There was a storm in Muscat which caused the walls and ceilings of Mega Mall to fall. The owners of Mega Mall incurred the cost of reconstructing the building and compensating the shop owners for the damages. This also resulted in reputational losses as well as reduction in business and the profits, opportunity costs, and rebuilding consumer confidence in the case of liability claims. Specify the type of risk does this case involves and describe and explain the types of losses associated with this risk (in the case of Mega Mall)?
There was a storm in Muscat which caused the walls and ceilings of Mega Mall to fall. The owners of Mega Mall incurred the cost of reconstructing the building and compensating the shop owners for the damages. This also resulted in reputational losses as well as reduction in business and the profits, opportunity costs, and rebuilding consumer confidence in the case of liability claims. Specify the type of risk does this case involves and describe and explain the types of losses associated with this risk (in the case of Mega Mall)?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:There was a storm in Muscat which caused the walls and ceilings of Mega Mall to fall. The
owners of Mega Mall incurred the cost of reconstructing the building and compensating the
shop owners for the damages. This also resulted in reputational losses as well as reduction in
business and the profits, opportunity costs, and rebuilding consumer confidence in the case of
liability claims. Specify the type of risk does this case involves and describe and explain the
types of losses associated with this risk (in the case of Mega Mall)?
Expert Solution
Reputation Risk
In the above case, explanation can be given in two situations:
Situation 1: The Mega Mall had purchased property insurance
- If Mega Mall had property insurance in place covering loss to the business due to storm, then the loss could be claimed from the insurance company depending upon the sum assured of the policy.
- Further, Insurance Company will also check that if the construction of the Mall is sub-standard, there could be further reputation loss to the company due to the sub-standard construction.
Situation 2: The Mega Mall has not purchased any property insurance
- A perfect example of failure of the top management for not availing the property insurance and also using sub-standard material for construction of Mega Mall building.
- Hence, the risk of loss of face value of the business
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