Question

XYZ firm manufactures cellphones and uses a battery that it buys from a sole supplier in Japan. There is a risk that the supplier's facility will be destroyed if a Tsunami occurs. In that case, the supplier will no longer be able to manufacture the batteries. This is an example of a:

a) Direct loss
b) Indirect loss
c) Consequential loss
d) Contingent loss

Answer 1

The scenario presented is an example of a consequential loss where a tsunami destroying the supplier's facility would have a significant impact on XYZ firm's ability to manufacture cellphones as they rely on the batteries from the supplier.

Step-by-step explanation:

The given scenario is an example of a consequential loss or option c). Consequential loss refers to the indirect or long-term consequences that occur as a result of a specific event or loss. In this case, if a tsunami were to occur and destroy the supplier's facility, it would have a significant impact on XYZ firm's ability to manufacture cellphones because they rely on the batteries from the supplier. The loss of the supplier's ability to provide batteries would disrupt XYZ firm's production process and have a consequential effect on their business.