RMI 2302- Final Exam Guide - Comprehensive Notes for the exam ( 49 pages long!)

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RMI 2302
FINAL EXAM
STUDY GUIDE
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Risk in Business and Society - Notes 1
What is Risk?
-Many definitions
-Individual
-Organization
-Society
-Uncertainty Regarding Loss
Using the Term Risk
-Using the term “risk”
-Which is riskier?
-Jumping off a 1 story building
-Jumping off a 25 story building
-What is a “high risk driver”
-Danger does not equal risk
Risk Measurement - Terminology
-Frequency/Likelihood
-Severity/Impact
-Expected Value (Loss)
-Risk Profile
Risk Measurement - Degree of Risk
-Relative variation of actual from expected loss (variation or standard deviation)
-How far is it from what we expected to happen to what actually happened?
Start Thinking about Risk
-Uncertainty is doubt about our ability to predict future outcomes
-Uncertainty can differ across individuals even when risk is the same (subjective)
-Information does not alter risk (objective), but can alter uncertainty
-Reduction in uncertainty can be a good thing
Categories of Risk
-Pure vs. Speculative (Spec. can go up, down, or stay the same. Pure - you either lose it or
don’t lose it)
-Static vs. Dynamic
-Fundamental vs. Particular
-Core vs. Secondary
Sources of Risk
-Personal Risks
-Property Risks
-Liability Risks
-Financial Risks
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Some More Risk Terminology
-Exposure - person or property facing risk of loss
-Peril - the immediate cause of loss
-Hazard - condition affecting the frequency or severity of loss
Types of Hazards
-Hazards - conditions affecting perils (frequency or tea or loss)
-Physical hazards - property conditions
-Intangible hazards - attitudes or culture
-Moral hazard - behavioral changes
-Morale hazard - indifference
-Societal hazards - legal or cultural
Attitude Toward Risk
-Risk Neutral - indifferent toward risk
-Value of risky situation is expected loss
-Risk Averse - Prefer to avoid risk
-Willing to pay more than expected loss to avoid risk
-Risk Seeker - prefer risk
-Would pay more than expected return to engage in risky situation
Burden of Risk on Society
-Need for Larger Emergency Funds
-Loss of Needed Goods and Services
-Fear and Worry
How Do We Handle Risk?
-Individuals
-Organizations - Entire Industry - Risk Management
-Society - ??
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