1. Jim and Paula Franklin started a dry cleaning business. The business may be successful or it may fail. The type of risk that is present when either a profit or loss could occur is called (Points : 1) speculative risk. pure risk. nondiversifiable risk. subjective risk.

Question 2. 2. Preloss objectives of risk management include which of the following? I. Preparing for potential losses in the most economical way. II. Reduction of anxiety. (Points : 1)

I only II only both I and II neither I nor II

Question 3. 3. Which of the following is a form of casualty insurance? (Points : 1)

ocean marine insurance general liability insurance fire insurance inland marine insurance

Question 4. 4. A group of farmers agreed that if any farmer suffered a property loss, the loss would be spread over the entire group. In this way, each farmer is responsible for the average loss of the group rather than the actual loss that the farmer sustained. Which characteristic of insurance is embodied in this agreement? (Points : 1)

indemnification pooling of losses risk avoidance fortuitous losses

Question 5. 5. Which of the following types of risks best meets the requirements for being insurable by private insurers? (Points : 1)

market risks financial risks property risks political risks

Question 6. 6. All of the following are characteristics of insurance EXCEPT (Points : 1)

indemnification. payment of fortuitous losses. risk avoidance. pooling of losses.

Question 7. 7. According to the law of large numbers, what happens as the number of exposure units increases? (Points : 1)

Actual results will more closely approach probable results. Objective risk will increase. Nondiversifiable risk will decrease. Actual results will increasingly differ from probable results.

Question 8. 8. An automobile that is a total loss as a result of a collision is an example of which of the following types of risk? I. Speculative risk II. Diversifiable risk (Points : 1)

I only II only both I and II neither I nor II

Question 9. 9. All of the following are considered financial risks EXCEPT (Points : 1)

increased cost of production because of rising commodity prices. the decline in the value of a bond portfolio because of rising interest rates. loss of money because of adverse movements in currency exchange rates. destruction of a production facility caused by an explosion.

Question 10. 10. Uncertainty based on a person's mental condition or state of mind is known as (Points : 1)

objective risk. objective probability. subjective risk. subjective probability.