Business Essentials Ch 14 - Spr 2020
Risk can be thought of as the possibility of incurring a(n)
loss
Which of the following is a controllable risk?
loss from theft
________________________ risks may result in inconvenience or embarrassment but do not have a financial impact.
noneconomic
A pure risk
offers no opportunity for gain
The exclusive right of an inventor to make, sell, and use a product or process is called a
patent
A risk that involves a possible injury to your health would be classified as a
personal risk
The three major categories of business insurance are
personnel, property, and operations
The amount a policyholder must pay for insurance coverage is a
premium
The amount a policyholder pays for insurance coverage is called a(n)
premium
What are property rights?
property rights are the exclusive rights to possess and use property and its profits--intellectual property refers to technical knowledge or creative work including software, clothing designs, music, books and movies--a patent gives exclusive right to an inventor to make, sell, and use a product or process--trademark is a distinctive name, symbol, work, picture, or combination of these that a company uses to identify products or services--copyright protects original works of authors, composers, playwrights, artists, and publishers
Business interruption insurance
provides compensation for ongoing business expenses that occur if a business has a temporary shutdown due to a fire, flood, or other major problem
A(n) ______________________ risk offers the chance either to gain or to lose
speculative
Which of the following is NOT an example of intellectual property?
stereos (music, books and movies ARE examples of intellectual property)
What strategies do management experts advise for businesses to reduce international business risk?
strategies for reducing international business risk include: 1) working with customers from several countries so if there is a problem in one nation, the company can cover this loss with profits from others, 2) offering a range of products so the company is not solely reliant on one product for making profits, 3) involving local business partners to reduce political and social risks, AND 4) employing local people in key positions to adapt products/services/operations to the needs of the local market
An insurance policy states the conditions to which
the insurance company and the policyholder have agreed
Which of the following would be a POOR way for a business to manage uninsurable risks?
Executives must not reveal to employees that certain aspects of business operations are not fully insured
With careful planning, it is possible to avoid all risk (T/F)
False (even if you are very careful, you cannot avoid all risks and losses)
It is usually a huge risk for a company to employ locals when it expands into the international marketplace (T/F)
False (executives/managers who are native to a country/region usually have a better understanding of the cultural/social norms and the political environment)
If a business transfers a risk, that means that no one assumes the risk; it is simply eliminated (T/F)
False (if a business transfers a risk, someone else assumes the risk)
When you invest money in the stock market, you are taking a pure risk (T/F)
False (pure risk is one that presents the chance of loss but no opportunity for gain--severe weather is an example of pure risk)
The person or company buying an insurance policy is called the insurer (T/F)
False (the person buying an insurance policy is called the INSURED (not insurer))
Briefly explain how an insurance company is able to make a profit
In addition to offering financial protection for policyholders, insurance companies are also investment companies--the premiums (fees) collected from policyholders make up the funds from which the insurance company pays for claims--the insurance company invests these premiums--the premiums collected and the amount earned from investments is used to cover the cost of the claims AND provide a profit for the insurance company
When an organization broadens its product line, business risks are reduced because lower-than-expected sales of one item will not result in a complete failure for the company (T/F)
True
With group insurance, a large number of employees and their family members are covered under one policy (T/F)
True
What is an economic risk? Name and define the three categories of economic risk
economic risk is a risk that can result in financial loss, including personal risk (can result in personal losses such as loss of health or personal well-being), property risk (can lead to loss of personal or business property including money, vehicles, and buildings), and liability risk (relates to harm or injury to other people or their property because of your actions)
Businesses cannot insure many of the risks they face (T/F)
True
If a risk is not common or if it is impossible to predict the amount of loss that could be suffered, it is termed an uninsurable risk (T/F)
True
Vehicle insurance pays medical costs for those injured if people driving the company's vehicles cause an accident (T/F)
True
The person who represents an insurance company and sells policies to individuals and businesses is an insurance
agent
Which of the following risks faced by businesses are often uninsurable?
all of the above (economic conditions, consumer demand and competitors' actions)
When you __________________________________ a risk, you complete a risky activity with full responsibility
assume
If you choose not to complete a risky activity, you are said to be ____________________ the risk
avoiding
Life insurance payments are made to people named in the policy known as
beneficiaries
A(n) ____________________ is a policyholder's request for payment for a loss that an insurance policy covers
claim
Businesses buy ______________________________ property insurance to cover property losses from events such as floods, fire, and earthquakes
commercial
The illegal use of intellectual property, patents, trademarks, and copyrights is known as
counterfeiting
____________________ insurance provides payments to employees who are not able to work for an extended period due to serious illness or injury
disability
__________________________ exchanges the uncertainty of a possible large financial loss for a certain smaller payment
insurance
The person or business for which an insurance company assumes the risk is called the
insured
____________________________ property refers to technical knowledge or creative work
intellectual
To reduce international business risk, a business should
involve local business partners and employ local management
A(n) _____________________________ risk relates to harm or injury to other people or to their property because of your actions
liability
This type of insurance protects against losses from injury to people or property resulting from the products, services, or actions of a business
liability
Which of the following pays the amount of an insurance policy upon the death of the insured?
life insurance
A risk that cannot be reduced by your actions is called a(n) _______________________________ risk
uncontrollable
A business can transfer the risk of product damage by
using other channel members to store and distribute products
Independent insurance agents
usually sell many kinds of policies from a number of different companies
A system of insurance set up by state law that pays employees who are injured on the job is called
workers' compensation