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Chapter 3

Self-Assessment Quiz

Self-Assessment Quiz


This activity contains 10 questions.

	The first step in the risk management process is to   evaluate potential losses. identify potential losses. select the appropriate techniques for handling losses. implement and administer the program.

	All of the following risk treatment techniques are classified as risk control methods EXCEPT   loss prevention. insurance. loss reduction. avoidance.

	Which of the following statements is (are) true with respect to the objectives of risk management? A pre-loss objective of risk management is the reduction of uncertainty. A post-loss objective of risk management is the stabilization of earnings.   both I and II I only neither I nor II II only

	Tindall Company manufactures electronic components. Managers of the company are considering several diversification options. One possibility is production of prescription drugs. When Tindall Company managers learned of the potential legal liability that could result from the manufacture and sale of prescription drugs, the managers rejected the idea and decided to consider other diversification options. How did Tindall Company choose to deal with the risk of legal liability arising from the manufacture and sale of prescription drugs?   risk retention loss control risk transfer risk avoidance

	Harris Petroleum, a fuel storage and delivery business, occasionally has difficulty in obtaining affordable pollution liability insurance. Jane Elmore, Risk Manager of Harris Petroleum, decided to form an insurance subsidiary for the purpose of writing pollution liability insurance for Harris Petroleum, as well as other insurance coverages. The insurance subsidiary will be based in Bermuda for regulatory reasons. What is such a subsidiary called?   a fraternal insurer a social insurance company a captive insurance company a risk retention group

	All of the following are methods used to pay retained losses EXCEPT   funded reserve. insurance. current net income. borrowed funds.

	Which of the following statements is (are) true with respect to identifying potential loss exposures? A physical inspection of company plants and operations can help to identify major loss exposures. Historical claims data can help to identify major loss exposures.   neither I nor II II only both I and II I only

	Risk managers must consider the range of outcomes that could occur. The worst loss that is likely to happen is called   the maximum possible loss. the maximum frequency loss. the maximum probable loss. the maximum severity loss.

	Rather than purchasing computers and software, ABC Company entered into a lease agreement with Computer Solutions Company (CSC). Under terms of the lease, CSC provides computers and software and is responsible for damage to the computers and software. ABC uses the lease to shift responsibility for hardware and software losses to CSC. ABC’s use of the lease illustrates which method of dealing with risk?   risk retention risk avoidance insurance transfer noninsurance transfer

	A written document that outlines the risk management objectives of a firm, as well as company policy with respect to the treatment of loss exposures, is called a   manuscript policy. risk management policy statement. risk management information system. risk management specifications guide.

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