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