Control of Risk Practice Test

Loss severity is about how big a loss is in dollars. It measures the magnitude of a loss from a single event, and when you consider all losses over a period, you sum them to get the total value of losses in that timeframe. So the statement—“the dollar amount of a single loss, or the total value of all losses in a given time period”—fits severity because it centers on the size of losses, not how often they occur or who pays them.

Risk financing is about funding losses after they happen or are anticipated, not the loss size. Risk transfer focuses on shifting the loss to another party, such as insurance. Speculative risk involves potential for both gains and losses, which is a different concept from just the size of losses.