Final RM
Final RM
Final RM
2. To indemnify means
A. Put back in the same financial position just prior to the risk
B/ put aside fund to pay for losses reported but not yet paid
3. company A agreed to insure a large commercial client. Due to the size of their client’s
operation, there is the potential that they could suffer a substantial loss. It would be
financially difficult for company A to pay the entire claim itself. To spread this risk, A
contracted B to request that it cover a portion of the risk. B agreed with the condition that It
receive a portion of what the client paid A. The term that describe this
4. Current exchange rate risk is the risk related to the fluctuation of price of one country’s
currency expressed in another country’s currency. If the exchange rate for 1 euro in terms of
1 yen rise, the relative value of the yen
C/ Share the losses of a few people among many D/ create investment income
A/Contributes to the description of the risk B/ could influence the acceptance of the risk
10. transfer of rights and remedies of the insured to the insurer after indemnity has been
affected is called
b. Identify the factors that the Swift Corporation should consider before it adopts a partial
retention program for physical damage losses to company cars.
1- Average frequency and severity of losses
2-Company's past loss experience
3-Dollar amount of losses the firm will retain
4-Added costs of retention (administrative problems)
5- Elements of the premium that could be saved (potential premium savings)
6- Predictability of losses
7- Maximum possible loss and maximum probable loss
8-Tax aspects
9- Availability of excess of loss coverage
10- Availability of other alternatives
11- Whether management is risk adverse
c. If a partial retention program is adopted, what are the various methods the Swift
Corporation can use to pay for physical damage losses to company cars?
Losses can be paid out of current net income, earmarked assets, funds borrowed from
commercial lenders, or payment from a captive insurer if a captive insurer has been
established. Losses in excess of the retention levels can be paid by commercial insurance.
d. Identify two risk-control measures that could be used in the company’s partial retention
program for physical damage losses.
Risk control refers to measures that reduce the frequency and severity of losses. The
company could avoid hiring drivers with poor driving records. The company could also
reduce losses by requiring drivers to take a defensive driving course.
2) A corn grower estimates in May that he will harvest 20,000 bushels of corn by December
- The price on futures contracts for December corn is $4.90 per bushel.
- Corn futures contracts are traded in 5000 bushel units
How can he hedge the risk that the price of corn will be lower at harvest time?