Question 1

Social Security is a "pay-as-you-go" system.

Accepted Answer

A) True 
 B)False  True

Question 2

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. B

Question 3

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. C

Question 4

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 5

A whole life insurance policy pays a death benefit if the policyholder dies.

Accepted Answer

A) True 
 B)False

Question 6

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 7

When those most likely to produce the outcome insured against are the ones who purchase insurance, insurance companies are said to face the problem of ________.

Accepted Answer

A) fraudulent claims 
B) moral hazard 
C) adverse selection 
D) pecuniary purchases 
A) fraudulent claims 
B) moral hazard 
C) adverse selection 
D) pecuniary purchases

Question 8

Which of the following do not help people during their retirement?

Accepted Answer

A) term life insurance 
B) annuity 
C) whole life insurance 
D) universal life insurance 
A) term life insurance 
B) annuity 
C) whole life insurance 
D) universal life insurance

Question 9

Insurance management tools that give policyholders incentives to avoid accidents insured against include ________.

Accepted Answer

A) deductibles 
B) risk-based premiums 
C) coinsurance 
D) all of the above 
A) deductibles 
B) risk-based premiums 
C) coinsurance 
D) all of the above

Question 10

Which of the following types of life insurance provides no savings element?

Accepted Answer

A) term 
B) whole 
C) universal 
D) none of the above 
A) term 
B) whole 
C) universal 
D) none of the above

Question 11

The Social Security system is an example of a pension plan that is fully funded.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Insurance companies employ underwriters

Accepted Answer

A) as an alternative to higher deductibles. 
B) to control the risky behavior of their policyholders. 
C) to control the risk incurred on their behalf by agents. 
D) to encourage the loyalty of exclusive agents. 
E) to maintain the independence of independent agents. 
A) as an alternative to higher deductibles. 
B) to control the risky behavior of their policyholders. 
C) to control the risk incurred on their behalf by agents. 
D) to encourage the loyalty of exclusive agents. 
E) to maintain the independence of independent agents.

Question 14

Casualty insurance can be provided in either named-peril policies or open-peril policies.

Accepted Answer

A) True 
 B)False

Question 15

Vesting refers to the length of time that a person must be enrolled in a pension plan before being entitled to receive benefits.

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.

Accepted Answer

A) moral hazard 
B) opportunism 
C) adverse selection 
D) shirking 
A) moral hazard 
B) opportunism 
C) adverse selection 
D) shirking

Question 17

Some automobile owners will drive faster knowing that they are covered by health and automobile insurance. This behavior creates the problem of ________.

Accepted Answer

A) fraudulent claims 
B) moral hazard 
C) adverse selection 
D) pecuniary purchases 
A) fraudulent claims 
B) moral hazard 
C) adverse selection 
D) pecuniary purchases

Question 18

All insurance is subject to several basic principles, including all of the following except that

Accepted Answer

A) the insured must provide full and accurate information to the insurance company. 
B) the insured is to profit as a result of insurance coverage. 
C) the loss must be quantifiable. 
D) there must be a relationship between the insured and the beneficiary. 
A) the insured must provide full and accurate information to the insurance company. 
B) the insured is to profit as a result of insurance coverage. 
C) the loss must be quantifiable. 
D) there must be a relationship between the insured and the beneficiary.

Question 19

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.

Question 20

The fastest growing financial intermediary is ________.

Accepted Answer

A) commercial banks 
B) pension plans 
C) life insurance companies 
D) mutual funds 
A) commercial banks 
B) pension plans 
C) life insurance companies 
D) mutual funds

Exam 21: Insurance Companies and Pension Funds

Social Security is a "pay-as-you-go" system.

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

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

Private pension plan assets are invested mainly in ________.

A whole life insurance policy pays a death benefit if the policyholder dies.

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

When those most likely to produce the outcome insured against are the ones who purchase insurance, insurance companies are said to face the problem of ________.

Which of the following do not help people during their retirement?

Insurance management tools that give policyholders incentives to avoid accidents insured against include ________.

Which of the following types of life insurance provides no savings element?

The Social Security system is an example of a pension plan that is fully funded.

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

Insurance companies employ underwriters

Casualty insurance can be provided in either named-peril policies or open-peril policies.

Vesting refers to the length of time that a person must be enrolled in a pension plan before being entitled to receive benefits.

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.

Some automobile owners will drive faster knowing that they are covered by health and automobile insurance. This behavior creates the problem of ________.

All insurance is subject to several basic principles, including all of the following except that

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

The fastest growing financial intermediary 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 Why Are They so Damaging to the Economy

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

Savings Associations and Credit Unions

Finance Companies

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