AFSB 151 FINAL COMPREHENSIVE EXAM
QUESTIONS AND SOLUTIONS STUDY GUIDE
●● Following the Civil War, the growing number and complexity of
financial/commercial relationships led to the need for
Answer: Commercial suretyship.
●● In accordance with a contract to build a county shed for the Village
of Malcom, Raymone Construction purchases a contract surety bond
from SureRite Insurance. Identify the principal, obligee, and surety in
this suretyship.
Answer: Principal--Raymone Construction; obligee--Village of Malcom;
Surety--SureRite Insurance
●● The two basic types of bonds that are written today are
Answer: Contract surety bonds and commercial surety bonds
●● Sureties use what written document to authorize a producer to act as
the surety's agent in bond production?
Answer: A power of attorney
●● When evaluating a surety claim, claims representatives are often
assisted by outside legal counsel. What other professionals assist claims
representatives?
,Answer: Engineers
●● Suretyship and banking are alike in that
Answer: Neither expects to suffer a loss
●● Suretyship and insurance are alike in that
Answer: Insurance commissioners regulate both.
●● In the surety bond three-party relationship, the party who is primarily
responsible for fulfilling the obligation and who typically has control of
the obligation is the
Answer: Principal
●● Because most bonds are "joint and several liability" documents, the
obligee can recover losses from
Answer: The principal or the surety, or from both.
●● A financial guarantee differs from performance and fidelity
guarantees because it requires honesty, the ability to perform the
contract, and
Answer: The ability to pay money to meet the contractual obligation.
●● Instead of holding a principal's assets as security, a surety might
choose to hold an instrument issued by a commercial bank for the
,principal, but with the surety named as the beneficiary. What is this
instrument?
Answer: An irrevocable standby letter of credit
●● A type of reinsurance transaction that involves an agreement between
the primary insurer and the reinsurer specifying how to transfer risks,
that defines the eligible risks in terms of lines and classes of business,
that specifies the parties' obligations, and for which eligible risks are
automatically reinsured, is
Answer: Treaty reinsurance
●● Which of these statements regarding the principal allocation methods
for reinsurance of surety bonds is accurate?
Answer: Both facultative and treaty reinsurance of bonds can be written
as pro rata or excess of loss.
●● A basic type of bond that involves all situations in which sureties
guarantee performance of obligations that generally do not arise from
contracts is
Answer: Commercial surety bonds.
●● Which one of the following developed in the United States to
guarantee the large amounts of money involved in the country's
industrial and commercial growth?
Answer: Corporate suretyship
, ●● The establishment of the formal contract between the surety,
principal, and obligee that is offered to the principal is called
Answer: Execution of a bond
●● While suretyship and banking both use a prequalification process to
extend credit to their customers, suretyship is different from bank credit
in that
Answer: Suretyship guarantees performance as well as monetary
obligations.
●● Except in the case of a forfeiture bond, if the principal defaults, the
surety will pay
Answer: Up to the bond penalty, but no more than the obligee's actual
loss amount.
●● In an unlimited cosurety arrangement, the obligee can collect
Answer: The full loss from any of the cosureties up to the penal sum of
the bond.
●● The Miller Act was passed to require principals, in addition to
furnishing a performance bond, to furnish a separate payment bond
guaranteeing payment of all bills incurred by the contractor
Answer: A. For labor and materials at the project completion for all
federal jobs.
QUESTIONS AND SOLUTIONS STUDY GUIDE
●● Following the Civil War, the growing number and complexity of
financial/commercial relationships led to the need for
Answer: Commercial suretyship.
●● In accordance with a contract to build a county shed for the Village
of Malcom, Raymone Construction purchases a contract surety bond
from SureRite Insurance. Identify the principal, obligee, and surety in
this suretyship.
Answer: Principal--Raymone Construction; obligee--Village of Malcom;
Surety--SureRite Insurance
●● The two basic types of bonds that are written today are
Answer: Contract surety bonds and commercial surety bonds
●● Sureties use what written document to authorize a producer to act as
the surety's agent in bond production?
Answer: A power of attorney
●● When evaluating a surety claim, claims representatives are often
assisted by outside legal counsel. What other professionals assist claims
representatives?
,Answer: Engineers
●● Suretyship and banking are alike in that
Answer: Neither expects to suffer a loss
●● Suretyship and insurance are alike in that
Answer: Insurance commissioners regulate both.
●● In the surety bond three-party relationship, the party who is primarily
responsible for fulfilling the obligation and who typically has control of
the obligation is the
Answer: Principal
●● Because most bonds are "joint and several liability" documents, the
obligee can recover losses from
Answer: The principal or the surety, or from both.
●● A financial guarantee differs from performance and fidelity
guarantees because it requires honesty, the ability to perform the
contract, and
Answer: The ability to pay money to meet the contractual obligation.
●● Instead of holding a principal's assets as security, a surety might
choose to hold an instrument issued by a commercial bank for the
,principal, but with the surety named as the beneficiary. What is this
instrument?
Answer: An irrevocable standby letter of credit
●● A type of reinsurance transaction that involves an agreement between
the primary insurer and the reinsurer specifying how to transfer risks,
that defines the eligible risks in terms of lines and classes of business,
that specifies the parties' obligations, and for which eligible risks are
automatically reinsured, is
Answer: Treaty reinsurance
●● Which of these statements regarding the principal allocation methods
for reinsurance of surety bonds is accurate?
Answer: Both facultative and treaty reinsurance of bonds can be written
as pro rata or excess of loss.
●● A basic type of bond that involves all situations in which sureties
guarantee performance of obligations that generally do not arise from
contracts is
Answer: Commercial surety bonds.
●● Which one of the following developed in the United States to
guarantee the large amounts of money involved in the country's
industrial and commercial growth?
Answer: Corporate suretyship
, ●● The establishment of the formal contract between the surety,
principal, and obligee that is offered to the principal is called
Answer: Execution of a bond
●● While suretyship and banking both use a prequalification process to
extend credit to their customers, suretyship is different from bank credit
in that
Answer: Suretyship guarantees performance as well as monetary
obligations.
●● Except in the case of a forfeiture bond, if the principal defaults, the
surety will pay
Answer: Up to the bond penalty, but no more than the obligee's actual
loss amount.
●● In an unlimited cosurety arrangement, the obligee can collect
Answer: The full loss from any of the cosureties up to the penal sum of
the bond.
●● The Miller Act was passed to require principals, in addition to
furnishing a performance bond, to furnish a separate payment bond
guaranteeing payment of all bills incurred by the contractor
Answer: A. For labor and materials at the project completion for all
federal jobs.
