1. Which risk management technique is best applied to a loss exposure that has a high frequency of occurrence and high severity when losses occur?

1. risk transfer b. risk retention c. risk control d. risk avoidance

2. Claire workers for Travelers Insurance Company. Her job is to review applications for insurance, to decide whether Travelers should accept the applicant, and to assign acceptable applicants to the appropriate rating category. Claire is a(n)

a. claims adjuster. c. underwriter. e. risk control engineer.

b. insurance broker. d. actuary.

3. A benefit of risk management to society is the reduced chance that a large financial institution will fail, setting off a chain reaction in which other financial institutions fail. This risk, potential disruption of the economy because of the failure of a large financial institution causing other financial institutions to fail, is called:

a. objective risk. c. speculative risk. e. diversifiable risk.

b. systemic risk. d. systematic risk.

4. Target is concerned that a customer at a Target store will suffer a physical injury at the store and sue Target for the injury. For example, a customer might slip, fall, and be injured. What type of insurance do large businesses purchase to protect themselves against liability claims arising from customers being physically injured at a location owned by the large business?

a. workers compensation insurance. d. difference in conditions insurance.

b. errors and omissions insurance. e. employment practices liability insurance.

c. commercial general liability insurance.

5. We discussed several methods of using risk control. One method is having back-up copies of important data files and key papers, having extra parts on hand in case a key part breaks, and having another employee ready to step in if a key employee (e.g. the IT director) leaves the company for some reason. This risk control method is called:

a. separation. c. insurance. e. diversification.

b. avoidance. d. duplication.

6. Some risks affect the entire economy or large numbers of persons or groups within the economy. COVID, high interest rates, high petroleum costs, and high unemployment are examples of this type of risk. This category of risk is called:

a. objective risk. c. speculative risk. e. subjective risk.

b. operational risk. d. nondiversifiable risk.