Application Questions

$1.$ Several types of risk are present in the US economy. For each of the following, identify the type of risk that is present. Explain your answer: a$.$ The Department of Homeland Security alerts the nation of a possible attack by terriorists. b$.$ A house may be severely damaged by a fire. c$.$ A family head may be totally disabled in a plant explosion, d$.$ An investor purchases $100$ shares of Microsoft stock, e$.$ A river that periodically overflows may cause substantial property damage to thousands of homes in the floodplain. f$.$ Home buyers may be faced with higher mortgage payments if the Federal Reserve raises interest rates at its next meeting. g$.$ A worker on vacation plays the slot machines in a casino.

$2.$ Risk managers use a number of methods for managing risk. For each of the following, what method for handling risk is used? Explain your answer. a$.$ The decision not to carry earthquake insurance on a firm's manufacturing plant, b$.$ The installation of an automatic sprinkler system in a hotel, c$.$ The decision not to produce a product that might result in a

$3.$ a$.$Explain the historical definition of risk. b$.$ What is a loss exposure? c$.$ How does objective risk differ from subjective risk?

$4.$a$.$ What is the difference between peril and hazard? b$.$ Define physical hazard, moral hazard, attitudinal hazard, and legal hazard.

$5.$ a$.$ Explain the difference between pure risk and speculative risk. b$.$ How does diversifiable risk differ from nondiversifiable risk?

$6.$ a$.$ What is enterprise risk management? b$.$ How does enterprise risk management differ from traditional risk management?

$7.$Identify the major types of personal risks that are associated with economic insecurity.

$8.$Identify the major risks faced by business firms

$9.$a$.$ Briefly explain each of the following risk control: avoidance, loss prevention, loss reduction, duplication, separation, and diversification. b$.$ Briefly explain each of the following risk$-$financing techniques for managing risk: retention, noninsurance transfers, and insurance.