402 practice test questions
JKL Company retains general liability claims up to $100,000 per occurrence. The company purchased excess liability insurance that provides both specific and aggregate excess coverage on an annual basis. After the $100,000 retention, the specific excess limit is $500,000 per occurrence. The aggregate excess limit is $5 million. During the year this excess arrangement was in place, JKL sustained three general liability claims. These three occurrences resulted in settlements of $700,000, $50,000, and $400,000. How much of these three settlements will JKL's excess insurer pay in total? Select one: A. $800,000 B. $900,000 C. $1,050,000 D. $1,100,000
A. $800,000 (Correct. $500,000 + 0 + $300,000 = $800,000; JKL's excess insurer will pay $800,000.)
Which one of the following business decisions represents procurement risk? Select one: A. A fabricator of steel beams decides to switch from its long-time supplier of raw materials to a new supplier that promises faster delivery and lower prices. B. A pharmaceutical company decides to launch a new medication in several new foreign markets simultaneously. C. A large apartment complex decides to acquire a self-storage facility that is used by many of its tenants. D. An auto dealership decides to build and open two new locations in neighboring cities using its own capital.
A. A fabricator of steel beams decides to switch from its long-time supplier of raw materials to a new supplier that promises faster delivery and lower prices.
A2Z Contracting entered into a contract with a large corporation headquartered in a different state. A2Z's counsel recommended that they negotiate to have a clause included into a contract that specifies their state's law will govern the contract's interpretation. This is an example of Select one: A. A loss reduction measure for contractual liability. B. Diversification. C. Limiting liability. D. A loss prevention measure for contractual liability.
A. A loss reduction measure for contractual liability.
Cargo is least likely to be damaged when Select one: A. A suitable vehicle is selected for transporting the specific cargo. B. The selected route is the shortest in terms of mileage from point to point. C. Vehicle schedules are demanding and tightly coordinated. D. Drivers do not interfere with loading procedures or securing cargo.
A. A suitable vehicle is selected for transporting the specific cargo.
Sixth National Bank stores all of its financial records in an electronic data base. Sixth National customers are able to access their accounts on-line with a user identification number and a password. Last weekend, a computer hacker was able to breach the firewall of the electronic database and gain access to customer account data. This operational risk for Sixth National Bank is Select one: A. A systems risk. B. An external event risk. C. A credit risk. D. A process risk.
A. A systems risk.
All-Day Parking is working with a risk management consultant in order to limit their legal obligations to their patrons. The consultant has offered several options. All-Day has decided to post a sign on each parking level as well as print on the reverse side of their ticket that they are not responsible for damage to any automobile or loss of any personal contents from the automobile parked in any of their facilities. This is an example of Select one: A. A unilateral notice. B. An exculpatory agreement. C. A hold-harmless agreement. D. A waiver.
A. A unilateral notice.
A voluntary relinquishment of a known right defines Select one: A. A waiver. B. An exculpatory agreement. C. A hold-harmless agreement. D. Avoidance.
A. A waiver.
The risk that the amount the organization receives to offset its losses may be greater than or less than its actual losses is Select one: A. Basis risk. B. Credit risk. C. Insurance risk. D. Hazard risk.
A. Basis risk.
Insurance Company has noted a strong, positive, association between its personal umbrella policy sales and an increase in policyholders purchasing replacement cost insurance on their personal property. It would be incorrect, however, to conclude that an increase in the demand for umbrella policies created the demand for replacement cost coverage because Select one: A. Correlation does not measure causality. B. High covariance does not necessarily mean high correlation. C. A third measure, income, explains the increase in both measures. D. These variables are dependent upon each other.
A. Correlation does not measure causality.
ABC Automobiles specializes in manufacturing gasoline powered vehicles for commercial fleets. The Executive Board of ABC Automobiles suggests taking a more aggressive approach to the company's risk appetite by investing in a line of high horsepower electric vehicles to expand their customer base and increase competitiveness. ABC provides the board with quarterly financials listing the risk-adjusted return on capital for all new projects. The board is advised by the treasurer that based on financial forecasts, ABC would need to begin selling vehicles in one year or it will have a negative financial impact on other ABC operations. The board requests the treasurer report to the board 60 days before any other operation is impacted by the investment in electric vehicles. As an incentive to ABC's customers, the board has proposed a one-year deal for all new commercial accounts, equipping new electric vehicles with telematic and GPS devices at no extra cost. Senior management was asked to monitor loss costs from this incentive and if it remains below 10% of the overall revenue for the electric fleet vehicles after one year, the deal can be extended. Further, ABC senior management agrees to complete a survey of customers who choose not to purchase electric vehicles and will present the results to the board in one year. As ABC Automobiles increases its risk appetite, which one of the following should it consider doing next? Select one: A. Develop KRI's based on a risk appetite between the high-end and low-end risk tolerance thresholds. B. Creating risk treatment thresholds outside of their risk tolerance. C. Creating zero-risk tolerance level triggers. D. Setting high-end risk triggers only after the risk level has surpassed the risk capacity for the organization.
A. Develop KRI's based on a risk appetite between the high-end and low-end risk tolerance thresholds.
Agri-Lab is a small agricultural products company. Last year, the company patented a new method for extracting ethanol from grain. The Agri-Lab method reduces the cost of this process by over 40%. GrainCom is an agricultural conglomerate that owns huge supplies of grain. GrainCom offered to purchase Agri-Lab (the company) for $40 million, based on the money it would make by applying Agri-Lab's process to the grain it owns and grain it may purchase in the future. The value of GrainCom's bid to purchase Agri-Lab is based on which rationale for assigning a value to intellectual property? Select one: A. For merger and acquisition purposes B. To license its use by others C. To use in the acquisition of capital D. For accounting and tax purposes
A. For merger and acquisition purposes
A contract that obligates one party to buy and another party to sell a specific financial instrument or physical commodity at a specified future date and price is a Select one: A. Forward contract. B. Call option. C. Swap. D. Insurance option.
A. Forward contract.
An advantage of a self-insurance plan when compared with an insurance plan is that a self-insurance plan Select one: A. Is less expensive over the long run. B. Decreases the organization's financial uncertainty. C. Is easier to implement. D. Easily satisfies contractual requirements.
A. Is less expensive over the long run.
Which one of the following statements is correct regarding formulating an organization's long-term strategies? Select one: A. Long-term strategies to improve performance and/or create a competitive advantage, are based on the organization's goals and analysis of internal and external environments. B. Formulating an organization's long-term strategy involves determining the "who," "what," and "when" responsibilities of each department. C. A long-term strategy should be an aspirational description of what an organization will accomplish in the long-term future. D. All parts of an organization play a role in formulating an organization's long-term strategies.
A. Long-term strategies to improve performance and/or create a competitive advantage, are based on the organization's goals and analysis of internal and external environments.
Jill's Dress Cottage recently added an elaborate sprinkler system which cost $9,000. Jill is hoping that she will be able to obtain a discount on her property insurance as a result of making her property safer. Jill's decision to add the sprinkler system is an example of which one of the following risk management techniques? Select one: A. Loss reduction B. Loss prevention C. Avoidance D. Separation
A. Loss reduction
One purpose of placing a copyright notice on published works is to Select one: A. Negate the innocent infringement defense. B. Ensure that no one copies the material. C. Satisfy the criteria for obtaining a restrictive covenant. D. Obtain the best protection for material published on the Internet.
A. Negate the innocent infringement defense.
In reviewing its business results, Tops Company, a manufacturer of sports hats, experienced sales that far exceeded expectations. Celebrity sports figures were frequently seen wearing Tops Company's distinctive hats creating an unexpected demand for its products. In a SWOT analysis, how would Caps Company categorize its unexpected demand for its products? Select one: A. Opportunity B. Weakness C. Threat D. Strength
A. Opportunity
Samuel is preparing for a speech at a town hall meeting. He knows that he is one of the last speakers on the agenda, and he has only been given five minutes to speak. Samuel decides that he will tell a story about his family that he believes many in the audience will relate to. He hopes the story will leave the audience with a sense of anger. Which one of the following modes of persuasion is Samuel using? Select one: A. Pathos B. Axios C. Logos D. Ethos
A. Pathos
Which one of the following analysis methods concentrates on an organization's competitive environment? Select one: A. Porter's Five Forces analysis B. SWOT analysis C. Scenario analysis D. PESTLE analysis
A. Porter's Five Forces analysis
Which one of the following is an advantage of purchasing admitted coverage locally in an international insurance program for a U.S.-based company? Select one: A. Premiums and claims are paid with local currency, eliminating exchange rate risk. B. Administrative control of the insurance program is centralized. C. The financial strength of the insurer issuing the policy is more easily determined. D. The policy will be written in English, making it easier for the parent company to understand.
A. Premiums and claims are paid with local currency, eliminating exchange rate risk.
Which one of the following statements is correct with respect to risk tolerance? Select one: A. Risk tolerance levels can have high-end thresholds, low-end thresholds, or both. B. An organization's risk tolerance is typically unrelated to its risk appetite. C. A zero-risk tolerance level will typically result in the best risk-based decisions. D. Risk tolerance is stated in both quantitative and qualitative terms.
A. Risk tolerance levels can have high-end thresholds, low-end thresholds, or both.
Which one of the following risk control techniques might actually increase loss frequency? Select one: A. Separation B. Diversification C. Loss reduction D. Loss prevention
A. Separation
The cost of medical expenses and the restoration of lost wages are both examples of Select one: A. Special damages. B. Punitive damages. C. Specific damages. D. General damages.
A. Special damages.
Which one of the following statements is true regarding the operation of retrospective rating plans? Select one: A. The adjusted premium under a retrospective rating plan is subject to a maximum amount and a minimum amount agreed to in the policy. B. Retrospective rating is the same as experience rating except that a retrospective plan has no maximum premium amount. C. In a retrospective rating plan, past loss experience is ignored for purposes of developing the standard premium. D. When a loss limit is selected, an insurer uses the ultimate value of losses to determine the retrospective rating insurance premium.
A. The adjusted premium under a retrospective rating plan is subject to a maximum amount and a minimum amount agreed to in the policy.
Transporting a pre-constructed house through downtown Philadelphia during business hours might result in a loss from which one of the following cargo issues? Select one: A. Unsuitability for the route B. Improper loading C. Unsuitability to vehicle D. Inherent vice
A. Unsuitability for the route
GBB Insurance Company is a publicly-traded stock company. Financial managers at GBB are concerned that if a large loss occurs, the company could be devastated. The company purchased some reinsurance. In addition, the company sold a put option to a pension fund. The option gives GBB the right to issue 500,000 shares of stock at $50 per share if a catastrophic loss occurs. This right to issue shares at a specified price if a large loss occurs is called Select one: A. A collateralized agreement. B. A contingent capital arrangement. C. An insurance derivative. D. An insurance securitization.
B. A contingent capital arrangement.
Wilderness Experience is a company that organizes and manages team-building exercises for corporate management teams. Some activities management teams engage in include rock climbing, white water rafting, climbing rope ladders, riding zip-lines suspended in the air, and bungee jumping. Although Wilderness Experience employs extensive physical loss control measures, it also requires participants to sign a contract absolving Wilderness Experience from liability arising from any injuries sustained while participating in Wilderness Experience activities. The contract the company uses absolving them of liability is Select one: A. An unilateral notice. B. An exculpatory agreement. C. A waiver. D. An estoppel agreement.
B. An exculpatory agreement.
Kendall Incorporated is a manufacturer based in the U.S. which has growing international exposures. It does not own any permanent offices or manufacturing facilities in foreign countries, but it does have several employees who travel to these countries on a fairly regular basis. Kendall Incorporated purchased an exporters package policy through its U.S.-based insurer to cover the incidental exposures in these foreign countries. Which one of the following coverages will Kendall need to purchase from admitted insurers in the individual countries? Select one: A. Personal property B. Compulsory auto liability C. Foreign voluntary workers compensation D. Crime
B. Compulsory auto liability
All-Sport Athletic Company spent $120 million to develop the rubber soles of its athletic shoes. The production method used to produce the rubber soles is a closely-guarded company secret. When asked to place a value on the rubber sole technology, All-Sport's chief financial officer said, "$120 million." The intellectual property valuation method used by the chief financial officer is the Select one: A. Enterprise value approach. B. Cost approach. C. Income approach. D. Fair market value approach.
B. Cost approach.
An organization may use a large deductible plan to achieve the purpose of which one of the following? Select one: A. Increase its cost of risk B. Defer cash outflows for retained loss reserves. C. Retain high severity losses D. Avoid paying residual market loadings in all jurisdictions
B. Defer cash outflows for retained loss reserves.
The duration of a patent right varies depending on the type of patent. Which one of the following patents last for 14 years from the date of issuance? Select one: A. Process patent B. Design patent C. Utility patent D. Plant patent
B. Design patent
William is the risk manager for a manufacturing company that has decided to expand its operations into several foreign countries. He and the executive team are debating whether they should rely on admitted insurers for insurance coverage in the foreign countries, or use their insurer domiciled in the U.S. For the executive team, which one of the following is an advantage of purchasing the insurance for their foreign operations through admitted insurers in those countries? Select one: A. Purchasing locally will increase the company's purchasing power and strengthen the implementation of its enterprise risk management program. B. Doing business locally and complying with local laws will help integrate the company into the local economy and community. C. The premium and claims payments will be made in U.S. currency, thereby eliminating foreign exchange rate risk. D. By using local admitted insurers they are less likely to have problems with nonuniform conditions, coverage gaps, and underinsurance.
B. Doing business locally and complying with local laws will help integrate the company into the local economy and community.
A common feature of an umbrella liability insurance policy is coverage for certain claims not covered by underlying liability insurance. The umbrella policy covering claims not covered by an underlying policy is known as Select one: A. Specific excess insurance. B. Drop-down coverage. C. All-risk coverage. D. Wrap-up insurance.
B. Drop-down coverage.
Which one of the following risk control techniques disperses a particular asset over two locations, keeping one in reserve? Select one: A. Segregation B. Duplication C. Diversification D. Separation
B. Duplication
Senior-level executives must do which one of the following before determining specific short- and long-term goals? Select one: A. Develop a long-term strategy B. Establish the organization's vision statement and mission statement C. Perform a SWOT analysis D. Analyze the organization's internal and external environments
B. Establish the organization's vision statement and mission statement
Hugh was recently hired as a risk manager for Malvern Manufacturing. He is preparing for his first presentation to the employees working on the manufacturing floor. Hugh realizes that he needs to establish credibility with the audience in order to be persuasive. He decides that he will tell a couple of stories about how he has dealt with similar situations in the past. Which one of the following modes of persuasion is Hugh using? Select one: A. Logos B. Ethos C. Axios D. Pathos
B. Ethos
The duration of a design patent is Select one: A. Three years from the date of application. B. Fourteen years from the date of issuance. C. Seventeen years from the date of registration. D. Twenty years from the date of application.
B. Fourteen years from the date of issuance.
Lois was injured in a car accident three weeks ago when her vehicle was stopped and rear-ended by a truck. In addition to her medical bills and lost wages, she has experienced pain and anguish. Her right leg throbs constantly. She worries about driving again. She is terrified that she will be struck again. Her worries and pain have cut short her sleep. She cannot attach a bill or exact number to these problems, but they plague her nonetheless. Compensation for these problems are categorized as Select one: A. Special damages. B. General damages. C. General average. D. Intangible damages.
B. General damages.
For insurers to utilize pooling most effectively, the insured exposure units need to be Select one: A. Correlated. B. Independent. C. Adjacent. D. Different.
B. Independent.
The right to invade another's interest to promote or protect one's own greater interests is Select one: A. Self-defense. B. Legal privilege. C. Last clear chance. D. Immunity.
B. Legal privilege.
The maximum amount of insurance or limit of liability that an insurer will accept on a single loss exposures is called a Select one: A. Retrocession. B. Line. C. Loss limit. D. Novation.
B. Line.
All members of a pool share in the risk with the other members of the pool. This allows the pool to manage uncertainty and meet which one of the other risk financing goals? Select one: A. Comply with Legal & Regulatory Requirements B. Pay For Losses C. Minimize the Cost of Risk D. Maintain Liquidity
B. Pay For Losses
The liability loss exposure that exists when an organization is legally responsible for bodily injury or property damage caused by an accident that occurs on an organization's owned, leased, or rented property is Select one: A. Operations liability. B. Premises and operations liability. C. Professional liability. D. Property liability.
B. Premises and operations liability.
The production phase of an organization's fleet life cycle involves Select one: A. Using the vehicles to transport freight or passengers. B. Purchasing vehicles selected in the conceptual and engineering phases. C. Selecting the vehicles, operators, routes, schedules, and maintenance. D. Determining what types of vehicles will meet an organization's needs.
B. Purchasing vehicles selected in the conceptual and engineering phases.
The level of capital required to provide a cushion against unexpected loss of economic value at a financial institution is known as Select one: A. Supplementary capital. B. Risk capital. C. Preferred capital. D. Core capital.
B. Risk capital.
Internet of Things (IoT) devices, sensors, wearables, and telematics devices have had the greatest impact on which one of the following risk treatment techniques? Select one: A. Risk transfer B. Risk modification C. Risk avoidance D. Risk retention
B. Risk modification
Since there is no formal process for creating a trade secret, the risk control measures associated with trade secret loss control focus on maintaining Select one: A. Legality. B. Secrecy. C. Disclosure. D. Accountability.
B. Secrecy.
As a component of a motor vehicle fleet safety system, routes are suitably safe, cost-effective, and reliable when Select one: A. Few restaurants or other facilities exist to cause unnecessary driver distractions. B. They have less traffic than alternatives. C. Roads are under construction to improve their design. D. They rely on the most use of freeways.
B. They have less traffic than alternatives.
If a captive insurer is established to provide coverage for loss exposures that the parent company has difficulty insuring privately, how does the captive insurer typically deal with such risks? Select one: A. By insuring difficult-to-insure loss exposures of other companies, effectively pooling the exposure B. Through purchasing excess of loss reinsurance C. Through purchasing proportional reinsurance D. By capping the liability on a per-loss basis, with the parent company assuming losses above the liability cap
B. Through purchasing excess of loss reinsurance
Which one of the following statements is true regarding how trade secret protection and copyright protection can overlap? Select one: A. When the work is published, the copyright protection ends but trade secret protection continues. B. When the work is published, the trade secret protection ends but copyright protection continues. C. Both trade secret and copyright protection are created when the author has the first idea for the work. D. When the work is created, only trade secret protection applies; copyright protection applies when the work is released for publication.
B. When the work is published, the trade secret protection ends but copyright protection continues.
Begley Company insured its auto liability exposure through a retrospectively rated plan for a calendar year. Auto liability losses for the calendar year were: $120,000, $20,000, $50,000, $180,000, and $70,000. The retrospectively rated plan had a policy limit of $500,000, a loss limit of $50,000 per loss, and a maximum aggregate retention of $250,000. What are Begley's retained losses for the calendar year under this plan? Select one: A. $70,000 B. $120,000 C. $220,000 D. $250,000
C. $220,000
Red Insurance Company has a surplus share treaty with Black Reinsurer and retains a line of $25,000. The treaty contains nine lines and provides for a maximum cession of $225,000. Red Insurance issues a policy insuring a building for $200,000 for a premium of $1,900 with one loss of $60,000. What percentage of insurance, premiums, and losses is ceded to Black Reinsurer? Select one: A. 12.5% B. 75% C. 87.5% D. 100%
C. 87.5% (In surplus share treaties, the primary insurer's share is the proportion that the line bears to the total amount of insurance; so for the $200,000 insurance amount on the insured building, the primary insurer would retain 25,000/200,000 which is 12.5%. For the reinsurer, the reinsured amount (200,000 - 25,000) = 175,000; so 175,000 / 200,000 = 87.5%.)
Reinsurance is best described as Select one: A. A transfer of claim-payment responsibilities from a primary insurer to a reinsurer. B. An agreement between a primary insurer and a ceding company. C. An agreement by a reinsurer to indemnify a primary insurer for losses. D. A transfer of a primary insurer's retention to a reinsurer.
C. An agreement by a reinsurer to indemnify a primary insurer for losses
Frozen food spoiling in an unrefrigerated vehicle is an example of Select one: A. A tort. B. Poor driver training. C. An inherent vice. D. Vicarious liability.
C. An inherent vice.
During which one of the following stages of the strategic management process would an organization use methods such as Porter's Five Forces Analysis and PESTLE Analysis? A. Evaluating Strategies B. Developing Goals C. Analyzing Environments D. Formulating Strategies
C. Analyzing Environments
In any legal dispute arising between parties from different countries, the most important issues are Select one: A. The national origin of the parties and the location of the adjudication. B. The location of the disputed event and the existence of an applicable treaty. C. Comity and jurisdiction. D. Expropriation and precedent.
C. Comity and jurisdiction.
Which one of the following is intended to protect the literal expression of an idea but not the idea itself? Select one: A. Trademark B. Licensing C. Copyright D. Patent
C. Copyright
A trademark is a Select one: A. Practice, method, design, or other information used confidentially by an organization to maintain a competitive advantage. B. Legal right to exclusively use and control an original written document or some other form of expression. C. Distinctive design or set of words that legally identifies a product or service as belonging to a certain organization. D. Right to exclusively own and control a new, useful, and nonobvious invention.
C. Distinctive design or set of words that legally identifies a product or service as belonging to a certain organization.
An organization of several similar employers that have formed a not-for-profit association or corporation to which they pay premiums to manage self-insurance of their workers' compensation and healthcare benefits loss exposures is a Select one: A. Risk retention group. B. Captive insurance plan. C. Group self-insurance plan. D. Third-party administrator.
C. Group self-insurance plan.
The strategic management process includes five interdependent stages. Which one of the following stages requires all parts of the organization to play a role? Select one: A. Developing short- and long-term goals B. Formulating strategies C. Implementing the strategies D. Analyzing internal and external environments
C. Implementing the strategies
Construction contracts typically hold the Select one: A. Contractor harmless for any premises liability claims. B. Eventual tenant of the premises harmless for construction defects. C. Landowner harmless for certain construction-related claims. D. Contractor harmless for any negligence.
C. Landowner harmless for certain construction-related claims.
If a pool has enough loss exposures to benefit from the law of large numbers, it can help members meet which one of the following risk financing goals? Select one: A. Minimize the cost of risk B. Maintain liquidity C. Manage uncertainty D. Comply with legal and regulatory requirements
C. Manage uncertainty
The determination that an invention is actually a trade secret is Select one: A. Confirmed by a search of the trade secret registry. B. Established by customs and traditions of the trade for which the invention is used. C. Often made by the courts. D. Authenticated by the length of time the invention has been in use.
C. Often made by the courts.
The broad form of the hold-harmless agreement attempts to Select one: A. Eliminate the possibility of negligence on the part of the transferee. B. Place all responsibility for negligent acts on the transferor. C. Place all financial consequences of potential losses on the transferee. D. Transfer all financial consequences of potential losses to the transferor.
C. Place all financial consequences of potential losses on the transferee.
XYZ Insurer wants to start selling a new type of insurance for spacecraft. It has no experience in this area. Which function of reinsurance is most likely to be of value to XYZ Insurer? Select one: A. Provide surplus relief B. Provide catastrophe protection C. Provide underwriting guidance D. Stabilize loss experience
C. Provide underwriting guidance
Punitive damages are intended to Select one: A. Punish the plaintiff. B. Compensate the injured party for pain and suffering. C. Punish the defendant. D. Compensate the defendant for medical expenses.
C. Punish the defendant.
Lucy is the risk manager for North American Furnishings. The company has a fleet of tractor trailers that are used to deliver its products to retailers throughout the U.S. Lucy is looking for technology to reduce the large blind spots and help drivers avoid backup collisions. Which one of the following forms of technology would help the drivers manage this exposure? Select one: A. Stability control systems B. Dash-mounted cameras C. Rear-mounted video cameras D. Satellite communication with global positioning system
C. Rear-mounted video cameras
An amount charged to make up for losses in a state-sponsored plan to insure high-risk exposures, such as an assigned risk plan for auto insurance is known as the Select one: A. State premium tax. B. Coinsurance penalty. C. Residual market loading. D. Guaranty fund assessment.
C. Residual market loading.
To determine the minimum amount of capital an insurer needs to support its operation given the insurer's risk characteristics, the National Association of Insurance Commissioners developed its Select one: A. Basel I agreement. B. Capital conservation buffer. C. Risk-based capital system. D. Basel III agreement.
C. Risk-based capital system.
Ed is investment manager of the Nellor Foundation, a charitable trust. Recently, Ed met with the president of the Foundation. Up until now, assets have been invested in financial assets. Ed told the president that after performing a simulation, he would like to add a high-yielding, higher risk real estate investment to the portfolio. When the president asked if it would be too risky, Ed replied, "It will actually increase expected returns while reducing risk." The purported reduction in risk occurs because Select one: A. Taxes on real estate investments may be deferred. B. Rental income generated by the real estate investment is not taxable. C. The real estate investment returns are negatively correlated with the other assets. D. The real estate investment will not be large enough to significantly impact on the portfolio.
C. The real estate investment returns are negatively correlated with the other assets.
Which one of the following statements is true regarding valuing intellectual property? Select one: A. The cost approach to valuing intellectual property is the standard recognized by the Internal Revenue Service. B. The income approach to valuing intellectual property is the standard recognized by most courts. C. The value of a piece of intellectual property may be used to determine the proportion of risk management resources that should be devoted to it. D. It is relatively easy to assign a specific value to intellectual property.
C. The value of a piece of intellectual property may be used to determine the proportion of risk management resources that should be devoted to it.
Which one of the following statements is true regarding patent creation? Select one: A. A patent search must be completed either manually or online before filing a patent application. B. The U.S. Patent and Trademark Office publishes the application three years after filing. C. Three criteria for patent creation are that the invention must be new, useful, and nonobvious. D. Patent applications must be filed by an attorney who specializes in patent protection.
C. Three criteria for patent creation are that the invention must be new, useful, and nonobvious.
An organization can safeguard some of the value of its intellectual property through Select one: A. Purchasing futures contracts. B. Purchasing liability insurance. C. Using patents and copyrights. D. Signing a hold-harmless agreement.
C. Using patents and copyrights.
Investors in contingent capital arrangements Select one: A. Can assume control of the organization's investments when losses exceed the specified threshold. B. Are guaranteed that the organization will exercise the option at a specified time. C. Pay a commitment fee to ensure that they will pay future loss costs. D. Become creditors of the organization following a loss.
D. Become creditors of the organization following a loss.
Once an organization determines that a statutory liability loss exposure exists, the organization should Select one: A. Devise a means of circumventing the statute. B. Investigate defenses to enforcement. C. Discontinue the activity that is subject to the statute. D. Comply with that statute.
D. Comply with that statute.
Once a holistic risk management program is created and put into effect, which one of the following methods can be used to allow constant and consistent monitoring of the process? Select one: A. Dashboard reporting B. SWOT analysis C. Bow-tie diagram D. Feedback loop
D. Feedback loop
The Sarbanes-Oxley Public Company Reform and Investor Protection Act of 2002 Select one: A. Imposes legal liability on an organization only if a tort was committed. B. Does not impose legal liability on organizations. C. Imposes legal liability on an organization only if liability was assumed under contract. D. Imposes legal liability on an organization regardless of whether the organization committed any tort or assumed any liability under contract.
D. Imposes legal liability on an organization regardless of whether the organization committed any tort or assumed any liability under contract.
Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be Select one: A. Fortuitous. B. Definite and measurable. C. A large number of similar exposure units. D. Independent and not catastrophic.
D. Independent and not catastrophic.
Among the properties owned by Hagen Company are five buildings constructed from cement blocks. Hagen did not include these buildings for coverage under its property insurance policy because losses to these structures occur so infrequently. When losses do occur, Hagen Company simply pays for the losses through cash flow or current assets. Hagen's method of dealing with losses to these buildings is called Select one: A. Self insurance. B. Group self insurance. C. Third-party administered plan. D. Informal retention.
D. Informal retention.
HVAC Supply Company has decided to promote a new brand of air conditioning unit. The manufacturer of the new units claims that they are lighter, more efficient, and less expensive than the two well-known brands that HVAC Supply Company currently sell to customers. HVAC Supply Company is hoping that the lower cost will attract new customers. HVAC Supply Company will be exposed to which one of the following types of strategic risk? Select one: A. Liquidity risk B. Acquisition risk C. Procurement risk D. Marketing risk
D. Marketing risk
Technological advancements have affected all risk treatment techniques. Which two techniques have been impacted most? Select one: A. Transfer and retention B. Avoidance and modification C. Retention and avoidance D. Modification and transfer
D. Modification and transfer
The strategic management process begins with an analysis of the organization's internal and external environments. Which one of the following statements is correct with respect to that analysis? Select one: A. The Five Forces Model focuses on internal strengths, such as an organization's reputation, expert personnel, valuable patent rights, or large market share. B. SWOT analysis focuses on an organization's internal strengths and weaknesses rather than on the external environment in which it operates. C. The SWOT, PESTLE, and Five Forces Model analysis methods tend to be mutually exclusive and are not generally used together. D. PESTLE analysis examines the political, economic, sociological, technological, legal, and environmental aspects of the external environment.
D. PESTLE analysis examines the political, economic, sociological, technological, legal, and environmental aspects of the external environment.
Risk appetite is an important component of strategic risk management (SRM). Which one of the following statements is correct with respect to an organization's risk appetite? Select one: A. Economic forces, market forces, and competition generally have little effect on an organizations' risk appetite. B. An organization's risk appetite is typically independent of its capital and other assets, including its human resources. C. Because risk appetite is based on the attitudes of executives and shareholders, it is usually static and does not vary over time. D. Regulatory conditions, political risks, and anti-trust or other legal concerns can reduce an organization's risk appetite.
D. Regulatory conditions, political risks, and anti-trust or other legal concerns can reduce an organization's risk appetite.
One category of operational risk that a business must manage is risk associated with people. One of the strategies to mitigate people risk is to use care when hiring employees. This strategy employs background checks, pre-employment tests, and checking references. This strategy is Select one: A. Recruitment. B. Performance management. C. Training and development. D. Selection.
D. Selection.
The chief financial officer for Apex Tires is considering a proposal from the Director of Manufacturing to have half of their production outsourced to an offshore company. After thinking through the plan, he decides they can reduce overall cost and also improve their risk control program. What technique does this outsourcing represent? Select one: A. Loss reduction B. Duplication C. Loss prevention D. Separation
D. Separation
Which one of the following is a consequence that would likely result from legal liability arising from a breach of contract? Select one: A. Ordered restriction B. Sanction C. Indirect loss D. Specific performance
D. Specific performance
A significant disadvantage of self-insurance for liability loss exposures compared to property loss exposures is that Select one: A. Administrative costs for liability loss exposures are higher. B. Liability losses are more frequent than property losses. C. An aggregate stop-loss is not available for liability loss exposures. D. Tax deductions for liability losses are likely to be deferred for a longer time.
D. Tax deductions for liability losses are likely to be deferred for a longer time.
For a loss exposure to be ideally insurable it must be definite in Select one: A. Duration, damage, and cost. B. Value, extent, and consequences. C. Scope, origin, and coverage. D. Time, cause, and location.
D. Time, cause, and location.
Which one of the following statements is true regarding trademark creation? Select one: A. To obtain any protection for a trademark, the trademark must be marked with the ® sign. B. Trademarks are first created when the trademark is registered with the United States Patent and Trademark Office. C. Trademarks are not enforceable until the mark has been used on both the product and in product marketing. D. To be valid, a trademark must be distinctive or memorable because of being unique or unusual.
D. To be valid, a trademark must be distinctive or memorable because of being unique or unusual.
A type of reinsurance transaction that involves an agreement between the primary insurer and the reinsurer specifying how to transfer risks, that defines the eligible risks in terms of lines and classes of business, that specifies the parties' obligations, and for which eligible risks are automatically reinsured, is Select one: A. Facultative reinsurance. B. Excess of loss reinsurance. C. Pro rata reinsurance. D. Treaty reinsurance.
D. Treaty reinsurance.
A U.S.-based company that has international operations may use a controlled master program to insure all of its operations. Which one of the following statements regarding a controlled master program is true? Select one: A. The U.S. company is required to purchase all of the coverages through locally admitted insurers. B. The master policy is excess over locally purchased admitted coverage and can be no broader than the underlying policies. C. Excess and umbrella liability apply only to coverage on U.S. operations. D. Usually there are separate policies for the domestic U.S. exposures.
D. Usually there are separate policies for the domestic U.S. exposures.
Taylor owns Paoli Hardware, a mid-sized hardware store with 25 employees. Paoli Hardware has won best local hardware store 3 years in a row. Taylor would like to expand operations and has undertaken a SWOT analysis.His most dedicated customers are generally over 40 years old and engaged in small house projects, but his biggest revenue generator continues to be the sale of lumber. He would like to obtain more commercial customers and increase lumber sales. One of the major complaints Taylor hears from his customers is the difficulty finding local contractors. So, he is considering hiring a general contractor at the store who would also make house calls to assist customers. This will allow him to bill for labor and increase the sale of his products, but he is concerned it may increase his insurance claims and premiums. One of the younger store employees suggested they create a website to expand sales to on-line purchases and target electronic advertisements to commercial accounts. Taylor is not sure that he has the expertise to maintain a website and run the store. The employee claims to know a company that can maintain a website for Paoli at minimal cost. Taylor believes the website is a good idea and will increase sales of lumber. To protect Paoli from increases in the cost of lumber, Taylor is considering a forward contract with the lumber yard. If Taylor completed a PESTLE analysis instead of a SWOT analysis, the PESTLE analysis would include which one of the following? Select one: a. Increase in competition b. Introducing on-line sales c. Need for a growth initiative d. Lack of expertise among employees
a. Increase in competition