BU353 Study Guide - Winter 2018, Comprehensive Midterm Notes - Risk Management, Moral Hazard, Reinsurance

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12 Oct 2018
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The goal of risk management is not to eliminate risk, but to minimize the cost of risk. If you eliminate risk then you shut down your company. Two types of risk: core risk, part of the main business of the enterprise and reflected in the mission statement. Incidental risk: occur naturally in the business but are not part of the main business, firms would rather have more core risk than incidental. The pro(cid:272)ess of pla(cid:374)(cid:374)i(cid:374)g, leadi(cid:374)g, orga(cid:374)izi(cid:374)g a(cid:374)d (cid:272)o(cid:374)trolli(cid:374)g the orga(cid:374)izatio(cid:374)"s a(cid:272)ti(cid:448)ities to minimize the adverse effects of accidental and business loss on that organization at a reasonable cost. Risk-oriented approach: what are the most important risks the organization faces, brainstorming method, pros, taps into expert knowledge, cons, prone to individual biases and group think, does(cid:374)"t get at i(cid:374)terdepe(cid:374)de(cid:374)(cid:272)ies (cid:271)et(cid:449)ee(cid:374) risk fa(cid:272)tors. Static and dynamic risks: dynamic risks are driven by economic factors, static risks happen despite a perfect economy, ex.

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