AIIM Certified Political Risk Underwriter CPRU
Exam
**Question 1.** Which of the following best distinguishes political risk from commercial risk in
the context of foreign direct investment?
A) Political risk relates to market demand fluctuations, while commercial risk concerns legal
frameworks.
B) Political risk stems from actions of governments or political groups, whereas commercial risk
arises from ordinary business operations.
C) Political risk is limited to currency devaluation, while commercial risk includes expropriation.
D) Political risk only affects state-owned enterprises, while commercial risk affects private firms.
Answer: B
Explanation: Political risk is defined by events caused by governments, political groups, or civil
unrest that affect an investment, whereas commercial risk originates from the normal business
environment such as competition, demand, and operational issues.
**Question 2.** The first modern political risk insurance policy was issued in which decade?
A) 1940s
B) 1950s
C) 1960s
D) 1970s
Answer: C
Explanation: The 1960s marked the emergence of dedicated political risk insurance products,
driven by the rapid expansion of multinational investment in newly independent nations.
**Question 3.** Which of the following scenarios is covered under expropriation insurance?
A) A foreign investor’s factory is destroyed by an earthquake.
B) A government passes a law that forces the investor to sell its assets at below‑market price.
C) A buyer defaults on a trade invoice due to bankruptcy.
, AIIM Certified Political Risk Underwriter CPRU
Exam
D) A civil protest blocks the road to the investor’s plant.
Answer: B
Explanation: Expropriation coverage protects against direct nationalization, confiscation, or
“creeping” regulatory actions that diminish the value of assets, such as forced sales at
undervalued prices.
**Question 4.** “Creeping expropriation” primarily refers to:
A) Sudden seizure of assets without compensation.
B) Gradual regulatory changes that erode asset value over time.
C) Temporary suspension of operations due to civil unrest.
D) Currency devaluation that reduces profit margins.
Answer: B
Explanation: Creeping expropriation is a series of incremental regulatory or fiscal actions that,
collectively, strip an investor of the economic benefits of its investment without an outright
seizure.
**Question 5.** In a currency inconvertibility claim, the insured is typically seeking:
A) Replacement of physical assets destroyed by war.
B) Compensation for loss of principal due to inability to convert local currency into a hard
currency.
C) Payment for a breach of a power purchase agreement.
D) Reimbursement for legal fees incurred in arbitration.
Answer: B
Explanation: Currency inconvertibility coverage compensates the insured when local currency
cannot be exchanged for a hard currency or transferred abroad, resulting in a financial loss.
, AIIM Certified Political Risk Underwriter CPRU
Exam
**Question 6.** Which of the following is NOT a typical trigger for political violence (PV)
coverage?
A) International armed conflict between two sovereign states.
B) A localized labor strike that does not involve property damage.
C) A civil war that results in the destruction of the insured’s facilities.
D) An insurrection that leads to looting of the insured’s inventory.
Answer: B
Explanation: PV coverage is activated by war, revolution, insurrection, or civil unrest that causes
physical damage. A routine labor strike without property damage generally falls under SRCC, not
PV.
**Question 7.** A breach of contract claim under a political risk policy most commonly arises
from:
A) Failure of a foreign buyer to pay an invoice on time.
B) A government’s refusal to honor a long‑term power purchase agreement.
C) Damage to an asset caused by a natural disaster.
D) Inability to convert local currency due to capital controls.
Answer: B
Explanation: Breach of contract coverage protects the insured when a sovereign or
state‑controlled entity fails to fulfill contractual obligations, such as a power purchase
agreement.
**Question 8.** When underwriting a public buyer default risk, the underwriter should
primarily evaluate:
A) The buyer’s credit rating issued by a private rating agency.
B) The buyer’s historical payment behavior with private sector suppliers.
C) The sovereign’s fiscal health, political stability, and legal enforceability of contracts.
, AIIM Certified Political Risk Underwriter CPRU
Exam
D) The buyer’s inventory turnover ratio.
Answer: C
Explanation: Public buyer default risk is driven by the sovereign’s ability and willingness to meet
its obligations, requiring analysis of fiscal metrics, political environment, and contract
enforceability.
**Question 9.** Export Credit Agencies (ECAs) most commonly provide which type of coverage
to complement private political risk insurers?
A) Property damage insurance for natural disasters.
B) Political risk guarantees that enhance the creditworthiness of exporters.
C) Marine cargo insurance for shipping routes.
D) Cyber‑risk insurance for data breaches.
Answer: B
Explanation: ECAs issue guarantees and insurance that mitigate political risk, often working
alongside private insurers to improve exporters’ access to financing.
**Question 10.** A supply chain disruption caused by a sudden change in export licensing
policy would most likely be classified under:
A) Currency inconvertibility.
B) Political violence.
C) Breach of contract.
D) Supply chain disruption risk (a subset of political risk).
Answer: D
Explanation: Changes in licensing that impede the flow of goods represent a supply chain
disruption, which is a political risk affecting the continuity of trade.
Exam
**Question 1.** Which of the following best distinguishes political risk from commercial risk in
the context of foreign direct investment?
A) Political risk relates to market demand fluctuations, while commercial risk concerns legal
frameworks.
B) Political risk stems from actions of governments or political groups, whereas commercial risk
arises from ordinary business operations.
C) Political risk is limited to currency devaluation, while commercial risk includes expropriation.
D) Political risk only affects state-owned enterprises, while commercial risk affects private firms.
Answer: B
Explanation: Political risk is defined by events caused by governments, political groups, or civil
unrest that affect an investment, whereas commercial risk originates from the normal business
environment such as competition, demand, and operational issues.
**Question 2.** The first modern political risk insurance policy was issued in which decade?
A) 1940s
B) 1950s
C) 1960s
D) 1970s
Answer: C
Explanation: The 1960s marked the emergence of dedicated political risk insurance products,
driven by the rapid expansion of multinational investment in newly independent nations.
**Question 3.** Which of the following scenarios is covered under expropriation insurance?
A) A foreign investor’s factory is destroyed by an earthquake.
B) A government passes a law that forces the investor to sell its assets at below‑market price.
C) A buyer defaults on a trade invoice due to bankruptcy.
, AIIM Certified Political Risk Underwriter CPRU
Exam
D) A civil protest blocks the road to the investor’s plant.
Answer: B
Explanation: Expropriation coverage protects against direct nationalization, confiscation, or
“creeping” regulatory actions that diminish the value of assets, such as forced sales at
undervalued prices.
**Question 4.** “Creeping expropriation” primarily refers to:
A) Sudden seizure of assets without compensation.
B) Gradual regulatory changes that erode asset value over time.
C) Temporary suspension of operations due to civil unrest.
D) Currency devaluation that reduces profit margins.
Answer: B
Explanation: Creeping expropriation is a series of incremental regulatory or fiscal actions that,
collectively, strip an investor of the economic benefits of its investment without an outright
seizure.
**Question 5.** In a currency inconvertibility claim, the insured is typically seeking:
A) Replacement of physical assets destroyed by war.
B) Compensation for loss of principal due to inability to convert local currency into a hard
currency.
C) Payment for a breach of a power purchase agreement.
D) Reimbursement for legal fees incurred in arbitration.
Answer: B
Explanation: Currency inconvertibility coverage compensates the insured when local currency
cannot be exchanged for a hard currency or transferred abroad, resulting in a financial loss.
, AIIM Certified Political Risk Underwriter CPRU
Exam
**Question 6.** Which of the following is NOT a typical trigger for political violence (PV)
coverage?
A) International armed conflict between two sovereign states.
B) A localized labor strike that does not involve property damage.
C) A civil war that results in the destruction of the insured’s facilities.
D) An insurrection that leads to looting of the insured’s inventory.
Answer: B
Explanation: PV coverage is activated by war, revolution, insurrection, or civil unrest that causes
physical damage. A routine labor strike without property damage generally falls under SRCC, not
PV.
**Question 7.** A breach of contract claim under a political risk policy most commonly arises
from:
A) Failure of a foreign buyer to pay an invoice on time.
B) A government’s refusal to honor a long‑term power purchase agreement.
C) Damage to an asset caused by a natural disaster.
D) Inability to convert local currency due to capital controls.
Answer: B
Explanation: Breach of contract coverage protects the insured when a sovereign or
state‑controlled entity fails to fulfill contractual obligations, such as a power purchase
agreement.
**Question 8.** When underwriting a public buyer default risk, the underwriter should
primarily evaluate:
A) The buyer’s credit rating issued by a private rating agency.
B) The buyer’s historical payment behavior with private sector suppliers.
C) The sovereign’s fiscal health, political stability, and legal enforceability of contracts.
, AIIM Certified Political Risk Underwriter CPRU
Exam
D) The buyer’s inventory turnover ratio.
Answer: C
Explanation: Public buyer default risk is driven by the sovereign’s ability and willingness to meet
its obligations, requiring analysis of fiscal metrics, political environment, and contract
enforceability.
**Question 9.** Export Credit Agencies (ECAs) most commonly provide which type of coverage
to complement private political risk insurers?
A) Property damage insurance for natural disasters.
B) Political risk guarantees that enhance the creditworthiness of exporters.
C) Marine cargo insurance for shipping routes.
D) Cyber‑risk insurance for data breaches.
Answer: B
Explanation: ECAs issue guarantees and insurance that mitigate political risk, often working
alongside private insurers to improve exporters’ access to financing.
**Question 10.** A supply chain disruption caused by a sudden change in export licensing
policy would most likely be classified under:
A) Currency inconvertibility.
B) Political violence.
C) Breach of contract.
D) Supply chain disruption risk (a subset of political risk).
Answer: D
Explanation: Changes in licensing that impede the flow of goods represent a supply chain
disruption, which is a political risk affecting the continuity of trade.
