Question

an entrepreneur keeps backup funds in a savings account so that if their business experiences a loss, they will be able to recuperate. what type of risk management is this an example of?
reducing risk.
sharing risk.
avoiding risk.
maximizing risk.

Explanation:

1. Analyze "reducing risk": Having backup funds lessens the impact of a business loss, which fits reducing risk (mitigating potential negative effects).
2. Analyze "sharing risk": There's no sharing of risk with others here (e.g., insurance or partnerships), so this is not correct.
3. Analyze "avoiding risk": The entrepreneur isn't avoiding the risk of business loss (they still run the business), just preparing for it.
4. Analyze "maximizing risk": This goes against risk management logic; the action is to prepare for loss, not increase risk.

Answer:

A. reducing risk.