Question

Shadi has determined that he is going to accept a risk by keeping enough money in his emergency savings account to cover emergency medical expenses. Based on his response, he must have judged this risk to be

a) Low

b) Moderate

c) High

d) Unpredictable

Answer 1

Shadi has judged that by maintaining substantial emergency savings specifically for emergency medical expenses, the risk he is accepting is moderate. This indicates his belief in the manageability of unforeseen events through sound financial planning.

Step-by-step explanation:

Shadi has assessed that by keeping enough money in his emergency savings account for emergency medical expenses, the risk he is willing to accept must be moderate (b). This judgment likely comes from his understanding that while emergencies can be unpredictable, having a robust savings plan can mitigate financial shocks. By establishing a substantial emergency fund, Shadi is prepared for unforeseen expenses without assuming the highest level of risk, often associated with more volatile investments. Furthermore, having such a savings buffer indicates that he acknowledges the potential for unexpected events but believes they can be managed with prudent financial planning.

Answer 2

Shadi has assessed keeping money aside for medical emergencies as a moderate risk, which reflects a balanced approach to financial planning and liquidity.

Step-by-step explanation:

Shadi's decision to accept the risk by maintaining enough money in his emergency savings account to cover medical emergencies indicates that he has assessed the risk as moderate. When making financial decisions, individuals must analyze potential risks and decide how to manage them. Risk management often involves determining the likelihood of an event and its potential financial impact. In Shadi’s case, considering that unexpected medical expenses can be significant but may not occur frequently, saving a sufficient amount in an emergency fund is a reasonable way to prepare for such emergencies without overextending financial resources.

Having an emergency fund relates to the concept of financial liquidity, which allows individuals to quickly address unexpected financial needs without resorting to more drastic measures like expensive loans or asset liquidation. Such financial preparedness is a fundamental principle of personal financial planning and is often recommended by financial advisors.