Problem
I. i. Explain the meaning of risk.
ii. What is a loss exposure?
iii. How does objective risk differ from subjective risk?
iv. Explain the difference between pure risk and speculative risk?
II. Discuss the differences between risk and uncertainty?
III. Identify the major risks faced by business firms?
IV. Define and give examples of the following: peril, hazard?
Define and give examples of: physical hazard, morale hazard, legal hazard and, moral hazard?
V. Identify some ways in which risk creates an economic burden for society?
VI. Define risk management and identify the four steps in the risk management process. How does enterprise risk management differ from the traditional form of risk management?
VII. ABC company owns 10,000 cars and has determined that it is very likely to suffer between 60 and 70 collision losses this year. XYZ company also owns 10,000 cars and has determined that it is likely to experience 50 to 80 collision losses this year. Compute the degree of risk for each company, assuming that the companies expect to suffer 65 losses each?
VIII. Explain why the degree of risk decreases as the chance of loss increases (assuming a constant number of exposure units).
IX. Assume the chance of loss is 3 percent for two different fleets of trucks. Explain how it is possible that objective risk for both fleets can be different even though the chance of loss is identical?
X. Some people argue that any risk of injury from toxic chemicals and environmental pollutants is too high. Explain why this "zero risk" goal would not lead to an efficient level of risk in society?