

Match the descriptions with their terms:
-The use of a deductible is a very common example of _____________ by a firm.

Accepted Answer

A)   frequency reduction
B)   hedging
C)   hold-harmless agreement
D)   loss control
E)   risk avoidanceF)  risk retentionG)  risk transferH)  self-insuranceI)  separationJ)  severity reductionK)  speculatorL)  unplanned retentionM) E) and H)
N) A) and H)

Question 14

The following conditions are suggestive of the types of situations where self-insurance by a business is possible and feasible, except:

Accepted Answer

A)   the firm should have a sufficient number of objects so situated that the objects are not subject to simultaneous destruction,
B)   the firm must be willing to allow an outside company to administer the plan and manage the self-insurance fund in order to ensure objectivity,
C)   the firm must have accurate records or have access to satisfactory statistics to enable it to make good estimates of expected losses,
D)   the general financial condition of the firm should be satisfactory and the firm's management must be willing and able to deal with large and unusual losses.E) B) and C)
F) A) and D) B

Question 15

Match the descriptions with their terms:
-A significant amount of retention could be characterized as _________________.

Accepted Answer

A)   frequency reduction
B)   hedging
C)   hold-harmless agreement
D)   loss control
E)   risk avoidanceF)  risk retentionG)  risk transferH)  self-insuranceI)  separationJ)  severity reductionK)  speculatorL)  unplanned retentionM) E) and G)
N) E) and F)

Question 16

Small businesses are more likely to use self-insurance than large businesses because large businesses typically have greater access to funds with which they can purchase commercial insurance.

Accepted Answer

A) True 
 B)False

Question 17

A tool that generally is not used to manage subjective risk is

Accepted Answer

A)   obtaining more information,
B)   group discussion,
C)   systematically identifying and analyzing appropriate methods for dealing with risks,
D)   severity reduction.E) A) and B)
F) All of the above

Question 18

Match the descriptions with their terms:
-The use of insurance is a common form of _________________.

Accepted Answer

A)   frequency reduction
B)   hedging
C)   hold-harmless agreement
D)   loss control
E)   risk avoidanceF)  risk retentionG)  risk transferH)  self-insuranceI)  separationJ)  severity reductionK)  speculatorL)  unplanned retentionM) C) and F)
N) E) and I) G

Question 19

The greater the total debt/net worth ratio, the greater the firm's ability to retain risk.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is not a form of severity reduction for a firm?

Accepted Answer

A)   a driver's education program aimed at preventing accidents among a company's employees,
B)   the installation of fire extinguishers in order to contain a fire before it spreads,
C)   employee training in first-aid procedures,
D)   the installation of driver's side air bags in all of the company's vehicles.E) None of the above
F) A) and C)

Exam 5: Risk Management Techniques: Noninsurance Methods

Which of the following is not an example of risk retention?

Correct AnswerverifiedShow Answer

Match the descriptions with their terms: -Risks that are considered too great to retain and too expensive to transfer might best be handled by means of _________________.

Correct AnswerverifiedShow Answer

Risk retention can be planned or unplanned.

Correct AnswerverifiedShow Answer

Hold-harmless agreements reduce the original risk for the transferee.

Correct AnswerverifiedShow Answer

Match the descriptions with their terms: -One who assumes risk that is typically associated with a business venture is a/an _________________.

Correct AnswerverifiedShow Answer

The difference between the limited form and the intermediate form of hold-harmless agreements involves clauses about the losses the transferee pays for.

Correct AnswerverifiedShow Answer

A sprinkler system is a concurrent loss control measure.

Correct AnswerverifiedShow Answer

Funded retention involves making various pre-loss arrangements to ensure that money is readily available to pay for losses.

Correct AnswerverifiedShow Answer

Hedging is

Correct AnswerverifiedB

When an entity avoids a risk

Correct AnswerverifiedShow Answer

Risk retention means the voluntary assumption of risk.

Correct AnswerverifiedShow Answer

The four basic techniques available for handling risk are:

Correct AnswerverifiedShow Answer

Match the descriptions with their terms: -The use of a deductible is a very common example of _____________ by a firm.

Correct AnswerverifiedShow Answer

The following conditions are suggestive of the types of situations where self-insurance by a business is possible and feasible, except:

Correct AnswerverifiedB

Match the descriptions with their terms: -A significant amount of retention could be characterized as _________________.

Correct AnswerverifiedShow Answer

Small businesses are more likely to use self-insurance than large businesses because large businesses typically have greater access to funds with which they can purchase commercial insurance.

Correct AnswerverifiedShow Answer

A tool that generally is not used to manage subjective risk is

Correct AnswerverifiedShow Answer

Match the descriptions with their terms: -The use of insurance is a common form of _________________.

Correct AnswerverifiedG

The greater the total debt/net worth ratio, the greater the firm's ability to retain risk.

Correct AnswerverifiedShow Answer

Which of the following is not a form of severity reduction for a firm?

Correct AnswerverifiedShow Answer

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B

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B

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G

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