FIN 341 FINAL EXAM PRACTICE QUESTIONS &
ANSWERS
1. Reasons for regulation of insurance include which of the following?
I. Maintaining insurer solvency
II. Ensuring reasonable rates
A. I only
B. II only
C. both I and II
D. neither I nor II - Answers -C. both I and II
2. Which is FALSE about the regulation of insurance?
A. The basis for current federal regulation of insurance is McCarran-Ferguson Act
B. State governments are the primary regulator of the insurance industry
C. As of 2021, there is no insurance company designated as SIFI
D. NAIC stands for the National Association of Insurance Commissioners - Answers -A.
The basis for current federal regulation of insurance is McCarran-Ferguson Act
3. Which of the following is a method used to help ensure the solvency of insurers?
A. commercial lines deregulation B. risk-based capital standards
C. use of credit-based insurance scores
D. use of no filing required rating laws - Answers -B. risk-based capital standards
4. All of the following statements about insurance regulation are TRUE EXCEPT
A. Insurance commissioners are appointed in some states and elected in some states
B. Insurers are subject to regulation by certain federal agencies and laws
C. The National Association of Insurance Commissioners (NAIC) can force states to
adopt the model laws that it drafts
D. An insurance commissioner can revoke or suspend an insurer's license to do
business in his or her state - Answers -C. The National Association of Insurance
Commissioners (NAIC) can force states to adopt the model laws that it drafts
5. A systemic risk is a risk that
A. can be eliminated through diversification
B. can be the cause of the collapse of an entire system
C. can be insured privately
D. can be easily contained so that it does not spread - Answers -B. can be the cause
of the collapse of an entire system
, 6. To correct abuses in the financial services industry, Congress passed an Act in 2010
that included numerous provisions to reform the financial services industry. This Act
was the
A. Financial Modernization Act
B. McCarran-Ferguson Act
C. Dodd-Frank Act
D. Biggert-Waters Act E. Gramm-Leach-Bliley Act - Answers -C. Dodd-Frank Act
7. The risk-based capital requirements for life insurers are based on a formula that
considers four types of risk. One risk reflects a range of uncertainties that life insurers
face including such things as bad management decisions and guaranty fund
assessments. This risk is called
A. asset risk
B. insurance risk
C. interest rate risk
D. business risk - Answers -D. business risk
8. Which of the following statements regarding Covid-19 is FALSE?
A. Covid-19 negatively impacted the operating performance of life insurance
companies, mainly through higher claims and lower product sales
B. Due to the reduced economic activities during 2020, auto insurers experienced lower
(favorable) loss compared to the expectation, resulting in strong underwriting results
C. Health insurers posted the worst financial performance since 2000, due to the
ncreased costs related to Covid-19
D. Continued low interest environment induced the life insurers' Reach-for-Yield
behaviors - Answers -C. Health insurers posted the worst financial performance since
2000, due to the increased costs related to Covid-19
9. Which is of the statements about futures is FALSE?
A. A futures contract is a standardized legal agreement to buy or sell something at a
predetermined price at a specified time in the future
B. Futures are traded in OTC (over-the-counter) market, therefore lacks liquidity during
the market downturns
C. The underlying asset can range from financial indices to agricultural commodities
D. Margin requirement is implemented to reduce the counterparty risk - Answers -B.
Futures are traded in OTC (over-the-counter) market, therefore lacks liquidity during the
market downturns
12. Suppose you expect the interest will go up from the current 2.1% to 3.5% in the
coming months. You are worried about the adverse valuation effect on your large
corporate bond portfolio from the interest rate movement. Which of the following is the
best hedging strategy?
A. Long U.S. Treasury bond Futures
ANSWERS
1. Reasons for regulation of insurance include which of the following?
I. Maintaining insurer solvency
II. Ensuring reasonable rates
A. I only
B. II only
C. both I and II
D. neither I nor II - Answers -C. both I and II
2. Which is FALSE about the regulation of insurance?
A. The basis for current federal regulation of insurance is McCarran-Ferguson Act
B. State governments are the primary regulator of the insurance industry
C. As of 2021, there is no insurance company designated as SIFI
D. NAIC stands for the National Association of Insurance Commissioners - Answers -A.
The basis for current federal regulation of insurance is McCarran-Ferguson Act
3. Which of the following is a method used to help ensure the solvency of insurers?
A. commercial lines deregulation B. risk-based capital standards
C. use of credit-based insurance scores
D. use of no filing required rating laws - Answers -B. risk-based capital standards
4. All of the following statements about insurance regulation are TRUE EXCEPT
A. Insurance commissioners are appointed in some states and elected in some states
B. Insurers are subject to regulation by certain federal agencies and laws
C. The National Association of Insurance Commissioners (NAIC) can force states to
adopt the model laws that it drafts
D. An insurance commissioner can revoke or suspend an insurer's license to do
business in his or her state - Answers -C. The National Association of Insurance
Commissioners (NAIC) can force states to adopt the model laws that it drafts
5. A systemic risk is a risk that
A. can be eliminated through diversification
B. can be the cause of the collapse of an entire system
C. can be insured privately
D. can be easily contained so that it does not spread - Answers -B. can be the cause
of the collapse of an entire system
, 6. To correct abuses in the financial services industry, Congress passed an Act in 2010
that included numerous provisions to reform the financial services industry. This Act
was the
A. Financial Modernization Act
B. McCarran-Ferguson Act
C. Dodd-Frank Act
D. Biggert-Waters Act E. Gramm-Leach-Bliley Act - Answers -C. Dodd-Frank Act
7. The risk-based capital requirements for life insurers are based on a formula that
considers four types of risk. One risk reflects a range of uncertainties that life insurers
face including such things as bad management decisions and guaranty fund
assessments. This risk is called
A. asset risk
B. insurance risk
C. interest rate risk
D. business risk - Answers -D. business risk
8. Which of the following statements regarding Covid-19 is FALSE?
A. Covid-19 negatively impacted the operating performance of life insurance
companies, mainly through higher claims and lower product sales
B. Due to the reduced economic activities during 2020, auto insurers experienced lower
(favorable) loss compared to the expectation, resulting in strong underwriting results
C. Health insurers posted the worst financial performance since 2000, due to the
ncreased costs related to Covid-19
D. Continued low interest environment induced the life insurers' Reach-for-Yield
behaviors - Answers -C. Health insurers posted the worst financial performance since
2000, due to the increased costs related to Covid-19
9. Which is of the statements about futures is FALSE?
A. A futures contract is a standardized legal agreement to buy or sell something at a
predetermined price at a specified time in the future
B. Futures are traded in OTC (over-the-counter) market, therefore lacks liquidity during
the market downturns
C. The underlying asset can range from financial indices to agricultural commodities
D. Margin requirement is implemented to reduce the counterparty risk - Answers -B.
Futures are traded in OTC (over-the-counter) market, therefore lacks liquidity during the
market downturns
12. Suppose you expect the interest will go up from the current 2.1% to 3.5% in the
coming months. You are worried about the adverse valuation effect on your large
corporate bond portfolio from the interest rate movement. Which of the following is the
best hedging strategy?
A. Long U.S. Treasury bond Futures
