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Question 1 of 10
1. Question
What is this type of speculative financial risk, which is defined as a risk of loss of value caused by changes in the rate at which one nation’s currency may be converted to another nation’s currency?
Correct
Companies in the United States that have international operations are susceptible to currency exchange rate risk. For example, a U.S. company faces currency exchange rate risk when it agrees to accept a specified amount of foreign currency in the future as payment for goods sold or work performed.
Incorrect
Companies in the United States that have international operations are susceptible to currency exchange rate risk. For example, a U.S. company faces currency exchange rate risk when it agrees to accept a specified amount of foreign currency in the future as payment for goods sold or work performed.
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Question 2 of 10
2. Question
What is this risk management tool, which is defined as the worst probable loss likely to occur in a given period under regular market conditions at some level of confidence?
Correct
Value at risk analysis is often applied to a portfolio of assets such as a mutual fund or a pension fund. It is similar to the concept of maximum probable loss in traditional property and liability risk management.
Incorrect
Value at risk analysis is often applied to a portfolio of assets such as a mutual fund or a pension fund. It is similar to the concept of maximum probable loss in traditional property and liability risk management.
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Question 3 of 10
3. Question
Stock insurers are one of the major types of private insurers. Which of the following statements best describes stock insurers?
I. It is a corporation owned by stockholders
II. It is a corporation owned by policyholders
III. The policyholders elect a board of directors who appoint executives to manage the corporation
IV. The objective is to earn profits for the stockholdersCorrect
A stock insurer is a corporation owned by stockholders. The stockholder elects a board of directors who, in turn, appoint executive officers to manage the corporation. The board of directors has ultimate responsibility for the corporation’s financial success.
Incorrect
A stock insurer is a corporation owned by stockholders. The stockholder elects a board of directors who, in turn, appoint executive officers to manage the corporation. The board of directors has ultimate responsibility for the corporation’s financial success.
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Question 4 of 10
4. Question
What is this type of marketing system, wherein life and health insurance products are sold directly to consumers without a face-to-face meeting with an agent; potential customers are solicited by television, radio, mail, newspapers, and the internet?
Correct
The direct response system has several advantages to insurers. Insurers gain access to large markets, acquisition costs can be held down, and uncomplicated products, such as term insurance, can be sold effectively. One disadvantage, however, is that complex product are often difficult to sell because an agent’s services may be required.
Incorrect
The direct response system has several advantages to insurers. Insurers gain access to large markets, acquisition costs can be held down, and uncomplicated products, such as term insurance, can be sold effectively. One disadvantage, however, is that complex product are often difficult to sell because an agent’s services may be required.
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Question 5 of 10
5. Question
To make insurance available to the public, insurers engage in a wide variety of specialized functions or operations. Which of the following are the most important operations of an insurance company?
I. Rate making
II. Accounting
III. Human Resources
IV. UnderwritingCorrect
The most important operations of an insurance company include the following:
(1) Rate making
(2) Underwriting
(3) Production
(4) Claims settlement
(5) Reinsurance
(6) InvestmentsIncorrect
The most important operations of an insurance company include the following:
(1) Rate making
(2) Underwriting
(3) Production
(4) Claims settlement
(5) Reinsurance
(6) Investments -
Question 6 of 10
6. Question
Underwriting refers to the process of selecting, classifying, and pricing applicants for insurance. The underwriter requires certain information in deciding whether to accept or reject an applicant for insurance. Which of the following are important sources of information in underwriting?
I. Application
II. Request form
III. Agent’s report
IV. Inspection reportCorrect
The underwriter requires certain information in deciding whether to accept or reject an applicant for insurance.
Important sources of information include the following:
(1) Application
(2) Agent’s report
(3) Inspection report
(4) Physical inspection
(5) Physical examinationIncorrect
The underwriter requires certain information in deciding whether to accept or reject an applicant for insurance.
Important sources of information include the following:
(1) Application
(2) Agent’s report
(3) Inspection report
(4) Physical inspection
(5) Physical examination -
Question 7 of 10
7. Question
What is this type of reinsurance, which is defined as an optional, case-by-case method that is used when the ceding company receives an application for insurance that exceeds its retention limit?
Correct
Facultative reinsurance is often used when the primary insurer has an application for a large amount of insurance. Before the application is approved, the primary insurer determines whether reinsurance is available. If reinsurance is available and other underwriting standards are met, the policy can then be written.
Incorrect
Facultative reinsurance is often used when the primary insurer has an application for a large amount of insurance. Before the application is approved, the primary insurer determines whether reinsurance is available. If reinsurance is available and other underwriting standards are met, the policy can then be written.
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Question 8 of 10
8. Question
What is this type of rate-making method in property and casualty insurance, wherein each exposure is individually evaluated, and the rate is determined largely by the judgment of the underwriter?
Correct
Judgment rating is used when the loss exposures are so diverse that a class rate cannot be calculated or when credible loss statistics are not available.
Incorrect
Judgment rating is used when the loss exposures are so diverse that a class rate cannot be calculated or when credible loss statistics are not available.
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Question 9 of 10
9. Question
The principle of indemnity is one of the most important principles in insurance. It states that the insurer agrees to pay no more than the actual amount of the loss. What are the fundamental purposes of the principle of indemnity?
I. To prevent the insured from losing from a loss
II. To reduce moral hazard
III. To prevent the insured from profiting from a loss
IV. To increase moral hazardCorrect
The principle of indemnity has two fundamental purposes:
(1) The first purpose is to prevent the insured from profiting from a loss.
(2) The second purpose is to reduce moral hazard.Incorrect
The principle of indemnity has two fundamental purposes:
(1) The first purpose is to prevent the insured from profiting from a loss.
(2) The second purpose is to reduce moral hazard. -
Question 10 of 10
10. Question
The principle of insurable interest states that the insured must be in a position to lose financially if a covered loss occurs. What are the purposes of insurable interest in an insurance contract?
I. To prevent gambling
II. To increase moral hazard
III. To measure the amount of the insured’s loss in property insurance
IV. To decrease the amount of the insured’s loss in property insuranceCorrect
To be legally enforceable, all insurance contracts must be supported by an insurable interest. Insurance contracts must be supported by an insurable interest for the following reasons:
(1) To prevent gambling
(2) To reduce moral hazard
(3) To measure the amount of the insured’s loss in property insuranceIncorrect
To be legally enforceable, all insurance contracts must be supported by an insurable interest. Insurance contracts must be supported by an insurable interest for the following reasons:
(1) To prevent gambling
(2) To reduce moral hazard
(3) To measure the amount of the insured’s loss in property insurance