96. (p. 621) ________ is a term that refers to the chance of loss, the degree of probability of loss, and the amount
of possible loss.
A. Speculation
97. (p. 621) ________ risk involves a chance of either profit or loss.
98. (p. 621) ________ risk involves the threat of loss with no chance for profit.
D. Managed
99. (p. 621) Which of the following is the risk that most concerns businesspeople?
D. managed risk
100. (p. 621) Which type of risk management strategy is a company using when it installs mirrors and surveillance
cameras to spot and prevent shoplifting?
A. avoiding the risk
101. (p. 622) The threat of lawsuits has caused some drug companies not to manufacture certain types of vaccines.
What type of risk management option is being practiced?
102. (p. 622) Some businesses will set aside money to cover routine losses and buy “catastrophe” policies to cover
big losses. This is an example of which of the following?
D. a loss-prevention program
103. (p. 623) A firm that chooses to self-insure and cover losses out of its budget is said to:
A. fly blind.
104. (p. 621) Bill has decided to increase the size of his auto repair business, although he realizes that this decision
brings added risk. This is an example of ________ risk.
D. managed
105. (p. 621) Alberto is worried about the risk of potential flooding to his restaurant. He decides to buy insurance
to cover this ________ risk.
D. managed
106. (p. 621) In designing an addition to his successful nursing home, Steve realized that water sprinklers and
smoke detectors were now required by state regulations. His existing structure already had sprinklers and
detectors because he felt that this was an effective strategy to:
A. self-insure against the risk of fire loss.
107. (p. 622) Hector had been asked to serve on the board of a major pharmaceutical firm. He reluctantly declined,
citing the firm’s lack of liability coverage for outside members of the board of directors. Hector’s decision
indicates that he:
A. will self-insure against a loss from legal action taken against the pharmaceutical firm.
108. (p. 621) Firestone and Ford recalled thousands of tires when several people died in traffic accidents blamed
on faulty tires. This is an example of which of the following?
A. avoiding the risk
109. (p. 622) In an effort to minimize the cost of conventional property/casualty insurance, XYZ Electronics
decided to manage their risk by self-insuring. The most likely way XYZ would try to do this would be to:
D. establish a well-monitored loss-prevention program.
110. (p. 621) Abraham is excited about opening his car wash facility. The required investment of money and time
D. his insurance premium would be based on the law of large numbers.
111. (p. 621) Amusement parks often have a minimum height restriction on some of their most thrilling rides. This
D. create the perception of a more exciting ride.
112. (p. 622) Harold owns several gas stations. He realizes that among the several risks associated with this type of
business is the risk of minor damage to cars from dirty or contaminated fuel. He also knows that there is a small
chance of a major loss if a fire occurred at one of his gas stations. Harold wants to control his insurance costs
while still maintaining a reasonable risk management program. He is considering self-insurance. If he decides to
use this approach, he will probably:
A. rely entirely on a strategy of risk avoidance.
113. (p. 623) An insurance company would not be willing to insure a risk if it:
D. has a low probability of occurring.
114. (p. 624) A policyholder must have a(n) __________ in what is being insured, meaning that the policyholder
must be the one at risk to suffer an economic loss.
115. (p. 623) __________ is the armor individuals, businesses, and nonprofit organizations use to protect
themselves from various financial risks.
116. (p. 623) Organizations spend about __________ percent of gross domestic product on insurance premiums.
A. 2
117. (p. 623-624) One guideline to determine that a risk is generally insurable is:
D. it is due to operational issues such as a strike.
118. (p. 623) Sadly, during a war many civilians watch everything they have destroyed. Insurance companies will
view this type of loss as:
D. a rule of indemnity.
119. (p. 623) Nancy owns a high-fashion boutique and one source of competitive advantage in the past has been
her ability to spot the latest trends, stock the store with those items, and sell out before the next new trend
becomes popular. Unfortunately, this year Nancy missed on what would be “hot” and is now stuck with
mountains of clothing and accessories that did not sell. All of her cash is invested in this clothing and at the
moment she is unable to restock the store with the next season’s clothes. Nancy is likely not worried because:
D. she is doing much less advertising.
120. (p. 624) Demetrius was turned down when he attempted to buy a life insurance policy on his former
Introduction to Business instructor. The most likely reason the insurance company turned down his attempt to
insure the life of his former instructor was that:
D. The loss would not be accidental.
121. (p. 624) The ________ says that an insured person cannot collect more than the actual loss from an insurable
risk.
D. rule of finite loss coverage
122. (p. 624) A ________ insurance company is owned by stockholders, just like any other investor-owned
D. mutual; limited liability
123. (p. 624) There have been a series of large judgments in product liability cases against companies producing
hairdryers. If this trend continues, insurance companies will respond by ________ the premiums charged for
liability insurance for hairdryer manufacturers.
A. lowering
LG: 4
LL: 2
Nickels – Chapter C… #123
124. (p. 624) Which of the following statements best reflects the concept behind the rule of indemnity?
A. If a large number of people are exposed to the same risk, a predictable number of losses will occur during a
given period of time.
125. (p. 625) Constitutional Corporation is a mutual insurance company. The company has had a good year, with
the amount of premiums exceeding the amount of claims by a significant amount. This is likely to result in
a(n):
A. larger dividend for its stockholders.
126. (p. 624) Bill, a professional hockey player, is upset when he discovers that his twin brother, a grade school PE
teacher, pays 50% less for disability insurance than he does. What is the most likely explanation for this
difference?
D. The law of large numbers establishes that Bill and his brother have similar risks over a given period of time.
127. (p. 625) Two desirable features of _______ are that members do not receive bills and do not have to fill out
claim forms.
A. traditional health insurance organizations
128. (p. 626) _________ are tax-deferred accounts that allow people to save money for medical costs such as
D. Simple fee-for-service health plans
129. (p. 625) In order to save money, health maintenance organizations (HMOs) usually require their members to:
D. pay a high deductible before the HMO will pay any bills.
130. (p. 626) Doctors obtain ________ insurance to cover claims from patients who have been injured as a result
of the doctor’s carelessness.
A. product liability
131. (p. 627) ________ insurance provides coverage against liability arising out of the sale of goods to customers.
D. Malpractice