Risk 1
1 Risk Chapter and Its Management Multiple Choice
1. The major types of business risk include all of the following except:
A price risk
B diversification risk
C pure risk
D credit risk
Answer: b Type: K
2. Credit risk is
a. : the risk that a firms borrowers will not make promised payments.
b. the risk that a firm will not be able to get credit from lenders
c. the risk that a firm will not have sufficient funds to make payments to their creditors
d. the risk due to changes in output and input prices
3. All of the following are types of price risk except:
a. commodity price risk
b. exchange rate risk
c. stock price risk
d. interest rate risk
Ans: c
4. Which of the following is not an example of a direct loss from pure risk?
a. loss of profit
b. damage to assets
c. cost of paying and defending liability claims
d. employee turnover
Answer: a Type: A 1
5. Gallagher Winery is attempting to identify its pure risks. Which of the following is an example of an indirect loss for Gallagher?
a. Loss of grapevines due to hail
b. Employee health problems due to insecticide usage.
c. Loss of profit due to bad publicity about a liability claim
d. Cost of replacing equipment after a fire.
Answer: c Type: A
6. Which of the following is not a method of loss financing?
a. diversification
b. retention
c. insurance
d. hedging
Answer: a Type: K
7. Driving at lower speeds in order to reduce the probability of having an automobile accident is an example of:
a. loss financing
b. loss control
c. internal risk reduction
d. hedging
Answer: b
8. What impact does routine inspection of aircraft for mechanical problems have on the risk of airplane crashes for United Airlines?
a. reduced frequency of crashes
b. reduced magnitude of loss if the crash occurs
c. eliminate airplane crashes
d. no impact on risk of airplane crashes
Answer: a Type: A 2
9. An advantage of centralizing the function of risk
1. The major types of business risk include all of the following except:
A price risk
B diversification risk
C pure risk
D credit risk
Answer: b Type: K
2. Credit risk is
a. : the risk that a firms borrowers will not make promised payments.
b. the risk that a firm will not be able to get credit from lenders
c. the risk that a firm will not have sufficient funds to make payments to their creditors
d. the risk due to changes in output and input prices
3. All of the following are types of price risk except:
a. commodity price risk
b. exchange rate risk
c. stock price risk
d. interest rate risk
Ans: c
4. Which of the following is not an example of a direct loss from pure risk?
a. loss of profit
b. damage to assets
c. cost of paying and defending liability claims
d. employee turnover
Answer: a Type: A 1
5. Gallagher Winery is attempting to identify its pure risks. Which of the following is an example of an indirect loss for Gallagher?
a. Loss of grapevines due to hail
b. Employee health problems due to insecticide usage.
c. Loss of profit due to bad publicity about a liability claim
d. Cost of replacing equipment after a fire.
Answer: c Type: A
6. Which of the following is not a method of loss financing?
a. diversification
b. retention
c. insurance
d. hedging
Answer: a Type: K
7. Driving at lower speeds in order to reduce the probability of having an automobile accident is an example of:
a. loss financing
b. loss control
c. internal risk reduction
d. hedging
Answer: b
8. What impact does routine inspection of aircraft for mechanical problems have on the risk of airplane crashes for United Airlines?
a. reduced frequency of crashes
b. reduced magnitude of loss if the crash occurs
c. eliminate airplane crashes
d. no impact on risk of airplane crashes
Answer: a Type: A 2
9. An advantage of centralizing the function of risk