Davidson; Management - 3rd Australasian Edition



1.
Which statement is not true about life insurance companies?
A.
they have relatively predictable inflows and outflows.
B.
their liabilities are long-term in nature.
C.
they invest heavily in short-term highly marketable securities.
D.
they sell contracts that offer financial protection against premature death and against living too long.


2.
What are some of the risk management tools one can apply?
A.
retention
B.
loss control
C.
risk transfer
D.
all of above


3.
Which one of the following statements is NOT right for superannuation funds?
A.
There are three types of superannuation funds, namely defined benefits and                     accumulation funds, and SMSF.
B.
Under a defined benefits plan, the employer states the benefits that the                          employee will receive at retirement.
C.
Defined benefits plans are easy to administer and place the investment risk squarely on the employer compared with accumulation funds
D.
SMSF is a type of superannuation fund with fewer than five members


4.
All of the following are methods used by insurance companies to reduce objective risk except:
A.
safety education programs.
B.
selective underwriting of insureds.
C.
investment in investment grade securities only.
D.
use of deductibles.


5.
Life insurance companies may best be called
A.
a capital market intermediary.
B.
a depository intermediary.
C.
an investment company.
D.
a money market intermediary.


6.
A life insurance company needs more liquidity when selling a high proportion of:
A.
whole life policies.
B.
annuities.
C.
thirty-year term policies.
D.
one-year renewable term policies.


7.
Which one of the following examples does not stand for pure risk?
A.
the risk of poor health,
B.
the risk of premature death,
C.
the risk of loss in a share market
D.
the risk of damage to property


8.
Which statement is NOT true about requirements of privately insurable risks?
A.
there must be many similar exposure units
B.
losses that occur should be accidental and unintentional on the part of                          the insured
C.
the losses can be catastrophic.
D.
losses should be determinable and measurable.


9.
Insurance companies manage all but which financial risk?
A.
default risk
B.
interest rate risk
C.
pure risk
D.
liquidity risk


10.
________ risk is the chance of loss, a one-tailed risk, while _________ risk, a two-tailed risk offers returns above and below an average?
A.
speculative; pure
B.
objective; pure
C.
default risk; pure
D.
pure; speculative


11.
The major areas of business for a life insurance company are
A.
insuring against death and pension fund management.
B.
providing life insurance and wealth accumulation for retirement such as a term policy provides.
C.
providing life insurance and wealth accumulation for retirement such as a whole life or universal life policy provides.
D.
reinsurance


12.
Life insurance protects the insured from
A.
premature death.
B.
the economic consequences of death.
C.
beneficiaries.
D.
pure risks faced by the insured.


13.
Purchasing insurance may alter the behavior of the insured and is known as
A.
default risk and adverse selection.
B.
pure risk and speculative risk
C.
moral hazard and adverse selection.
D.
moral hazard and speculative risk


14.
Insurance companies have to deal with the concept of adverse selection, which is
A.
the practice of low-risk insured seeking low premiums.
B.
high-risk persons are more likely to purchase insurance.
C.
insureds are likely to increase their risky behavior.
D.
Insurance salespersons try to sell their most profitable policies.


15.
A level-premium, whole life policy is a combination of
A.
an annuity and a pension.
B.
universal life and an annuity.
C.
decreasing term insurance and building a future sum of savings.
D.
life and casualty insurance on the insured life and property.


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