Financial Institutions Management Lange 4th Edition-Test Bank
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Sample Test
Chapter 03 Testbank
Student:
___________________________________________________________________________
1.
Which of the following statements is true?
1. Policy
liabilities are a liability item for insurers that reflects their worst-case
payment commitments on existing policy contracts.
2. Policy
liabilities are an asset item for insurers that reflects their best-case
payment inflows on existing policy contracts.
3. Policy
liabilities are an asset item for insurers that reflects their expected payment
inflows on existing policy contracts.
4. Policy
liabilities are a liability item for insurers that reflects their expected
payment commitments on existing policy contracts.
2.
Which of the following statements is true?
1. The
cash surrender value of a policy is normally only a portion of the contract’s
face value.
2. The
cash surrender value of a policy is normally equal to the contract’s face
value.
3. The
cash surrender value of a policy is normally more than the contract’s face
value.
4. A
generalisation of the cash surrender value of a policy in relation to its face
value is not possible.
3.
Which of the following statements is true?
1. The
surrender value of a policy is the cash value received from the insurer if a
policyholder surrenders the policy prior to maturity.
2. The
surrender value of a policy is the cash value received from the insurer if a
policyholder surrenders the policy at maturity.
3. The
surrender value of a policy is the cash value received from the policyholder if
the insurance company surrenders the policy prior to maturity.
4. The
surrender value of a policy is the cash value received from the policyholder if
the insurance company surrenders the policy at maturity.
4.
Variable universal life insurance policies:
1. have
fixed premiums and a fixed benefit payout.
2. have
fixed premiums, but allow the benefit payout to vary with investment returns.
3. have
a fixed benefit payout, but allow the premium to vary with investment returns.
4. allow
both the premium and benefit payout to vary with investment returns.
5.
Cost economies are the principal advantage of ¼ over ¼ contracts, which
arise from the group plan administration and reduced selling and commission costs.
1. ¼ individual life ¼ group life ¼
2. ¼ group life ¼ individual life ¼
3. ¼ individual life ¼ personal life ¼
4. None
of the listed options are correct.
6.
Which of the following statements is true?
1. Long-tail
loss refers to a series of claims made after an initial claim has been made.
2. Long-tail
loss refers to a claim that is made some time after a policy was written.
3. Short-tail
loss refers to a series of claims made after an initial claim has been made.
4. Short-tail
loss refers to a claim that is made some time after a policy was written.
7.
Which of the following statements is true?
1. Net
asset value refers to the book value of assets in a managed fund portfolio
divided by the number of shares outstanding.
2. Net
asset value refers to the book value of assets in a managed fund portfolio
multiplied by the number of shares outstanding.
3. Net
asset value refers to the market value of assets in a managed fund portfolio
multiplied by the number of shares outstanding.
4. None
of the listed options are correct.
8.
Which of the following statements is true?
1. A
closed-end investment company is a specialised firm that invests in securities
and assets of other firms.
2. A
closed-end investment company is a specialised firm that invests in securities
and assets of other firms but has a fixed supply of shares outstanding itself.
3. A
closed-end investment company is a specialised firm that invests in securities
and assets of other firms but has a variable supply of shares outstanding
itself.
4. A
closed-end investment company has a variable supply of shares outstanding
itself.
9.
The primary function of insurance companies is to:
1. generate
fees for the banks that sell insurance products
2. sell
a variety of consumer investment products
3. protect
policyholders from adverse events
4. assist
in the transfer of wealth into the future
10.
Private placement refers to a securities issue placed:
1. with
one or a few large institutional investors
2. in
private, that is, without announcing it to the public
3. by a
private person
4. with
one of the stock exchanges
11.
Which of the following statements is true?
1. Life
insurance allows individuals and their beneficiaries to protect against loss in
income through premature death.
2. Life
insurance allows individuals and their beneficiaries to protect against loss in
income through premature retirement.
3. Life
insurance allows individuals and their beneficiaries to protect against loss in
income through unforeseen accidents.
4. Life
insurance allows individuals and their beneficiaries to protect against loss in
income through premature death or retirement.
12.
Which of the following statements is true?
1. Ordinary
life insurance involves policies marketed on an individual basis, on which
policyholders make periodic premium payments.
2. Ordinary
life insurance involves policies marketed on an individual basis, on which
policyholders make a lump sum payment at maturity of the policy.
3. Ordinary
life insurance involves policies marketed on an individual basis, on which
policyholders receive periodic premium payments.
4. Ordinary
life insurance involves policies marketed on an individual basis, on which
policyholders receive a lump sum payment at maturity of the policy.
13.
Which of the following are basic life insurance contract types?
1. terminating
insurance
2. whole-of-life
3. bundled
life insurance
4. terminating
insurance and whole-of-life
14.
Which of the following statements is true?
1. A
term insurance policy has no savings element attached to it.
2. The
maximum term of a term life insurance is 20 years.
3. The
minimum term of a term life insurance is five years.
4. A
term insurance policy has no savings element attached to it and the maximum
term of a term life insurance is 20 years.
15.
Which of the following statements is true?
1. A
whole-of-life insurance has no savings element attached to it.
2. Unlike
term insurance, in the case of whole-of-life insurance there is uncertainty
regarding a payout by the insurer.
3. A
whole-of-life insurance protects the holder over their entire life.
4. All
of the listed options are correct.
16.
Which of the following statements is true?
1. The
proceeds of life insurance policies are tax free after they have been in force
for at least five years.
2. The
proceeds of life insurance policies are tax free after they have been in force
for at least 10 years.
3. The
proceeds of life insurance policies are tax free after they have been in force
for at least 15 years.
4. The
proceeds of life insurance policies are always taxed.
17.
Which of the following statements is true?
1. Unbundled
life insurance is also called investment-free insurance.
2. Bundled
life insurance is also called investment-free insurance.
3. Unbundled
life insurance is also called investment-linked insurance.
4. Bundled
life insurance is also called investment-linked insurance.
18.
Insurance policy benefits are classified on an insurance
company’s balance sheet as:
1. liabilities,
because the insurance company may have to pay out the benefits
2. assets,
because policy benefits are valuable to the company
3. liabilities,
because customers may fall behind on their premium payments
4. assets,
because policy benefits are fully covered by premium payments
19.
Which of the following are key features of the regulatory and
supervisory environment of the insurance industry?
1. Life
insurance companies are now freed of capital adequacy regulations.
2. Life
insurance companies have additional reporting requirements.
3. Overall,
life insurance companies are less regulated than before to enhance innovation
in the industry.
4. All
of the listed options are correct.
20.
Which of the following statements is true in the context of
SOARS?
1. Oversight
entities are subject to routine information gathering from statistical returns
and onsite visits.
2. Mandated
improvement entities are not at material risk of failure.
3. Normal
entities lie outside APRA’s tolerable risk range, but are unlikely to fail.
4. Restructure
entities have lost APRA’s confidence.
21.
Which of the following statements is true?
1. Australian
governments have encouraged national savings through superannuation.
2. The
government has provided taxation incentives aimed at increasing voluntary
contributions to superannuation by both employers and employees.
3. The
government has introduced legislative requirements forcing employers to
contribute to superannuation on behalf of their employees.
4. All
of the listed options are correct.
22.
From 1997 to 2013, total superannuation assets in Australia
increased from $0.3 trillion (58% of GDP) to:
1. $0.5
trillion (60% of GDP)
2. $1
trillion (82% of GDP)
3. $1.6
trillion (106% of GDP)
4. $2.2
trillion (151% of GDP)
23.
¼ held
the largest proportion of superannuation assets in 2013, rising from 11% in
1997 to 32% as at June 2013.
1. Small
funds
2. Industry
funds
3. Corporate
funds
4. Retail
funds
24.
Higher uncertainty of losses forces property-casualty firms to:
1. invest
in more short-term assets than life insurance firms
2. invest
in more long-term assets than life insurance firms
3. hold
a lower percentage of capital and reserves than life insurance firms
4. invest
in riskier equity securities than life insurance firms
25.
Which of the following are typical products offered by general
insurance companies?
1. superannuation
funds
2. life
insurance policies
3. professional
indemnity insurance
4. superannuation
funds and professional indemnity insurance
26.
Which of the following is an adequate definition of liability
insurance?
1. Liability
insurance protects commercial firms against perils similar to home-owners’
multiple peril insurance.
2. Liability
insurance protects against theft or damage of commercial vehicles.
3. Liability
insurance protects against liabilities relating to business operations of
firms.
4. Liability
insurance protects commercial firms against perils similar to home-owners’
multiple peril insurance and protects against liabilities relating to business
operations of firms.
27.
Which of the following statements is true in relation to the
balance sheet and balance sheet trends of general insurance companies?
1. They
tend to have a high proportion of investments in equity assets.
2. They
tend to have a low proportion of investments in bonds.
3. There
has been little change in the structure of assets between 2002 and 2013, except
for a decline in equity investments.
4. All
of the listed options are correct.
28.
Which of the following are reasons for underwriting risk to
result?
1. Generated
premiums are insufficient to cover claims incurred insuring a particular peril.
2. Generated
premiums are insufficient to cover the administrative expenses of providing
that insurance after taking into account the investment income generated
between the time premiums are received and the time claims are paid.
3. Generated
premiums are insufficient to cover ordinary business expenses.
4. Generated
premiums are insufficient to cover claims incurred insuring a particular peril
and generated premiums are insufficient to cover the administrative expenses of
providing that insurance after taking into account the investment income
generated between the time premiums are received and the time claims are paid.
29.
Which of the following statements are true in the context of
general insurance?
1. Loss
rates on all general property policies are adversely affected by unexpected
increases in inflation.
2. Long-tail
losses arise where the peril occurs during a coverage period but a claim is not
made until many years later.
3. Long-tail
losses arise where the peril occurs during a coverage period but a claim is not
made until many years later and loss rates are more predictable on low-severity
high-frequency lines than on high-severity low-frequency lines.
4. Loss
rates on all general property policies are adversely affected by unexpected
increases in inflation; long-tail losses arise where the peril occurs during a
coverage period but a claim is not made until many years later and loss rates
are more predictable on low-severity high-frequency lines than on high-severity
low-frequency lines.
30.
Which of the following statements referring to the loss ratio
are true?
1. The
loss ratio measures the actual losses incurred on a line of insurance business.
2. A
common measure of the overall underwriting profitability of a line of insurance
business is the loss ratio.
3. The
loss ratio measures the pure losses incurred on a line of insurance business
relative to premiums earned.
4. The
loss ratio measures the predicted losses incurred on a line of insurance
business relative to premiums earned.
31.
Which of the following statements is true?
1. Measuring
and managing credit and interest rate risk are key concerns of general
insurance managers.
2. If
pure losses, underwriting losses and other costs are higher and investment
yields lower than expected, general insurers suffer a significant amount of
deficit reserves.
3. On
average, underwriting cycles measured from peak to peak can last anywhere from
12 to 20 years.
4. Measuring
and managing credit and interest rate risk are key concerns of general
insurance managers and if pure losses, underwriting losses and other costs are
higher and investment yields lower than expected, general insurers suffer a
significant amount of deficit reserves.
32.
The problem of adverse selection:
1. implies
that many people who do not need insurance coverage have it through group
plans.
2. means
that those people who apply for insurance are the least likely to need
insurance coverage.
3. causes
insurance underwriters to alter the health statistics of the general population
when determining appropriate premiums.
4. creates
a savings element along with the insurance component of the premium and policy.
33.
What is a common rationale for a managed fund?
1. the
need for more diversity in investment products
2. the
opportunity for retail investors to achieve superior diversification
3. the
potential for retail investors to achieve superior returns
4. the
opportunity for retail investors to achieve superior diversification and the
potential for retail investors to achieve superior returns
34.
Which of the following statements is true with regard to the
regulation of managed funds?
1. Managed
funds are unregulated.
2. APRA
is the primary regulator for managed funds.
3. ASIC
is the primary regulator for managed funds.
4. The
ACCC is the primary regulator for managed funds.
35.
Which of the following statements is true?
1. Money
market corporations are primarily concerned with wholesale deposit raising and
lending.
2. Money
market corporations are primarily concerned with retail deposit raising and
lending.
3. Money
market corporations are financial intermediaries that cover a large number of
activities.
4. Money
market corporations are financial intermediaries that cover a large number of
activities and are primarily concerned with wholesale deposit raising and
lending.
36.
Insurance policy benefits are classified on an insurance
company’s balance sheet as:
1. liabilities,
because the insurance company may have to pay out the benefits
2. assets,
because policy benefits are valuable to the company
3. liabilities,
because customers may fall behind on their premium payments
4. assets,
because policy benefits are fully covered by premium payments
37.
Through ¼ ,
general insurers are able to transfer all or part of the insured risk to a new
contract with another insurance company.
1. insurance
2. reinsurance
3. underwriting
4. private
placement
38.
Which of the following statements is true?
1. Pure
arbitrage involves buying blocks of securities in anticipation of some
information release.
2. Risk
arbitrage involves buying an asset in one market at one price and selling it
immediately in another market at a higher price.
3. Risk
arbitrage involves buying blocks of securities in anticipation of some
information release, pure arbitrage involves buying an asset in one market at
one price and selling it immediately in another market at a higher price and
program trading is associated with seeking a risk arbitrage between a cash
market price and the futures market price of that instrument.
4. None
of the listed options are correct.
39.
Which of the following statements is true with regard to the
regulation of money market corporations?
1. Money
market corporations are unregulated.
2. APRA
is the primary regulator for money market corporations.
3. ASIC
is the primary regulator for money market corporations.
4. The
ACCC is the primary regulator for money market corporations.
40.
Which of the following statements is true?
1. Finance
companies are financial institutions that raise funds through the issue of
debentures and unsecured notes from retail investors.
2. Finance
companies are financial institutions that raise funds through the issue of
debentures and unsecured notes from wholesale investors.
3. Finance
companies are financial institutions that raise funds through the issue of
T-bonds and secured notes from retail investors.
4. Finance
companies are financial institutions that raise funds through the issue of
T-bonds and secured notes from wholesale investors.
41.
Which of the following did not occur in the life insurance
industry during the most recent financial crisis?
1. Low
equity values reduced asset-based fees on separate account assets.
2. Asset-based
fees declined on products such as variable annuities and pension fund assets
that were tied to equity returns.
3. Low
interest rates and harsh economic conditions caused many policyholders to
terminate or surrender their policies.
4. Policy
premium increased as more households and small businesses attempted to transfer
risk to insurance companies.
42.
Investments in ¼ are
restricted to more wealthy clients.
1. superannuation
funds
2. hedge
funds
3. managed
funds
4. trusts
43.
¼ is a
procedure of adjusting asset and balance sheet values to reflect current market
prices.
1. Hedging
2. Marking
to market
3. Underwriting
4. Balancing
44.
Insurance services offered by FIs protect individuals and
businesses (policyholders) from the financial impact of adverse events.
True False
45.
Reinsurance is insurance purchased by insurers from other
insurers to limit the total loss an insurer would experience in case of a
disaster.
True False
46.
Reinsurance companies sell insurance products directly to the
customer.
True False
47.
Through securitisation, general insurers are able to transfer
all or part of the insured risk to a new contract with another insurance
company.
True False
48.
An individual’s life insurance policy usually covers the
policyholder plus the policyholder’s spouse and family.
True False
49.
Loans on policy are loans made by insurance companies to its
policyholders using their policies as collateral.
True False
50.
Insurance companies are not subject to regulatory capital
adequacy rules.
True False
51.
Pure insurance companies are exposed to a single risk only, this
being insurance risk.
True False
52.
While insurance companies are exposed to credit, operational and
investment risk, there is no direct regulation for these risks set out by APRA.
True False
53.
SOARS stands for Supervisory Oversight and Regulations System.
True False
54.
Superannuation funds manage funds saved throughout an employee’s
working life with the aim of providing the employee with a retirement income.
True False
55.
In general, the maximum levels of losses are less predictable
for property lines than liability lines.
True False
56.
In firm commitment underwriting, the investment banker acts as a
principal, purchasing securities from the issuer at one price and seeking to
place them with public investors at a slightly higher price.
True False
57.
Adverse selection is a situation where customers who most need
insurance are more likely to apply for insurance.
True False
58.
Annuities are the reverse of life insurance in that they are
different means of liquidating a fund.
True False
59.
Property-casualty insurers tend to have a higher level of
liquidity risk than life insurers.
True False
60.
Investments in hedge funds are restricted to more wealthy
clients.
True False
61.
Marking to market is a procedure of adjusting asset and balance
sheet values to reflect current market prices.
True False
62.
Outline and briefly explain the different classes of life
insurance as set out in the Life Insurance Act 1995.
63.
Discuss the development of the general insurance industry over
the period 1980 to 2014 and briefly explain the major risks of underwriting
general insurance.
64.
What were the major incentives provided by the government to
increase savings contributions to superannuation funds? Why is the
superannuation industry an important and vibrant part of the Australian
financial sector?
65.
Outline the role that securitisation vehicles play in the
Australian financial system and explain how the global financial crisis (GFC)
impacted this form of financing. What actions did the Australian government
take as a response to such an impact?
66.
Insurance risk refers to the risk that:
1. a lot
of policyholders make claims
2. the
insurance market is saturated and thus the insurance companies cannot write
additional policies
3. individuals
and companies are over-insured leading to high liability values in insurance
companies
4. actual
policy liabilities turn out to be higher than provisions or reserves for policy
liabilities
67.
To support risk assessment in insurance firms APRA introduced
PAIRS. PAIRS stands for:
1. Policy
and Insurance Ratification System
2. Policy
and Insurance Rating System
3. Probability
and Impact Ratification System
4. Probability
and Impact Rating System
68.
Which of the following statements is true?
1. PAIRS
is the basis of APRA’s risk-based approach to supervision.
2. PAIRS
is an internal rating system for scoring each entity in the regulated
population of insurance and superannuation entities.
3. Due
to PAIRS, APRA’s supervision can be tailored to the risk profile of an
individual entity.
4. All
of the listed options are correct.
Chapter 03 Testbank Key
1.
Which of the following statements is true?
1. Policy
liabilities are a liability item for insurers that reflects their worst-case
payment commitments on existing policy contracts.
2. Policy
liabilities are an asset item for insurers that reflects their best-case payment
inflows on existing policy contracts.
3. Policy
liabilities are an asset item for insurers that reflects their expected payment
inflows on existing policy contracts.
4. Policy
liabilities are a liability item for insurers that reflects their expected payment
commitments on existing policy contracts.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
2.
Which of the following statements is true?
1. The
cash surrender value of a policy is normally only a portion of the contract’s
face value.
2. The
cash surrender value of a policy is normally equal to the contract’s face
value.
3. The
cash surrender value of a policy is normally more than the contract’s face
value.
4. A
generalisation of the cash surrender value of a policy in relation to its face
value is not possible.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
3.
Which of the following statements is true?
1. The
surrender value of a policy is the cash value received from the insurer if a policyholder
surrenders the policy prior to maturity.
2. The
surrender value of a policy is the cash value received from the insurer if a
policyholder surrenders the policy at maturity.
3. The
surrender value of a policy is the cash value received from the policyholder if
the insurance company surrenders the policy prior to maturity.
4. The
surrender value of a policy is the cash value received from the policyholder if
the insurance company surrenders the policy at maturity.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
4.
Variable universal life insurance policies:
1. have
fixed premiums and a fixed benefit payout.
2. have
fixed premiums, but allow the benefit payout to vary with investment returns.
3. have
a fixed benefit payout, but allow the premium to vary with investment returns.
4. allow
both the premium and benefit payout to vary with investment returns.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
5.
Cost economies are the principal advantage of ¼ over ¼ contracts, which
arise from the group plan administration and reduced selling and commission
costs.
1. ¼ individual life ¼ group life ¼
2. ¼ group life ¼ individual life ¼
3. ¼ individual life ¼ personal life ¼
4. None
of the listed options are correct.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.3 Learn about the general insurance
industry and gain an understanding of its products
6.
Which of the following statements is true?
1. Long-tail
loss refers to a series of claims made after an initial claim has been made.
2. Long-tail
loss refers to a claim that is made some time after a policy was written.
3. Short-tail
loss refers to a series of claims made after an initial claim has been made.
4. Short-tail
loss refers to a claim that is made some time after a policy was written.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.3 Learn about the general insurance
industry and gain an understanding of its products
7.
Which of the following statements is true?
1. Net
asset value refers to the book value of assets in a managed fund portfolio
divided by the number of shares outstanding.
2. Net
asset value refers to the book value of assets in a managed fund portfolio
multiplied by the number of shares outstanding.
3. Net
asset value refers to the market value of assets in a managed fund portfolio
multiplied by the number of shares outstanding.
4. None
of the listed options are correct.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.5 Learn that many superannuation and life
insurance products are managed funds
8.
Which of the following statements is true?
1. A
closed-end investment company is a specialised firm that invests in securities
and assets of other firms.
2. A
closed-end investment company is a specialised firm that invests in securities
and assets of other firms but has a fixed supply of shares outstanding itself.
3. A
closed-end investment company is a specialised firm that invests in securities
and assets of other firms but has a variable supply of shares outstanding
itself.
4. A
closed-end investment company has a variable supply of shares outstanding
itself.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Hard
Est time: 1–3
Learning Objective: 3.5 Learn that many superannuation and life
insurance products are managed funds
9.
The primary function of insurance companies is to:
1. generate
fees for the banks that sell insurance products
2. sell
a variety of consumer investment products
3. protect
policyholders from adverse events
4. assist
in the transfer of wealth into the future
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Easy
Est time: 1–3
Learning Objective: 3.1 Learn that despite the apparently
diverse nature of activities, other FIs face risk exposures similar to those
faced by DIs
10.
Private placement refers to a securities issue placed:
1. with
one or a few large institutional investors
2. in
private, that is, without announcing it to the public
3. by a
private person
4. with
one of the stock exchanges
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Easy
Est time: 1–3
Learning Objective: 3.6 Gain an appreciation of the role that
managed funds, money market corporations, finance companies and securitisation
vehicles and their products play in the Australian financial markets and their
structure and regulation
11.
Which of the following statements is true?
1. Life
insurance allows individuals and their beneficiaries to protect against loss in
income through premature death.
2. Life
insurance allows individuals and their beneficiaries to protect against loss in
income through premature retirement.
3. Life
insurance allows individuals and their beneficiaries to protect against loss in
income through unforeseen accidents.
4. Life
insurance allows individuals and their beneficiaries to protect against loss in
income through premature death or retirement.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
12.
Which of the following statements is true?
1. Ordinary
life insurance involves policies marketed on an individual basis, on which policyholders
make periodic premium payments.
2. Ordinary
life insurance involves policies marketed on an individual basis, on which
policyholders make a lump sum payment at maturity of the policy.
3. Ordinary
life insurance involves policies marketed on an individual basis, on which
policyholders receive periodic premium payments.
4. Ordinary
life insurance involves policies marketed on an individual basis, on which
policyholders receive a lump sum payment at maturity of the policy.
AACSB: Analytic
Bloom’s: Application
Difficulty: Easy
Est time: 1–3
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
13.
Which of the following are basic life insurance contract types?
1. terminating
insurance
2. whole-of-life
3. bundled
life insurance
4. terminating
insurance and whole-of-life
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
14.
Which of the following statements is true?
1. A
term insurance policy has no savings element attached to it.
2. The
maximum term of a term life insurance is 20 years.
3. The
minimum term of a term life insurance is five years.
4. A
term insurance policy has no savings element attached to it and the maximum
term of a term life insurance is 20 years.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
15.
Which of the following statements is true?
1. A
whole-of-life insurance has no savings element attached to it.
2. Unlike
term insurance, in the case of whole-of-life insurance there is uncertainty
regarding a payout by the insurer.
3. A
whole-of-life insurance protects the holder over their entire life.
4. All
of the listed options are correct.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
16.
Which of the following statements is true?
1. The
proceeds of life insurance policies are tax free after they have been in force
for at least five years.
2. The
proceeds of life insurance policies are tax free after they have been in force
for at least 10 years.
3. The
proceeds of life insurance policies are tax free after they have been in force
for at least 15 years.
4. The
proceeds of life insurance policies are always taxed.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
17.
Which of the following statements is true?
1. Unbundled
life insurance is also called investment-free insurance.
2. Bundled
life insurance is also called investment-free insurance.
3. Unbundled
life insurance is also called investment-linked insurance.
4. Bundled
life insurance is also called investment-linked insurance.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
18.
Insurance policy benefits are classified on an insurance
company’s balance sheet as:
1. liabilities,
because the insurance company may have to pay out the benefits
2. assets,
because policy benefits are valuable to the company
3. liabilities,
because customers may fall behind on their premium payments
4. assets,
because policy benefits are fully covered by premium payments
AACSB: Analytic
Bloom’s: Application
Difficulty: Hard
Est time: 1–3
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
19.
Which of the following are key features of the regulatory and
supervisory environment of the insurance industry?
1. Life
insurance companies are now freed of capital adequacy regulations.
2. Life
insurance companies have additional reporting requirements.
3. Overall,
life insurance companies are less regulated than before to enhance innovation
in the industry.
4. All
of the listed options are correct.
AACSB: Analytic
Bloom’s: Application
Difficulty: Easy
Est time: 1–3
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
20.
Which of the following statements is true in the context of
SOARS?
1. Oversight
entities are subject to routine information gathering from statistical returns
and onsite visits.
2. Mandated
improvement entities are not at material risk of failure.
3. Normal
entities lie outside APRA’s tolerable risk range, but are unlikely to fail.
4. Restructure
entities have lost APRA’s confidence.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Hard
Est time: 1–3
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
21.
Which of the following statements is true?
1. Australian
governments have encouraged national savings through superannuation.
2. The
government has provided taxation incentives aimed at increasing voluntary
contributions to superannuation by both employers and employees.
3. The
government has introduced legislative requirements forcing employers to
contribute to superannuation on behalf of their employees.
4. All
of the listed options are correct.
AACSB: Reflective thinking
Bloom’s: Application
Difficulty: Hard
Est time: 1–3
Learning Objective: 3.4 Appreciate the importance, structure and
regulation of superannuation in the Australian financial system
22.
From 1997 to 2013, total superannuation assets in Australia
increased from $0.3 trillion (58% of GDP) to:
1. $0.5
trillion (60% of GDP)
2. $1
trillion (82% of GDP)
3. $1.6
trillion (106% of GDP)
4. $2.2
trillion (151% of GDP)
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Medium
Est time: <1
Learning Objective: 3.4 Appreciate the importance, structure and
regulation of superannuation in the Australian financial system
23.
¼ held
the largest proportion of superannuation assets in 2013, rising from 11% in
1997 to 32% as at June 2013.
1. Small
funds
2. Industry
funds
3. Corporate
funds
4. Retail
funds
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Hard
Est time: <1
Learning Objective: 3.4 Appreciate the importance, structure and
regulation of superannuation in the Australian financial system
24.
Higher uncertainty of losses forces property-casualty firms to:
1. invest
in more short-term assets than life insurance firms
2. invest
in more long-term assets than life insurance firms
3. hold
a lower percentage of capital and reserves than life insurance firms
4. invest
in riskier equity securities than life insurance firms
AACSB: Analytic
Bloom’s: Application
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.3 Learn about the general insurance
industry and gain an understanding of its products
25.
Which of the following are typical products offered by general
insurance companies?
1. superannuation
funds
2. life
insurance policies
3. professional
indemnity insurance
4. superannuation
funds and professional indemnity insurance
AACSB: Analytic
Bloom’s: Application
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.3 Learn about the general insurance
industry and gain an understanding of its products
26.
Which of the following is an adequate definition of liability
insurance?
1. Liability
insurance protects commercial firms against perils similar to home-owners’
multiple peril insurance.
2. Liability
insurance protects against theft or damage of commercial vehicles.
3. Liability
insurance protects against liabilities relating to business operations of
firms.
4. Liability
insurance protects commercial firms against perils similar to home-owners’
multiple peril insurance and protects against liabilities relating to business
operations of firms.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Hard
Est time: 1–3
Learning Objective: 3.3 Learn about the general insurance
industry and gain an understanding of its products
27.
Which of the following statements is true in relation to the
balance sheet and balance sheet trends of general insurance companies?
1. They
tend to have a high proportion of investments in equity assets.
2. They
tend to have a low proportion of investments in bonds.
3. There
has been little change in the structure of assets between 2002 and 2013, except
for a decline in equity investments.
4. All
of the listed options are correct.
AACSB: Analytic
Bloom’s: Application
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.3 Learn about the general insurance
industry and gain an understanding of its products
28.
Which of the following are reasons for underwriting risk to
result?
1. Generated
premiums are insufficient to cover claims incurred insuring a particular peril.
2. Generated
premiums are insufficient to cover the administrative expenses of providing
that insurance after taking into account the investment income generated
between the time premiums are received and the time claims are paid.
3. Generated
premiums are insufficient to cover ordinary business expenses.
4. Generated
premiums are insufficient to cover claims incurred insuring a particular peril
and generated premiums are insufficient to cover the administrative expenses of
providing that insurance after taking into account the investment income
generated between the time premiums are received and the time claims are paid.
AACSB: Analytic
Bloom’s: Application
Difficulty: Hard
Est time: 3–5
Learning Objective: 3.3 Learn about the general insurance
industry and gain an understanding of its products
29.
Which of the following statements are true in the context of
general insurance?
1. Loss
rates on all general property policies are adversely affected by unexpected
increases in inflation.
2. Long-tail
losses arise where the peril occurs during a coverage period but a claim is not
made until many years later.
3. Long-tail
losses arise where the peril occurs during a coverage period but a claim is not
made until many years later and loss rates are more predictable on low-severity
high-frequency lines than on high-severity low-frequency lines.
4. Loss
rates on all general property policies are adversely affected by unexpected
increases in inflation; long-tail losses arise where the peril occurs during a
coverage period but a claim is not made until many years later and loss rates
are more predictable on low-severity high-frequency lines than on high-severity
low-frequency lines.
AACSB: Analytic
Bloom’s: Application
Difficulty: Hard
Est time: 3–5
Learning Objective: 3.3 Learn about the general insurance
industry and gain an understanding of its products
30.
Which of the following statements referring to the loss ratio
are true?
1. The
loss ratio measures the actual losses incurred on a line of insurance business.
2. A
common measure of the overall underwriting profitability of a line of insurance
business is the loss ratio.
3. The
loss ratio measures the pure losses incurred on a line of insurance business
relative to premiums earned.
4. The
loss ratio measures the predicted losses incurred on a line of insurance
business relative to premiums earned.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.3 Learn about the general insurance
industry and gain an understanding of its products
31.
Which of the following statements is true?
1. Measuring
and managing credit and interest rate risk are key concerns of general
insurance managers.
2. If
pure losses, underwriting losses and other costs are higher and investment
yields lower than expected, general insurers suffer a significant amount of
deficit reserves.
3. On
average, underwriting cycles measured from peak to peak can last anywhere from
12 to 20 years.
4. Measuring
and managing credit and interest rate risk are key concerns of general
insurance managers and if pure losses, underwriting losses and other costs are
higher and investment yields lower than expected, general insurers suffer a
significant amount of deficit reserves.
AACSB: Analytic
Bloom’s: Application
Difficulty: Hard
Est time: 1–3
Learning Objective: 3.1 Learn that despite the apparently
diverse nature of activities, other FIs face risk exposures similar to those faced
by DIs
32.
The problem of adverse selection:
1. implies
that many people who do not need insurance coverage have it through group
plans.
2. means
that those people who apply for insurance are the least likely to need
insurance coverage.
3. causes
insurance underwriters to alter the health statistics of the general population
when determining appropriate premiums.
4. creates
a savings element along with the insurance component of the premium and policy.
AACSB: Analytic
Bloom’s: Application
Difficulty: Hard
Est time: 1–3
Learning Objective: 3.2 Gain an understanding of the structure,
characteristics and regulation of life insurers and their products
33.
What is a common rationale for a managed fund?
1. the
need for more diversity in investment products
2. the
opportunity for retail investors to achieve superior diversification
3. the
potential for retail investors to achieve superior returns
4. the
opportunity for retail investors to achieve superior diversification and the
potential for retail investors to achieve superior returns
AACSB: Analytic
Bloom’s: Application
Difficulty: Medium
Est time: 1–3
Learning Objective: 3.5 Learn that many superannuation and life
insurance products are managed funds
34.
Which of the following statements is true with regard to the
regulation of managed funds?
1. Managed
funds are unregulated.
2. APRA
is the primary regulator for managed funds.
3. ASIC
is the primary regulator for managed funds.
4. The
ACCC is the primary regulator for managed funds.
AACSB: Analytic
Bloom’s: Knowledge
Difficulty: Easy
Est time: 1–3
Learning Objective: 3.5 Learn that many superannuation and life
insurance products are managed funds
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