Which of the Following Statements Is True About Risk Management

question 52

Multiple Choice

Which of the following statements is true about risk management in market systems versus command systems?

• A) Market systems manage risk better because entrepreneurs taking risks bear the costs of poor decisions,where in command systems government decision makers don't bear those costs.
• B) Neither system is better than the other in terms of risk management;both systems are equally susceptible to natural disasters and changes in consumer preferences.
• C) Command systems manage risk better because the government controls most economic activity and can therefore eliminate risk.
• D) Market systems face risk because of the possibility of profits and losses;command systems don't face risk because they are not profit driven.

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Definitions:

Fair Value Method

An accounting approach that measures and reports assets and liabilities on the basis of their estimated or actual fair market price.

Carrying Value

The book value of assets and liabilities on a company's balance sheet, excluding market value fluctuations.

Common Stock

Equity securities representing ownership in a corporation, with voting rights and potential dividends.

Par

The face value of a bond or stock, which is the amount the issuer agrees to pay at maturity in the case of a bond, or the value assigned to a share of stock at the time of issue.