Question 1

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 B

Question 2

In the future,do the authors expect pension funds to continue to grow in popularity?

Accepted Answer

As an AI, I don't have the ability to predict the future, but I can provide an analysis based on current trends and expert opinions.

The popularity and growth of pension funds can be influenced by several factors, including demographic changes, economic conditions, government policies, and the overall performance of financial markets. Here are some considerations that might affect the future of pension funds:

1. **Aging Populations**: In many countries, the population is aging due to lower birth rates and higher life expectancies. This demographic shift increases the need for retirement savings, which could lead to a greater reliance on pension funds.

2. **Government Policies**: The extent to which pension funds grow in popularity may depend on government policies. For example, if governments provide tax incentives for pension contributions or mandate participation in pension schemes, this could boost the growth of pension funds.

3. **Economic Conditions**: Strong economic growth and favorable investment returns can enhance the performance of pension funds, making them more attractive to both employers and employees. Conversely, economic downturns and poor market performance can have the opposite effect.

4. **Private Sector Trends**: With many companies moving away from defined benefit plans to defined contribution plans, individuals are taking on more responsibility for their retirement savings. This could lead to an increased use of pension funds as individuals seek out investment vehicles for their retirement.

5. **Financial Literacy and Education**: As people become more financially literate and aware of the need to plan for retirement, they may be more likely to contribute to pension funds.

6. **Globalization**: The globalization of financial markets may provide pension funds with more investment opportunities, potentially leading to better returns and increased popularity.

7. **Sustainability and ESG Factors**: There is a growing trend towards sustainable investing and consideration of environmental, social, and governance (ESG) factors. Pension funds that incorporate ESG criteria may attract more participants who are concerned about the impact of their investments.

In conclusion, while it is difficult to predict with certainty, the future popularity of pension funds will likely be shaped by a combination of demographic trends, economic conditions, policy decisions, and evolving attitudes towards retirement savings and investment. If these factors align positively, pension funds could continue to grow in popularity. However, if challenges such as economic instability or insufficient government support arise, the growth of pension funds could be hindered.

Question 3

Demographic trends and changes in retirement patterns suggest that Social Security funding problems will ease over the next few decades.

Accepted Answer

A) True 
 B)False  False

Question 4

Why must insurance companies screen applicants so carefully?

Accepted Answer

This is a case of asymmetric information

Question 5

________ companies get a tax advantage; most new insurance companies organize as ________ companies.

Accepted Answer

A)  Mutual insurance; mutual insurance 
B)  Mutual insurance; stock 
C)  Stock; stock 
D)  Stock; mutual insurance 
A)  Mutual insurance; mutual insurance 
B)  Mutual insurance; stock 
C)  Stock; stock 
D)  Stock; mutual insurance

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

The higher the insurance coverage,the more the policyholder can gain from risky activities that make an insurance payoff less likely.

Accepted Answer

A) True 
 B)False

Question 8

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 9

The certainty equivalent for risk-averse people who buy insurance is the

Accepted Answer

A)  maximum loss they may sustain. 
B)  expected loss they may sustain. 
C)  insurance premium they pay. 
D)  profit the insurance company earns. 
A)  maximum loss they may sustain. 
B)  expected loss they may sustain. 
C)  insurance premium they pay. 
D)  profit the insurance company earns.

Question 10

A monoline insurance company is an insurance company which specialize in credit insurance alone.

Accepted Answer

A) True 
 B)False

Question 11

Keogh plans and IRAs are

Accepted Answer

A)  individual pension plans. 
B)  government pension plans. 
C)  corporate pension plans. 
D)  public pension plans. 
A)  individual pension plans. 
B)  government pension plans. 
C)  corporate pension plans. 
D)  public pension plans.

Question 12

When a life-long chain smoker attempts to purchase a life insurance policy,the insurance company faces the problem of adverse selection.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Why will Social Security funding problems rise in the coming decades? Identify and evaluate the proposals that have been suggested to ease or reverse these problems.

Accepted Answer

Social Security funding problems are exp

Question 15

Between 1995 and 2009,the amount of credit default swaps (CDSs)exploded,along with the marketing of securitized mortgages.By their peak in 2008,there were about ________ of CDSs outstanding.

Accepted Answer

A)  $62 million 
B)  $62 billion 
C)  $6.2 trillion 
D)  $62 trillion 
A)  $62 million 
B)  $62 billion 
C)  $6.2 trillion 
D)  $62 trillion

Question 16

Clauses in life insurance policies that eliminate death benefits if the insured person commits suicide are an example of a ________.

Accepted Answer

A)  restrictive provision 
B)  restrictive covenant 
C)  anti-fraud exclusion 
D)  risk-based deductible 
A)  restrictive provision 
B)  restrictive covenant 
C)  anti-fraud exclusion 
D)  risk-based deductible

Question 17

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

Accepted Answer

A)  Collection of information and screening of potential policyholders 
B)  Risk-based premiums 
C)  Cancellation of insurance 
D)  All of the above 
A)  Collection of information and screening of potential policyholders 
B)  Risk-based premiums 
C)  Cancellation of insurance 
D)  All of the above

Question 18

Which proposal for insuring that sufficient funds will be available to provide Social Security benefits to future retirees does the AARP find least objectionable?

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)  Privatize Social Security. 
D)  Lower immigration restrictions to increase the number of workers paying into the Social Security system. 
A)  Raise the maximum income cap on which workers and employers are taxed. 
B)  Provide more generous annual cost of living increases. 
C)  Privatize Social Security. 
D)  Lower immigration restrictions to increase the number of workers paying into the Social Security system.

Question 19

Who has the strongest incentive to monitor the performance of individual pension plans such as Keoghs and IRAs? Explain.

Accepted Answer

The individuals who have the strongest i

Question 20

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

Accepted Answer

A)  Risk-assessment screening 
B)  Risk-based premiums 
C)  Restrictive provisions 
D)  All of the above 
E)  Only A and B of the above 
A)  Risk-assessment screening 
B)  Risk-based premiums 
C)  Restrictive provisions 
D)  All of the above 
E)  Only A and B of the above

Exam 21: Insurance Companies and Pension Funds

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

In the future,do the authors expect pension funds to continue to grow in popularity?

Demographic trends and changes in retirement patterns suggest that Social Security funding problems will ease over the next few decades.

Why must insurance companies screen applicants so carefully?

________ companies get a tax advantage; most new insurance companies organize as ________ companies.

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

The higher the insurance coverage,the more the policyholder can gain from risky activities that make an insurance payoff less likely.

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

The certainty equivalent for risk-averse people who buy insurance is the

A monoline insurance company is an insurance company which specialize in credit insurance alone.

Keogh plans and IRAs are

When a life-long chain smoker attempts to purchase a life insurance policy,the insurance company faces the problem of adverse selection.

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

Why will Social Security funding problems rise in the coming decades? Identify and evaluate the proposals that have been suggested to ease or reverse these problems.

Between 1995 and 2009,the amount of credit default swaps (CDSs)exploded,along with the marketing of securitized mortgages.By their peak in 2008,there were about ________ of CDSs outstanding.

Clauses in life insurance policies that eliminate death benefits if the insured person commits suicide are an example of a ________.

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

Which proposal for insuring that sufficient funds will be available to provide Social Security benefits to future retirees does the AARP find least objectionable?

Who has the strongest incentive to monitor the performance of individual pension plans such as Keoghs and IRAs? Explain.

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

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

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

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

Filters

companies get a tax advantage; most new insurance companies organize as companies.