Financial Risk Management Test Preparation
Course Introduction
Financial Risk Management explores the fundamental principles and practices used to identify, assess, and mitigate risks faced by financial institutions and corporations. The course covers key risk types such as credit, market, operational, and liquidity risks, and examines the tools and strategies utilized to measure and manage these risks, including derivatives, hedging techniques, and regulatory requirements. Special emphasis is placed on the development of risk management frameworks, the role of financial models, and the impact of global economic events on risk exposure. Through case studies and practical applications, students develop analytical skills necessary for effective decision-making in the dynamic field of financial risk management.
Recommended Textbook
Introduction to Risk Management and Insurance 10th Edition by Mark S. Dorfman
Available Study Resources on Quizplus
23 Chapters
1358 Verified Questions
1358 Flashcards
Source URL: https://quizplus.com/study-set/1354 Page 2
Chapter 1: Introduction to Enterprise Risk Management and Insurance
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/27041
Sample Questions
Q1) Risk Pooling is an example of:
A) a Catastrophic Loss Event
B) diversifying risk
C) a speculate risk
D) applying the risk-return trade-off
Answer: B
Q2) Assume that 1000 students, all healthy, all age 22, and all male, form a life insurance pool to pay $500 to the beneficiaries of any member who dies in the next 365 days. The chance of loss or probability of death for the members of this group is .002. To join the pool a member must pay: (Disregard interest earnings and reserves and assume expenses of operating the insurance pool are 30% of losses).
A) $1
B) $1.30
C) $3
D) $2.28
Answer: B
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Risk Identification
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/27042
Sample Questions
Q1) Why do supply chains complicate the ERM process?
A) They lead to higher human resource risk.
B) They lead to higher speculative risks.
C) A disruption somewhere in the supply chain affects the operations of a firm.
D) They do not complicate the ERM process at all.
Answer: C
Q2) Damages awarded to compensate for pain and suffering are called:
A) punitive damages
B) personal injuries
C) non-bodily injury damages
D) exemplary damages
Answer: D
Q3) A breach of contract legally is known as a "tort."
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Risk Assessment and Pooling
Available Study Resources on Quizplus for this Chatper
66 Verified Questions
66 Flashcards
Source URL: https://quizplus.com/quiz/27043
Sample Questions
Q1) A risk pool needs a small group of similar exposures for predictive accuracy.
A)True
B)False
Answer: False
Q2) Risk Pooling is the ability to reduce the risk of a unit by making more accurate predictions about a large pool of units.
A)True
B)False
Answer: True
Q3) Which of the following statements about the probability distributions is correct?
A) The shape of a probability distribution is not dependent on the number of observations.
B) All probability distributions are normal.
C) A non-normal probability distribution will lead to a better estimate of future losses.
D) All of the above are incorrect.
Answer: D
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Risk-Handling Techniques: Loss Control, Risk
Transfer, and Loss Financing
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/27044
Sample Questions
Q1) The transfer/retention risk management decision is unimportant and therefore risk managers should not waste their time on the decision.
A)True
B)False
Q2) From the standpoint of the insured, deductibles in insurance contracts are a form of:
A) risk transfer
B) loss control
C) risk retention
D) risk avoidance
Q3) OSHA is a federal loss prevention law.
A)True
B)False
Q4) If an individual causes a loss intentionally, we would say that person is a:
A) careful person
B) physical hazard
C) moral hazard
D) risk manager
Q5) How do deductibles affect moral hazard?
Q6) Explain the difference between loss prevention versus loss reduction.
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Risk-Handling Techniques: Diversification and Hedging
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/27045
Sample Questions
Q1) A futures contract is:
A) selling two investments that are both expected to lose in the future
B) buying two investments that are both expected to make a profit in the future
C) taking two positions whose gains and losses will offset each other
D) an agreement to buy or sell a commodity or financial asset at a specified price on a later date
Q2) The covariance shows the risk of a single variable.
A)True
B)False
Q3) Which of the following statements about put options is correct?
A) If the option writer exercises the put option, the option holder has to sell the underlying asset to him or her.
B) If the option writer exercises the put option, the option holder has to buy the underlying asset from him or her.
C) If the option holder exercises the put option, the option writer has to buy the underlying asset from him or her.
D) If the option holder exercises the put option, the option writer has to sell the underlying asset to him or her.
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Fundamentals of Insurance
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/27046
Sample Questions
Q1) Most investment income of insurance companies comes from medium to high risk investments in order to reduce the price of insurance as much as possible.
A)True
B)False
Q2) An insurance contract creates duties for the insurer, but only the insured has contractual rights.
A)True
B)False
Q3) Private insurance can be classified according to coverage. Distinct types mentioned in the text include all the following <u>except</u>:
A) Property
B) Commercial Lines
C) Auto
D) Submarine
Q4) The lack of annuities for life insurance is a serious problem in the U.S.
A)True
B)False
Q5) Explain briefly why insurance functions as an antimonopoly device.
Q6) Discuss the building blocks of an insurance premium.
Page 8
To view all questions and flashcards with answers, click on the resource link above.
Chapter 7: Insurable Perils and Insuring Organizations
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/27047
Sample Questions
Q1) Reciprocal exchanges are unincorporated.
A)True
B)False
Q2) An assessment mutual:
A) provides primarily fire and windstorm insurance
B) is owned by stockholders who supply the capital
C) distribute all investment earnings to its policyholders in the form of a dividend
D) requires only assessments from each policyholder after the end of each year to cover losses
Q3) Both stock and mutual insurance companies are incorporated.
A)True
B)False
Q4) If you were a life insurance underwriter, asking which of the following underwriting questions would probably be socially unacceptable to an insurance applicant?
A) Have you ever tested positive for HIV?
B) Have you smoked any tobacco products within the last year?
C) Are you heterosexual, homosexual, or bisexual?
D) Have you traveled to a foreign country within the last ten years?
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Insurance Functions
Available Study Resources on Quizplus for this Chatper
73 Verified Questions
73 Flashcards
Source URL: https://quizplus.com/quiz/27048
Sample Questions
Q1) The primary difference between an insurance agent and an insurance broker is:
A) their compensation scheme
B) the parties they each legally represent
C) the fringe benefits their employers provide
D) there is no practical or legal difference between them, other than their titles.
Q2) Explain what a direct writer company is. Explain what the independent agency system is.
Q3) What is the difference between an agent and a broker?
Q4) The independent agency system:
A) is doomed because agent's commissions are too high relative to direct writers
B) means the agent rather than the insurance company "owns" the business
C) is not a good career path for most college graduates because the system is doomed to extinction
D) is growing rapidly to the point of eliminating the direct writers
Q5) What is the relationship between the underwriter and the actuary? How do they interact?
Q6) Many insurers sometimes use loss adjusters who are not employees of the company.
A)True
B)False
Page 10
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: Insurance Markets: Economics and Issues
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/27049
Sample Questions
Q1) Explain briefly why increasing or decreasing price artificially can decrease the supply of insurance.
Q2) Choose the true statement.
A) FAIR plans were developed to provide insurance to automobile drivers when coverage is otherwise unavailable.
B) FAIR plans are now found in all states.
C) FAIR plans require that each property owner that requests it, be given an inspection of his property and an offer of insurance at an appropriate rate or written notice of improvements needed before insurance can be offered.
D) In general, FAIR plans have shown underwriting gains in most states in most years.
Q3) Given the following choices, the best advice for purchasing automobile insurance is:
A) always buy full coverage
B) always buy the cheapest policy
C) choose the largest deductible you can reasonably afford
D) never buy auto insurance from a stock company
Q4) What is the purpose of an automobile insurance plan? How does an auto plan generally work?
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: Insurance Regulation
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/27050
Sample Questions
Q1) A domestic insurer is:
A) one that is home-officed outside the U.S.
B) one that has offices both in the U.S. and in other countries
C) one that is incorporated in another state
D) none of the above
Q2) Congress passed McCarran-Ferguson Act as a response to the SEUA decision.
A)True
B)False
Q3) A legal reserve is a cash asset account maintained by life insurers.
A)True
B)False
Q4) It is generally illegal for an insurance agent to share her commissions with an insured.
A)True
B)False
Q5) Explain what a guarantee fund is. How are guarantee funds financed?
Q6) Explain what a policy reserve is. How is a policy reserve calculated?
Q7) What is the difference between prior approval and open rating laws?
Q9) Explain briefly the purpose of the McCarran Act. Page 12
Q8) What is the overall regulatory objective for a state's rate regulations?
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 11: Insurance Contracts
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/27051
Sample Questions
Q1) Which of the following is false concerning concealment?
A) Would be illustrated by a false answer to a question
B) To make a contract avoidable must be material
C) Typically involves an element of deception
D) The result is treated very much like material misrepresentations in insurance law
Q2) If there were a $200,000 loss and a $500 straight deductible, the insured would pay:
A) $500
B) $199,500
C) $200,000
D) $200,500
Q3) Property insurance policies are standardized for all the following reasons except:
A) to improve the accuracy of insurance rates
B) to help reduce costs to consumers
C) to eliminate competition between insurers
D) to reduce litigation over policy meaning
Q4) What are some of the reasons exclusions are found in insurance contracts?
Q5) Explain the purpose of the declaration page found in insurance contracts.
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 12: The Personal Auto Policy
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/27052
Sample Questions
Q1) If Paul causes a car accident, and the car he hits is driven by an insured motorist, Paul's PAP will pay for the other driver's damages:
A) under coverage A, Liability
B) under coverage C, Uninsured Motorist
C) under both coverages A and C
D) nothing since an uninsured motorist was injured
Q2) What is the difference between Collision and Other than Collision coverages? Why does the PAP list certain perils in Other than Collision when they can be caused by collision? What happens if the cause of loss is not listed?
Q3) Your vehicle is damaged by another vehicle and the accident is the fault of the other driver. You may collect for damages to your vehicle, less the deductible, from your insurance company under Coverage D, Collision, if a premium for Collision has been paid.
A)True
B)False
Q4) Claims paid under the PAP's "Collision Coverage" are usually considered to be the insured's fault.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 13: Homeowners Insurance
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/27053
Sample Questions
Q1) Why is there an "ordinance-or-law exclusion" in a typical HO-3 policy?
A) Because it is too costly to include
B) Because there is a federal insurance policy that covers this aspect
C) Because it is better insured under another insurance policy
D) There is no such exclusion.
Q2) The Liability coverage in the HO policy does all the following <u>except</u>:
A) defends a suit against the insured even if the allegations of the suit are groundless, false or fraudulent
B) covers the insured's own property destroyed by another's negligence
C) pays for immediate medical and surgical expenses incurred by other(s)
D) reimburses the insured for all reasonable expenses incurred at the request of the company
Q3) Grave markers are usually covered by HO policies.
A)True
B)False
Q4) All of the following losses are covered in an HO-3 policy <u>except</u>:
A) damage done to the house by neighborhood vandals
B) damage done to shrubbery during a fire
C) loss of use of the property following a fire
D) damage done to the building and contents caused by a flash flood
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 14: Professional Financial Planning
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/27054
Sample Questions
Q1) Which of the following is<u> not</u> a business use of life insurance?
A) To protect a business against loss caused by the death of a key person
B) To provide a means of rewarding and retaining valuable personnel
C) To lower business losses when an employee is fired
D) To provide some amount of life insurance to employees
Q2) When a person dies, the gross estate is:
A) taxed at the rate of 50%
B) adjusted for certain gifts made during the decedent's lifetime
C) subject to the federal estate and gift tax
D) not taxed if death bed gifts are made to eligible children
Q3) With five owners of a business, an entity purchase plan usually makes more sense than a cross-purchase plan.
A)True
B)False
Q4) Which of the following is <u>not</u> a feature of a 529 Plan?
A) Withdrawals for nonqualified expenses are prohibited.
B) The contributor owns the account.
C) The account owner can change the beneficiary.
D) The account owner determines the investment strategy.
Q5) Why is it necessary to buy life insurance on a non-wage earning spouse?
Page 17
To view all questions and flashcards with answers, click on the resource link above.
Chapter 15: Life Insurance Policies
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/27055
Sample Questions
Q1) Credit life insurance is:
A) a group life program designed specifically for employees who work in manufacturing
B) commercial insurance sold in large amounts for key man life insurance
C) purchased by a lender
D) sold to employees who work in high-risk industrial manufacturing jobs
Q2) Your best friend discovers you just took an introductory insurance course. He asks you what type of life insurance policy he should buy, given that he is 28 years old. Which type of life insurance should you recommend?
A) Term life
B) Whole life
C) Universal life
D) Cannot be determined from the given information
Q3) All the following are advantages of level premium whole life insurance <u>except</u>:
A) furnishes permanent protection
B) small initial outlay v. single premium whole life
C) combines savings with insurance
D) provides inflation protection
Q4) In general, what are the uses for term life insurance? Provide examples.
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 16: Standard Life Insurance Contract Provisions and Options
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/27056
Sample Questions
Q1) Kayla buys a whole life policy when she is 40 and pays premiums on it until she is 60. She decides to retire at 60, has no dependents and no debts, and realizes she really doesn't need the death protection any longer. She is now concerned about generating a lifetime income during her retirement. What option does a whole life policy typically offer that could best help her with this financial need?
A) Forfeiture of coverage provision (she can surrender the policy and take the cash)
B) Paid up whole life option (use the cash value to buy a paid-up whole life with a lower face value)
C) Annuity conversion option (buy an annuity from the insurer with her cash value)
D) None of the above
Q2) Life insurance policies do not contain deductible provisions.
A)True
B)False
Q3) The entire-contract provision makes the application for life insurance a part of the contract itself if attached.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 19
Chapter 17: Annuities
Available Study Resources on Quizplus for this Chatper
41 Verified Questions
41 Flashcards
Source URL: https://quizplus.com/quiz/27057
Sample Questions
Q1) The period during which the insured is making annuity payments to the insurer is the:
A) retirement period
B) deferral period
C) accumulation period
D) liquidation period
Q2) Which of the following statements is false?
A) Annuities can be used to fund structured settlements in negligence cases.
B) Annuities are useful for generating an income that cannot be outlived.
C) Annuities are good retirement funding vehicles for persons in poor health.
D) Annuities maximize cash flow for people who are willing to liquidate their assets.
Q3) No medical exam is required for the purchase of an annuity, no matter how old the applicant.
A)True B)False
Q4) What is the difference between a SPDA and a FPDA?
Q5) It is not possible to have a level premium, immediate annuity.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 18: Health Insurance and Disability Income
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/27058
Sample Questions
Q1) Distinguish between cost shifting and cost containment in health care.
Q2) All of the following are individually-purchased health insurance products <u>except</u>:
A) Medicaid insurance
B) long-term care insurance
C) basic medical insurance
D) major medical insurance
Q3) Critics of HMOs say that:
A) HMO members have too many choices of doctors they can use and services they can receive
B) HMO doctors waste money because they have no incentive to control costs
C) the 10% deductible required for every procedure is cost-prohibitive for most citizens
D) none of the above
Q4) Which of the following is not a type of health insurance coverage?
A) Basic medical expense insurance
B) Medicare supplemental coverage insurance
C) Double indemnity insurance
D) Major medical insurance
Q5) What is the difference between an HMO and a PPO in providing health care?
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 19: Employee Benefits
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/27059
Sample Questions
Q1) Our government gets several advantages from the private employee benefit systems. Which of the following is not one of those advantages?
A) Fewer people are dependent on welfare programs.
B) The burden on the Social Security program is reduced if people have private pensions and life insurance.
C) Government control of the economy is avoided if the funds to finance benefits remain in private hands.
D) All of the above are advantages.
Q2) A cash balance pension plan guarantees the participating employee:
A) nothing
B) a minimum interest rate on the employee's retirement savings
C) a minimum monthly pension amount for the first 10 years of retirement
D) none of the above
Q3) The traditional "tripod approach" to economic security assumed that who would provide economic security for the individual worker?
A) The employer and the worker
B) The employer and the government
C) The government and the worker
D) The employer, the worker, and the government
To view all questions and flashcards with answers, click on the resource link above.
Page 22
Chapter 20: Social Security
Available Study Resources on Quizplus for this Chatper
50 Verified Questions
50 Flashcards
Source URL: https://quizplus.com/quiz/27060
Sample Questions
Q1) Survivor benefits may be paid to both the widow and dependent children of a deceased worker.
A)True
B)False
Q2) The Social Security normal retirement age for a person born in 1970 is 65.
A)True
B)False
Q3) Many HMOs have not enjoyed providing managed care for Medicare because:
A) the reimbursement schedule is inadequate or unattractive
B) they object to being forced to participate in the program
C) older patients are typically unprofitable for all insurers and health care providers
D) both A and B
Q4) Social Security eligibility is based on how many ________ are earned.
A) years of full-time employment
B) total dollars
C) quarters of coverage
D) units of insurance
Q5) Explain what is meant by a "blackout period" as it applies to Social Security benefits.
To view all questions and flashcards with answers, click on the resource link above. Page 23
Chapter 21: Unemployment and Workers Compensation Insurance
Available Study Resources on Quizplus for this Chatper
38 Verified Questions
38 Flashcards
Source URL: https://quizplus.com/quiz/27061
Sample Questions
Q1) Which one of the following is not a concern of the risk manager with respect to workers' compensation?
A) Health-related costs
B) Cumulative injury problems
C) The increasing frequency of litigation concerning compensation
D) The increasing use of the assumption of risk defense to deny workers' compensation claims
Q2) When state unemployment funds are inadequate to continue paying benefits to unemployed workers, the state can:
A) declare bankruptcy
B) levy additional taxes on an ad hoc basis, but no more than 10% in one year
C) do nothing other than file a claim under any private unemployment insurance it may have purchased
D) borrow from the federal government without paying interest
Q3) Experience rating of workers' compensation insurance rewards employers with good safety records.
A)True
B)False
Q4) What are the general types of benefits provided under workers' compensation?
To view all questions and flashcards with answers, click on the resource link above. Page 24
Chapter 22: Commercial Property Insurance
Available Study Resources on Quizplus for this Chatper
56 Verified Questions
56 Flashcards
Source URL: https://quizplus.com/quiz/27062
Sample Questions
Q1) Ocean marine policies are typically "specified perils" contracts.
A)True
B)False
Q2) Which of the following is<u> not</u> a "bailment"?
A) Leaving your car at an auto dealer for repair
B) Loaning your car to your neighbor
C) Eating at a restaurant
D) Shipping goods on a truck
Q3) Which of the following factors would <u>not</u> be considered in setting an ocean marine insurance rate?
A) Route of the ship
B) Type of cargo being transported
C) Experience of the captain and crew
D) ISO's standard base rate for marine exposures
Q4) A commercial package policy:
A) covers packages in transit
B) is one in which two or more coverages are combined
C) both A and B above
D) none of the above
Q5) What are the categories of business income losses? Briefly explain each.
Page 25
To view all questions and flashcards with answers, click on the resource link above.
Chapter 23: Commercial Liability Insurance
Available Study Resources on Quizplus for this Chatper
54 Verified Questions
54 Flashcards
Source URL: https://quizplus.com/quiz/27063
Sample Questions
Q1) Which of the following types of legal liability coverage is most likely to have a "long tail" problem, and thus be insured under a claims-made contract?
A) Water craft liability
B) Auto liability
C) Contractual liability
D) Products liability
Q2) Which of the following theories says an "injury" occurred when the injured person first experienced the disease-causing substance?
A) Exposure theory
B) Double trigger theory
C) Manifestation theory
D) Retroactive theory
Q3) The Americans with Disabilities Act (ADA) resulted in which of the following?
A) Better employment opportunities for disabled Americans
B) An increase in costs for employers
C) An increase in litigation
D) All of the above
Q4) Explain the idea behind business liability umbrella policies.
To view all questions and flashcards with answers, click on the resource link above.