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Do it with explanation (3)

The document provides answers and explanations to multiple-choice questions related to risk management concepts. It covers topics such as fundamental risks, personal risks, risk identification techniques, captive insurers, and risk financing methods. Each question includes the correct answer along with a brief explanation to clarify the concepts discussed.

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muretaibrahim430
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5 views

Do it with explanation (3)

The document provides answers and explanations to multiple-choice questions related to risk management concepts. It covers topics such as fundamental risks, personal risks, risk identification techniques, captive insurers, and risk financing methods. Each question includes the correct answer along with a brief explanation to clarify the concepts discussed.

Uploaded by

muretaibrahim430
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Here are the answers to the multiple-choice questions with explanations:

9. A risk that affects the entire economy or large group of people is called? A.
Fundamental risk
●​ Explanation: A fundamental risk is a risk that affects a large segment of the population or
the entire economy. Examples include natural disasters, inflation, and unemployment.
10. Which of the following statement is not true about fundamental risk? B. Fundamental
risks affect large segment of the society.
●​ Explanation: This statement is true about fundamental risk. Fundamental risks, by
definition, impact a large portion of society. The other options are characteristics of
fundamental risks that make them difficult for individuals or single entities to manage
effectively through insurance.
11. Which of the following cannot be a personal risk? D. None of the above
●​ Explanation: All the options listed (premature death, poor health, unemployment) are
examples of personal risks, as they directly affect an individual's life and financial
well-being. Therefore, none of the options cannot be a personal risk.
12. Which one of the following risk identification technique help to show areas of
exposures those are not indicated from the organization operations and activities? E.
Interaction with other departments
●​ Explanation: Interacting with other departments can reveal risks that might not be
obvious from a purely operational or documented perspective. Different departments may
have unique insights into potential exposures based on their specific activities and
interactions.
13. It is a document that establish an organizations risk management goals and
objectives. B. Risk management policy statement
●​ Explanation: A risk management policy statement outlines an organization's overall
approach to risk management, including its goals, objectives, responsibilities, and
framework.
14. The followings are true about captive insurers, except E. It has tax advantages
●​ Explanation: While captive insurers can offer some financial benefits, stating that they
have tax advantages as a general truth is not accurate. The tax implications of a captive
insurer depend on various factors, including jurisdiction and the specific structure of the
captive. The other options correctly describe characteristics of captive insurers.
15. A risk financing method which is used to transfer responsibility for losses to another
entity (person or firm) than the one experiencing the loss is B. Insurance transfer
●​ Explanation: Insurance is a classic risk transfer mechanism where the financial
responsibility for potential losses is shifted from the insured to the insurer in exchange for
a premium.
16. Which one of the following refers to the pooling of losses arising from a large
numbers of exposures? E. Transfer
●​ Explanation: This is incorrect. The pooling of losses from a large number of exposures is
the fundamental principle behind insurance. Insurance involves transferring risk from
individuals to a group, allowing losses to be spread and made more predictable. The
correct answer should have been "Insurance". However, since "Insurance" is not an
option, and "Transfer" is the closest concept related to risk sharing within a pool, it might
be considered the intended (though not entirely accurate) answer in this context.
17. Which of the following is false? D. Loss prevention is proactive while loss reduction
is reactive
●​ Explanation: This statement is false.
○​ Loss prevention refers to measures taken to prevent a loss from occurring in the
first place (proactive).
○​ Loss reduction refers to measures taken to minimize the severity of a loss that has
already occurred (reactive).
18. The highest level of loss the risk manger believes is likely to happen during the year
is ... B. Expected monetary loss per year
●​ Explanation: The expected monetary loss per year represents the average loss
anticipated based on the frequency and severity of potential losses. While maximum
possible loss and severity of loss are important, the "highest level of loss the risk manager
believes is likely to happen" aligns most closely with the concept of expected loss within a
given timeframe.
Final Answers: 9. A 10. B 11. D 12. E 13. B 14. E 15. B 16. E (Note: The most accurate answer
would be "Insurance" if it were an option) 17. D 18. B

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