A) I only B) II only C) both I and II D) neither I nor II Like all other economic hazards, it may be provided Speculative Risk Uncertainty about an event under consideration that could produce either a profit or a loss, such as a business venture or a gambling transaction. Speculative Risk: Three possible outcomes exist in speculative risk; something good (gain), something bad (loss) or nothing (staying even). An objective risk is a relative variation of actual loss from expected loss. Solution for Risks that are insurable because their probabilities can be calculated precisely enough for the risk to be quantified. a) Speculative b) Explicit… Unlike pure risks, speculative risks are usually not insurable. A. II. speculative risk: A type of risk not typically insurable, as it is not possible to predict whether it will succeed or fail. Betting on sports is also considered a speculative, controllable risk. Speculative risks are not insurable. Answer to _____ is the chance (or probability) of a loss and is insurable. Therefore, speculative risks are not insurable in most cases. Speculative Risk: Three possible outcomes exist in speculative risk: something good (gain), something bad (loss) or nothing (staying even). Why are speculative risks not insurable? Which type of risk is most likely to be insurable? Suffering loss through speculative risk can be avoided simply by avoiding the actions that allow for it. Pure risk or absolute risk is a type of risk that cannot be controlled and has only two possible outcomes: complete loss or no loss, therefore there are no opportunities for gain or profit. Is the Unemployment Risk Insurable? 1 By I. M. RUBINOW THE argument for insurance can perhaps be readily accepted for what it is worth, provided too much is not claimed for it. 3. Examples of speculative risk include playing the stock market or placing bets at the blackjack table. Thus, a potential loss cannot be calculated so a premium cannot be established. Now coming to the last stage of classification of risk we may consider the subject from the viewpoint of the cause of risk and its effect. Fundamental Risk and Particular Risks. Insurance involves the transfer of insurable risk while hedging handles risk that is typically uninsurable. Speculative risk C. Equity risk D. Investment risk The main reason is that it is a high severity with high frequency with adverse selection. These types of risk are not insurable because they hold the potential for either profit or loss. Non-insurable Risks . It is, however, taken on by someone who is aware of the uncertainty. Speculative risks are undertaken through a conscious choice, and they are considered a controllable risk. In pure risk, there is uncertainty as to whether the loss will occur or not but there is no chance of producing profit out of that event. It holds the prospect of gain as well as loss. Speculative risk is a category of risk that can be taken on voluntarily and will either result in a profit or loss. Pure risk, also known as absolute risk, is insurable. 1. Speculative risk is contract means that here one can think gain-gain situation. Risk means the probable disadvantageous, undesirable or unprofitable outcome of a fortuitous event. The loss must be accidental or random and unintentional. Pure risk, also known as absolute risk, is insurable. The insured's portfolio consists of an insurable (pure) risk, an uninsurable (speculative) risk, a (proportional) insurance policy and a risk-free asset. Insurable risk refers to the conditions that are vulnerable to danger of loss to a person or property. The loss must be determinable and measurable. There are three types of hazards: Physical Moral Morale The characteristics of insurable risks that make They include credit sales, marketing, pricing, and more. Therefore, the authors of risk management have differentiated between pure risk and speculative risk. I. Each offers a chance to make money, lose money or walk away even. risk of fire as an Insurable Risk as indicated in the following figure 2.1 ... • Gambling creates a new speculative risk • Gambling is not socially productive ,because The winner’s gain comes at the expense of the loser • Gambling generally never the loser to his former financially position . All speculative risks are undertaken as a result of a conscious choice. Pure risk is the only insurable risk. Unemployment is a definite economic hazard, resulting in measurable economic losses and meas-urable human distress. Speculative risk refers to the situation where the direction of the outcome is not specific, i.e., it could lead to a condition of loss, profit, or break-even. Financial risk Speculative (dynamic) risk is a situation in which either profit OR loss ispossible The outcome of such speculative risk is either beneficial (profitable) or loss. This type of risk is less likely to be insured. Pure risk B. Pure risk Risk transfer Risk pooling Gambling and investing in the stock market are two examples of speculative risks. So you are getting large claim events often and only people likely to make claims wanting to buy the insurance coverage. Insurable Interest . Non-insurable risks are risks which insurance companies cannot insure because the potential losses or claims cannot be calculated. This type of risk doesn’t have a predictable outcome. Those who An example of the speculative risk includes the purchase of the shares of a company by a person. Speculation The term speculative risk has nothing to do with speculation except that speculation is one form of speculative risk. Pure Risk situations are those where there is a possibility of loss or no loss. The risk cannot be forecast and measured. Which type of risk is gambling? A non-insurable risk is also known as an uninsurable risk. A hazard increases the chance that loss will occur. Unlike a speculative risk, an insurable risk is not offset by potential gains. An example for HOAs is sinkholes. Speculative risks are very common in business undertakings. There is no gain to the individual or the organization. If the risk-free return (inflation) increases by 2 percentage points, the required rate of return stays the same for all securities increases the same 2 percentage points for all securities increases for some securities and decreases for others depending on the beta coefficient cannot be determined without more information 3. Almost all financial investment activities, for example, are considered speculative risk because they ultimately result in an unknown amount of success or failure. This is mainly because speculative risk is much more difficult to calculate and predict, and the risk of loss tends to be much higher than with pure risk. Speculative risk is a risk that presents the chance for both loss and gain. Normally the pure risk is insurable and speculative risk is handled by methods other than insurance. Pure risks are the only insurable risks and present a potential for loss only with no possibility of gain, such as injury, illness, and death. A speculative risk refers to something that cannot be predicted to yield a profit or a loss. Pure risk is the only insurable risk Speculative risk is the only insurable risk An example of pure risk would be a legal wager Pure and speculative risks are both insurable. Both insurance and hedging rely on the law of large numbers to reduce risk. Gambling and investing in the stock market are two examples of speculative risks. Speculative Risk Insurance industry term for a situation where the possibility of either a financial loss or a financial gain exists, such as in purchase of shares or betting on horses. Almost all financial investment activities are examples of speculative risk, because such ventures ultimately result in an unknown amount of success or failure. Gambling is an example. The optimal insurance policy (i.e., the proportion to be insured) is examined from the insured's point … Pure risks are generally insurable, whereas speculative risks (which also present the opportunity for gain) generally are not. A subjective risk is uncertainty-based on an individual's condition. An example of speculative risk is the pricing of stock of a company, which is speculative and unmeasurable. For example, loss of life (death) or a fire either occurs, or it does not occur. Actually from the basic viewpoints of insurance only pure risks are insurable speculative risk is not . For example, if you establish a new business, you would make a profit if the business is successful and sustain loss if the business fails. Therefore, speculative risks are not insurable. Speculative risk is a situation that holds out the prospects of loss, gain, or no loss no gain (break-even situation). Non-insurable risks are type of risks which the insurer is not ready to insure against simply because the likely future losses cannot be estimated and calculated. Types of risk are; subjective risk and objective risk. We call such classifications as … Insurance companies do NOT work with speculative risk, meaning insurance is only available to cover pure risk. These may be identified as speculative risks and usually not insurable. - 2072821 0% 14% 2. These risks are generally not insurable. Pure risk (insurable) Speculative risk (not insurable) The following are risk managementmethods (STARR): Sharing Transfer Avoidance Reduction Retention A peril is a direct cause of loss. 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