NAB Risk Management and Insurance 3

Question 1

What is the key difference between 'pure risk' and 'speculative risk' in risk management?

Accepted Answer

Pure risk involves only the possibility of loss or no loss, while speculative risk involves the possibility of gain or loss

Answer

Pure risks have outcomes of loss or no loss (e.g., fire), while speculative risks involve opportunities for both gain and loss (e.g., investments).

Question 2

Which of the following best describes 'moral hazard' in insurance?

Accepted Answer

The tendency for insured parties to take on more risk because they are protected against loss

Answer

Moral hazard occurs when insurance coverage changes the behavior of the insured, leading them to take greater risks than they otherwise would.

Question 3

In risk management, Value at Risk (VaR) is defined as:

Accepted Answer

The maximum expected loss over a specific time period at a given confidence level

Answer

VaR estimates the maximum potential loss a portfolio could face over a defined period given a specified confidence level (e.g., 95% or 99%).

Question 4

A professional indemnity insurance policy primarily covers:

Accepted Answer

Claims arising from professional negligence, errors, or omissions in the provision of services

Answer

Professional indemnity insurance protects professionals against claims from clients alleging negligence or mistakes in the services provided.

Question 5

The 'four Ts' framework for treating identified risks includes transfer, terminate, tolerate, and:

Accepted Answer

Treat (further)

Answer

The four Ts of risk response are: Transfer (shift risk to another party), Terminate (avoid the activity), Tolerate (accept the risk), and Treat (implement controls to reduce it).

(NAB) National Australia Bank Practice Test

(NAB) National Australia Bank Practice Test

NAB Risk Management and Insurance 3