Key Terms price risk 4 credit risk 5 pure risk 5 loss control 9 loss financing 11 retention 11 hedging 11 other contractual risk transfers 11 internal risk reduction 12 Questions and Problems 1. Describe possible direct and indirect losses to a business from: (a) an explosion that produces major damage to a manufacturing plant, and (b) lawsuits arising from the business's release of toxic chemicals that damage the environment. 2. Explain how a business could reduce the risk of loss from lawsuits by consumers injured by the business's products. 3. Describe loss control measures that you could take to reduce your risk of being injured in an automobile accident. 4. What major methods are used to finance losses? How does loss financing differ from internal risk reduction? Answers to Concept Checks 1. Taking on less hazardous projects and/or reducing the total number of projects would reduce the level of risky activity. Examples of increasing precautions for a given level of risky activity include giving employees safety instruction and making them wear protective devices (such as hard hats). 2. The level of risky activity could be reduced by abstinence (complete or partial). An example of increasing precautions for a given level of risk activity (number of contacts) would be the regular use of protective devices (such as condoms)