Question 1

Which of the following is not a proposal for insuring that sufficient funds will be available to provide Social Security benefits to future retirees?

Accepted Answer

A)  Raise the maximum income cap on which workers and employers are taxed. 
B)  Provide more generous annual cost of living increases. 
C)  Raise the minimum age for receiving benefits. 
D)  Reduce the amount of future benefits. 
A)  Raise the maximum income cap on which workers and employers are taxed. 
B)  Provide more generous annual cost of living increases. 
C)  Raise the minimum age for receiving benefits. 
D)  Reduce the amount of future benefits.

Question 2

A term life insurance policy provides

Accepted Answer

A)  insurance benefits only. 
B)  savings benefits only. 
C)  both insurance and savings benefits. 
D)  none of the above. 
A)  insurance benefits only. 
B)  savings benefits only. 
C)  both insurance and savings benefits. 
D)  none of the above.

Question 3

(I)A majority of life insurance companies are organized as mutual companies.
(II)State governments have the major responsibility for regulating insurance companies.

Accepted Answer

A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. 
A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false.

Question 4

How did AIG,a trillion-dollar insurance giant,find itself on the brink of bankruptcy in 2008?

Accepted Answer

American International Group, Inc. (AIG)

Question 5

Insurance companies' attempts to minimize adverse selection and moral hazard explain which of the following insurance practices?

Accepted Answer

A)  Gender-neutral premiums 
B)  Flat-rate premiums 
C)  Restrictive provisions 
D)  All of the above 
E)  Only A and B of the above 
A)  Gender-neutral premiums 
B)  Flat-rate premiums 
C)  Restrictive provisions 
D)  All of the above 
E)  Only A and B of the above

Question 6

The fact that insurance companies charge young males higher automobile insurance premiums than young females is an example of

Accepted Answer

A)  risk-based premiums. 
B)  an attempt to minimize adverse selection. 
C)  coinsurance. 
D)  all of the above. 
E)  only A and B of the above. 
A)  risk-based premiums. 
B)  an attempt to minimize adverse selection. 
C)  coinsurance. 
D)  all of the above. 
E)  only A and B of the above.

Question 7

The Social Security system is an example of a public pension plan that is ________.

Accepted Answer

A)  underfunded 
B)  fully funded 
C)  overfunded 
D)  none of the above 
A)  underfunded 
B)  fully funded 
C)  overfunded 
D)  none of the above

Question 8

A company's pension plan promises employees a specific amount of income when they retire.However,the plan does not have the assets to meet these future obligations to employees.This plan represents a defined-________ plan that is ________.

Accepted Answer

A)  benefit; underfunded 
B)  benefit; overfunded 
C)  contribution; underfunded 
D)  contribution; overfunded 
A)  benefit; underfunded 
B)  benefit; overfunded 
C)  contribution; underfunded 
D)  contribution; overfunded

Question 9

Which of the following has not contributed to the growth of pension plans?

Accepted Answer

A)  Privatization of Social Security 
B)  Urbanization 
C)  Retirement at earlier ages 
D)  Increases in life expectancy 
A)  Privatization of Social Security 
B)  Urbanization 
C)  Retirement at earlier ages 
D)  Increases in life expectancy

Question 10

To prevent the moral hazard problem,health and life insurance companies may write policies

Accepted Answer

A)  for which premiums increase dramatically once the policyholder is discovered to have contracted an illness. 
B)  containing provisions which either reduce or eliminate benefits to persons who contract prespecified illnesses. 
C)  limiting the amount the companies will pay in the event that claims are submitted by policyholders. 
D)  with all of the above provisions. 
E)  with only A and B of the above provisions. 
A)  for which premiums increase dramatically once the policyholder is discovered to have contracted an illness. 
B)  containing provisions which either reduce or eliminate benefits to persons who contract prespecified illnesses. 
C)  limiting the amount the companies will pay in the event that claims are submitted by policyholders. 
D)  with all of the above provisions. 
E)  with only A and B of the above provisions.

Question 11

Relative to life insurance companies,property and casualty insurance companies hold

Accepted Answer

A)  more liquid assets. 
B)  more long-term government bonds. 
C)  more commercial mortgages. 
D)  fewer municipal bonds. 
A)  more liquid assets. 
B)  more long-term government bonds. 
C)  more commercial mortgages. 
D)  fewer municipal bonds.

Question 12

Which of the following is true of life insurance companies?

Accepted Answer

A)  They primarily hold long-term assets that are not particularly liquid. 
B)  They primarily hold short-term liquid assets. 
C)  Payouts to policyholders are relatively predictable. 
D)  Both A and C of the above are true. 
A)  They primarily hold long-term assets that are not particularly liquid. 
B)  They primarily hold short-term liquid assets. 
C)  Payouts to policyholders are relatively predictable. 
D)  Both A and C of the above are true.

Question 13

Private pension plan assets are invested mainly in ________.

Accepted Answer

A)  government securities 
B)  corporate bonds 
C)  stock 
D)  certificates of deposit 
A)  government securities 
B)  corporate bonds 
C)  stock 
D)  certificates of deposit

Question 14

Describe how insurance companies try to reduce adverse selection and moral hazards.

Accepted Answer

Insurance companies use various strategi

Question 15

The fact that insurance companies charge young males higher automobile insurance premiums than young females is an example of coinsurance.

Accepted Answer

A) True 
 B)False

Question 16

In the case of an insurance policy,________ occurs when the existence of insurance encourages the insured party to take risks that increase the likelihood of an insurance payoff; ________ occurs when those most likely to get large insurance payoffs are the ones who want to purchase insurance the most.

Accepted Answer

A)  moral hazard; insurance market discrimination 
B)  moral hazard; insurance segregation 
C)  moral hazard; adverse selection 
D)  adverse selection; moral hazard 
A)  moral hazard; insurance market discrimination 
B)  moral hazard; insurance segregation 
C)  moral hazard; adverse selection 
D)  adverse selection; moral hazard

Question 17

If automobile insurance companies were prevented from charging risk-based premiums,but could selectively screen potential policyholders,the likely effect would be to

Accepted Answer

A)  increase the number of young men obtaining insurance coverage relative to young women. 
B)  decrease the number of young women obtaining insurance coverage relative to young men. 
C)  decrease the number of young men obtaining insurance coverage relative to young women. 
D)  do both A and B of the above. 
A)  increase the number of young men obtaining insurance coverage relative to young women. 
B)  decrease the number of young women obtaining insurance coverage relative to young men. 
C)  decrease the number of young men obtaining insurance coverage relative to young women. 
D)  do both A and B of the above.

Question 18

Fraudulent practices and other abuses of private pension funds led Congress to enact the ________.

Accepted Answer

A)  Federal Deposit Insurance Corporation Act 
B)  Employee Retirement Income Security Act 
C)  Federal Reserve Act 
D)  Social Security Act 
A)  Federal Deposit Insurance Corporation Act 
B)  Employee Retirement Income Security Act 
C)  Federal Reserve Act 
D)  Social Security Act

Question 19

Why do life insurance companies and pension plans invest heavily in long-term assets?

Accepted Answer

Life Insurance
Life insurance are one of

Question 20

The federal regulatory agency responsible for regulating the activities of life insurance companies is

Accepted Answer

A)  the Federal Deposit Insurance Corporation. 
B)  the Federal Reserve. 
C)  the Federal Life Insurance Board. 
D)  none of the above; there is no such federal regulatory agency. 
A)  the Federal Deposit Insurance Corporation. 
B)  the Federal Reserve. 
C)  the Federal Life Insurance Board. 
D)  none of the above; there is no such federal regulatory agency.

Exam 21: Insurance Companies and Pension Funds

Which of the following is not a proposal for insuring that sufficient funds will be available to provide Social Security benefits to future retirees?

A term life insurance policy provides

(I)A majority of life insurance companies are organized as mutual companies. (II)State governments have the major responsibility for regulating insurance companies.

How did AIG,a trillion-dollar insurance giant,find itself on the brink of bankruptcy in 2008?

Insurance companies' attempts to minimize adverse selection and moral hazard explain which of the following insurance practices?

The fact that insurance companies charge young males higher automobile insurance premiums than young females is an example of

The Social Security system is an example of a public pension plan that is ________.

A company's pension plan promises employees a specific amount of income when they retire.However,the plan does not have the assets to meet these future obligations to employees.This plan represents a defined-________ plan that is ________.

Which of the following has not contributed to the growth of pension plans?

To prevent the moral hazard problem,health and life insurance companies may write policies

Relative to life insurance companies,property and casualty insurance companies hold

Which of the following is true of life insurance companies?

Private pension plan assets are invested mainly in ________.

Describe how insurance companies try to reduce adverse selection and moral hazards.

The fact that insurance companies charge young males higher automobile insurance premiums than young females is an example of coinsurance.

If automobile insurance companies were prevented from charging risk-based premiums,but could selectively screen potential policyholders,the likely effect would be to

Fraudulent practices and other abuses of private pension funds led Congress to enact the ________.

Why do life insurance companies and pension plans invest heavily in long-term assets?

The federal regulatory agency responsible for regulating the activities of life insurance companies is

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

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A company's pension plan promises employees a specific amount of income when they retire.However,the plan does not have the assets to meet these future obligations to employees.This plan represents a defined- plan that is .