Quiz Risk

1. Diversifiable risk is an uncertain situation that affects only individuals or

small groups and not the entire economy.

2. Subjective risk is the uncertainty based on an individual’s mental condition

or state of mind.

3. Pure risk is an uncertain situation where there are possibilities of a loss

(adverse) or no loss (neutral).

4. Enterprise risk management is a process of managing all the major risks

faced by a business entity with a single unified treatment program.

5. The law of large numbers states that as the number of exposure unit
increases, the more closely actual loss experience will approach expected
loss experience. As such future loss experience can be predicted more
accurately.

6. Attitudinal hazard/ Morale hazard is the carelessness or the indifferent

attitude of an individual that increases the frequency or severity of a loss.

7. Operational risk is an uncertain situation that affects a business entity's

operation.

8. If some risks are negatively correlated, the combination of these risks can
reduce the overall risk of the business entity significantly.

9. Enterprise risk is the uncertainty of a business entity in facing pure risk,

speculative risk, strategic risk, operational risk and financial risk.

10. Subjective probability is the individual’s personal estimate of the chance

of loss.
11. Risk-neutral is a behavior of being insensitive to risk and only concerned
about benefit.

12. Speculative risk is a certain situation where there are possibilities of a

profit (gain), a loss (adverse) or no loss (neutral).

13. RISK and UNCERTAINTY are not the same. Which refers to a situation
where the probabilities of possible outcome cannot be estimated with
some degree of accuracy? True

14. In the same situation, an individual with high subjective risk often has high
risk perception relative to an individual with low subjective risk.

15. Moral hazard is the dishonesty of an individual the increase the frequency
or severity of a loss.

16. Financial risk is an uncertain situation that affects a business entity

because of adverse changes in commodity price, interest rate, currency
exchange rate and the value of money.

17. Physical hazard is a physical condition that increases the frequency or

severity of a loss.

18. Fundamental risk/ Non-diversifiable risk is an uncertain situation that

affects the entire economy or a large number of persons or groups within
the economy.

19. Peril is the cause of loss.

20. Objective risk varies inversely with the square root of the number of
exposure units. Assume that ‘n’ is the number of exposure units and
standard deviation (SD) is the measure of objective risk. When n-1, SD-10
so when n-100, how much is SD? 1
21. Objective risk is the relative variation of actual loss from expected loss.

22. Risk-averse is a behavior of avoiding risk unless adequately compensated

for it.

23. As long as all risks are not perfectly and negatively correlated, the
combination of these risks can reduce the overall risk of the business entity.

24. Legal hazard is the characteristics of a legal system or regulatory

environment that increase the frequency or severity of a loss.

25. Risk is uncertainty concerning the occurrence of a loss.

26. Objective probability is the long-run relative frequency of an event based

on the assumptions of an infinite number of observations and of no change
in the underlying conditions.

27. Strategic risk is the uncertainty of a business entity in achieving its

financial goals and objectives.

28. Loss exposure refers to potential loss. It is any situation or circumstance in

which a loss is possible regardless of whether the loss actually occurs.

29.Risk-taking is a behavior of engaging in potentially harmful or dangerous

act that can provide the opportunity for a positive outcome.

30. Systemic risk is the possible collapse of an entire financial market or

system due to the failure of a single entity or a group of entities.