FINC 351 Final Exam 2 
University of Maryland University College FINC 351
Final Examination
Answer the following questions in your own words (do not cut-and-paste from the textbook or other sources). Remember to provide citations and references as appropriate.
1. Distinguish between pure risk and speculative risk. List and explain in detail the three kinds of pure risk.
Pure risk exists when there is uncertainty as to whether loss will occur. There is no possibility that a gain is presentedonly the potential for loss.
Speculative risk exists when there is uncertainty about an event that can produce either a profit or a loss.
Pure risks: Personal – personal risks affect an individuals’ income/expenses or assets.
Pure risks: Property – if a person owns real estate or personal property; direct loss due to physical damages or indirect loss including of business income or increased expenses.
Pure risks: Liability – if you become legally responsible for injury or property damages.
2. Explain the concept of Enterprise Risk Management. How does is differ with the holistic risk management approach? Why did the Harvard Business Review consider it a “game changer” as it applied to strategic planning?
Enterprise risk management is the process of coordinated risk management that places a greater emphasis on cooperation among departments to manage the organization’s full range of risks as a whole.
Holistic risk management focuses on the possible events that could potentially happen and their classification into opportunities and risks.
3. Explain the following financial risks: interest rate risk, market risk, credit risk, and currency risk. How would a global insurance company, for example John Hancock, possibly manage each one of these risks; provide current assumptions and figures in your answer.
Interest rate risk is the potential loss due to movements in interest rates. This risk arises because bank assets usually have a significantly longer maturity than bank liabilities.
Market
Final Examination
Answer the following questions in your own words (do not cut-and-paste from the textbook or other sources). Remember to provide citations and references as appropriate.
1. Distinguish between pure risk and speculative risk. List and explain in detail the three kinds of pure risk.
Pure risk exists when there is uncertainty as to whether loss will occur. There is no possibility that a gain is presentedonly the potential for loss.
Speculative risk exists when there is uncertainty about an event that can produce either a profit or a loss.
Pure risks: Personal – personal risks affect an individuals’ income/expenses or assets.
Pure risks: Property – if a person owns real estate or personal property; direct loss due to physical damages or indirect loss including of business income or increased expenses.
Pure risks: Liability – if you become legally responsible for injury or property damages.
2. Explain the concept of Enterprise Risk Management. How does is differ with the holistic risk management approach? Why did the Harvard Business Review consider it a “game changer” as it applied to strategic planning?
Enterprise risk management is the process of coordinated risk management that places a greater emphasis on cooperation among departments to manage the organization’s full range of risks as a whole.
Holistic risk management focuses on the possible events that could potentially happen and their classification into opportunities and risks.
3. Explain the following financial risks: interest rate risk, market risk, credit risk, and currency risk. How would a global insurance company, for example John Hancock, possibly manage each one of these risks; provide current assumptions and figures in your answer.
Interest rate risk is the potential loss due to movements in interest rates. This risk arises because bank assets usually have a significantly longer maturity than bank liabilities.
Market