Risk Management Chapter 3

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  1. Net income(formula)
  2. Net income loss exposure
    A decrease in net income caused by a primary loss
  3. Is the cost to replace a buildin a NI loss?
    No, it is a property loss.
  4. NI loss would not occur if a _____ did not happen first.(ripple effect)
    primary loss
  5. Are net income losses always the result of another loss occurring first?
  6. Can a firm have a property loss, but not a Net income loss?
    Yes, if the loss of property does not interrupt a business.
  7. Can a loss to property owned by others cause a NI loss?
    yes if there is a loss to a key supplier that causes a shutdown in your operations
  8. What are two examples of poor crisis management?
    The BP and Ford firestone cases
  9. Personnel loss exposure
    Possibility of a loss caused by someones death,retirement,etc.
  10. Are personnel loss exposures a special case of NI loss exposures?
  11. What is an example of a personnel loss?
    apple losing steve jobs
  12. What are the four ways to deal with personnel loss exposures?(4)
    Getting key man insurance,succession planning, workers compensation, and employee benefits
  13. What is life insurance for key employees?
    Key man insurance
  14. TRM
    • Loss exposures are evaluated in a siloed or isolated approach
    • pure risk events only
    • losses are usually insurable
  15. ERM
    • Looks at all risks a firm faces.(pure and speculative)
    • manages risks that threaten the long run viability of a firm
  16. What are the 4 quadrants of risks in trm?
    • hazard risks
    • operational risks
    • financial risks
    • strategic risks
  17. Another word for particular risk is
    diversifiable risk
  18. Another word for fundamental risk is
    nondiversifiable risk
  19. What department typically works with hazard risks in a trm approach?
    The risk function
  20. Examples of hazard risks?
    property,liability,theft,fire, etc.
  21. Hazard risks are categorized as_____ and _____ risks.
    pure and diversifiable
  22. Are hazard risks typically uninsurable risks.
    NO, they are typically insurable because they are pure and diversifiable.
  23. What department typically works with Operational risks in a trm approach?
    Business units of the chief operational officer(COO)
  24. What department typically works with personnel risks in a trm approach?
    Human resources department
  25. What department typically works with financial risks in a trm approach?
    The CFO
  26. What department typically works with strategic risk in a trm approach?
    The CEO and the board
  27. Operational risk
    Risk arising from business operations(day-to-day-operations)
  28. Operational risks are (pure/speculative) and(diversifiable/nondiversifiable)
    pure and diversifiable
  29. Risks arising from changing market conditions in financial markets.
    Financial risks.
  30. financial risks are (pure/speculative)
  31. Strategic/business risks
    risks regarding a firms strengths weaknesses opportunities and threats.
  32. Strategic/business risks are (pure/speculative) and(diversifiable/nondiversifiable)
    speculative and diversifable
  33. examples of strategic risks are:
    Intellectual property,media coverage etc.
  34. Risk map
    • used to compare risks in a firm
    • incorporates frequency and severity
  35. Tangible property
    property that has a physical form
  36. real property
    tangible property consisting of land and anything attached to the land
  37. personal property
    all tangible and intangible property that is not real property.
  38. intangible property
    property that has no physical form
Card Set
Risk Management Chapter 3
Risk Management Exam 1
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