Risk Management Chapter 1 (Exam 1)

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Risk Management Chapter 1 (Exam 1)
2012-09-26 07:30:26
Risk Management Chapter

Risk Management Chapter 1
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  1. Loss Exposure
    any situation or circumstance in which a loss is possible, regardless of whether a loss occurs
  2. Objective Risk
    the relative variation of actual loss from expected loss
  3. Risk
    uncertainty concerning the occurence of a loss
  4. The Law of Large Numbers
    as the number of exposure units increases, the more closely the actual loss experience will approach the expected loss experience
  5. Subjective Risk
    uncertainty based on a person's mental condition or state of mind
  6. Chance of Loss
    the probability that an event will occur
  7. Objective Probability
    the long-run relative frequency of an event based on the assumptions of an infinite of observations of an infinite number of observations and of no change in the underlying conditions
  8. Subjective Probability
    the individual's personal estimate of the chance of loss
  9. Peril
    the cause of loss
  10. Hazard
    a condition that creates or increases the frequency or severity of loss
  11. Physical Hazard
    a physical condition that increases the frequency or severity of loss
  12. Moral Hazard
    dishonesty or character defects in an individual that increase the frequency or severity of loss
  13. Attitudinal Hazard
    carelessness or indifference to a loss, which increases the frequency or severity of a loss
  14. Legal Hazard
    characteristics of the legal system or regulatory environment that increase the frequency or severity of losses
  15. Pure Risk
    a situation in which there are only the possibilities of loss or no loss
  16. Speculative Risk
    a situation in which either profit or loss is possible
  17. Diversifiable Risk
    a risk that affects only individuals or small groups and not the entire economy
  18. Nondiversifiable Risk
    a risk that affects the entire economy or large numbers of persons or groups within the economy
  19. Enterprise Risk
    a term that encompasses all major risks faced by a business firm
  20. Financial Risk
    the uncertainty of loss because of adverse changes in commodity prices, interest rates, foreign exchange rates, and the value of money
  21. Enterprise Risk Management
    combines into a single unified treatment program all major risk faced by the firm
  22. Personal Risk
    risks that directly affect an individual
  23. Premature Death
    defined as the death of a family head with unfulfilled financial obligations
  24. Property Risks
    the risk of having property damaged or lost from numerous causes
  25. Direct Loss
    a financial loss that results from the physical damage, destructive, or theft of the property
  26. Indirect or Consequential Loss
    a financial loss that results indirectly from the occurence of a direct physical damage or theft loss
  27. Liability Risks
    another important type of pure risk that most persons face
  28. Avoidance
    one technique for managing risk. For example, you can avoid the risk of being mugged in a high-crime rate area by staying out of the area; you can avoid the risk of divorce by not marrying
  29. Loss Control
    another technique for managing risk. Certain activities that reduce the frequency or severity of losses
  30. Hedging
    a technique for transferring the risk of unfavorable price fluctuations to a speculator by purchasing and selling future contracts on an organized exchange, such as the Chicago Board of Trade or New York Stock Exchange
  31. Hold-Harmless Clause
    a risk that can be transferred