Chapter 1 DQ - 2 Loss financing how are you going to cover...

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Chapter 1 Discussion Questions 1. Give the two alternative definitions of risk used in your text. 1. Uncertainty of outcome (residual uncertainty) 2. expected loss 1. higher expected loss greater than the risk 2. List and define the three major types of risks faced by business firms. 1. Price Risk (Market Risk), input, output 1. determined by markets 2. commodities 3. interest rates 4. exchange rates 2. Credit Risk 1. the risk that people who owe you money will not payback 3. Pure Risk 1. the risk that arises out of everyday business 1. property risk 2. personal risk 3. liability risk 3. Describe the steps in the risk management process. 1. Identification: what possibly could go wrong 2. Evaluating: frequency, severity 3. Choose a method 4. Implementation 5. Monitor 4. Identify and define the three major categories of risk management methods. 1. Loss control: to reduce frequency (loss prevention) and severity (loss reduction) of losses
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Unformatted text preview: 2. Loss financing: how are you going to cover loss? 1. Retention/self-insurance: out of pocket (you) 2. transfer: someone else 1. insurance (insurance company) 2. hedging (counter party) 3. other contractual transfers 3. Internal risk reduction 1. diversification 2. invest in information 5. Distinguish between loss prevention and loss reduction methods. 1. Loss Prevention- actions that primarily affect the frequency of losses 2. Loss Reduction- actions that primarily influence the severity of losses that do occur 6. Explain the four major types of loss financing methods. 1. Look at question 4 7. Provide two examples of internal risk reduction. 1. Diversification 2. Invest in information...
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This note was uploaded on 02/18/2012 for the course FINC 3134 taught by Professor Dr.eastman during the Spring '12 term at Georgia Southern University .

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