AFSB 151 Practice Exam Questions & Answers Graded To Pass!!

AFSB 151 Practice Exam Questions & Answers Graded To Pass!! Any promise to answer for another person's debts or defaults, including the promise that a surety makes to the obligee under a bond, derives from which one of these? Statutes of frauds Following the Civil War, the growing number and complexity of financial/commercial relationships led to the need for 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. Principal--Raymone Construction; obligee--Village of Malcom; Surety--SureRite Insurance The two basic types of bonds that are written today are 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? A power of attorney When evaluating a surety claim, claims representatives are often assisted by outside legal counsel. What other professionals assist claims representatives? Engineers Suretyship and banking are alike in that Neither expects to suffer a loss Suretyship and insurance are alike in that 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 Principal Because most bonds are "joint and several liability" documents, the obligee can recover losses from 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 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? 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 Treaty reinsurance Which of these statements regarding the principal allocation methods for reinsurance of surety bonds is accurate? 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 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? Corporate suretyship The establishment of the formal contract between the surety, principal, and obligee that is offered to the principal is called 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 Suretyship guarantees performance as well as monetary obligations. Except in the case of a forfeiture bond, if the principal defaults, the surety will pay Up to the bond penalty, but no more than the obligee's actual loss amount. In an unlimited cosurety arrangement, the obligee can collect 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 A. For labor and materials at the project completion for all federal jobs. A contract bond that guarantees the local governmental authority that a principal will complete a development in accordance with approved proposals and at the principal's expense is a B. Subdivision bond. Performance bonds guarantee that the obligee will be indemnified for any loss resulting from the principal's failure to perform the work A. According to the contract, plans, and specifications; at the agreed price; and within the time allowed. In bonds under this classification, the surety pays the entire bond penalty if the principal fails to complete the obligations. B. Forfeiture bonds. Under the forfeiture bonds classification, the surety pays the entire bond penalty if the principal fails to complete the obligations. This classification of license and permit bonds poses the least risk to the surety and guarantees that the principal will conform with laws that govern the business or activity it conducts. Which bond classification is described? Compliance only bonds Which one of these accurately reflects a characteristic of license and permit bonds? A license and permit bond frequently must be furnished to the appropriate public entity by those who need licenses or permits. In this public official category of bonds, sureties pay losses when subordinates in the principal's office cause them, as well as when the principal causes them. This described category of bonds Is officials who handle public funds, and the principals are charged with honesty and faithful performance of duty while handling money as required by law. Bonds in the category of public official bonds for officials whose duties require direct involvement with members of the public C. Pay losses when principals commit wrongful acts such as seizing the wrong goods or making wrongful arrests. Public official bonds are written for principals who have administrative duties but do not handle money and who Include commissioners, assessors, judges, coroners, town clerks, engineers, and auditors. A bond that guarantees that, if a higher court sustains an initial judgment on appeal, the defendant will pay the entire judgment, plus court costs and interest, is A. A supersedeas bond. Judicial bonds A. Are a category of court bonds that arise out of litigation and are posted by persons seeking or appealing a remedy in court. One type of fiduciary bond is required of an individual who has the legal responsibility for the care of a minor or a legally incompetent person or for such a person's property. This bond is called D. A guardians bond. A person who commences an action against another to obtain an equitable remedy may be required to post a bond before the court will proceed with the action. This bond is called B. A plaintiff bond. The legally mandated hazardous waste facilities performance bond D. Can be posted only for hazardous waste facilities with permits, and it requires an underwriting review of the closure plan. Which one of these statements is true regarding financial guaranty bonds? B. When in place, the entire issue of these bonds would have a higher investment grade, allowing municipalities to sell their bonds at a lower interest rate. Which one of these statements is true about lost securities bonds? C. The security owner signs an affidavit describing the lost security and explaining how it became lost and completes a bond application with an indemnity agreement. Which one of these types of miscellaneous bonds guarantees that the principal will establish and fund a trust or will provide alternative financial insurance? B. Hazardous waste facilities financial guarantee bonds A bond that guarantees that faulty work will be corrected and defective materials will be replaced for a period of one year or less and that is usually provided with a performance bond at no additional cost is a B. Maintenance bond. Which one of these statements provides an accurate description of license and permit bonds or their use? C. Licenses help regulate license holders through statutes, regulations, or ordinances, and they are backed by license and permit bonds. Under a public official bond guaranteeing the honesty of a treasurer, C. He or she must account for the cash that he or she holds while in office. Which type of contract bond guarantees that the principal will enter into a contract and will provide the required bonds if the bid is accepted? C. Bid bond Under a bid bond, if the bid is accepted and the principal refuses to enter into the contract or fails to provide the additional required bonds, subject to the penal amount of thebond, the obligee is generally entitled to be paid The difference between the amount of the principal's bid and the next lowest bid the obligee finally accepts. 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 For labor and materials at the project completion for all federal jobs. Bonds under this classification guarantee that the principal will properly account for and remit government funds collected as required. Which license and permit bond classification is described? D. Tax or fee bonds This classification of license and permit bonds guarantees that the principal will conduct specific business activities according to the law and protect the public from misrepresentation or fraudulent practices by the seller. Which of the following classification of license and permit bonds is described? Merchandising and dealer bonds This classification of license and permit bonds poses the least risk to the surety and guarantees that the principal will conform with laws that govern the business or activity it conducts. Which bond classification is described? Compliance-only bonds. Public official bonds for officials who handle public funds A government entity and in which the official or employee should deposit public funds. The court requires a fiduciary who is named in a will to administer an estate to file a type of fiduciary bond. This fiduciary is called B. An executor. Bond losses occur when a fiduciary and its surety are held accountable because the fiduciary did not exercise reasonable care in notifying all heirs of an impending probate proceeding. This fiduciary is called An administrator. A person who commences an action against another to obtain an equitable remedy may be required to post a bond before the court will proceed with the action. This bond is called A plaintiff bond. Judicial bonds Are a category of court bonds that arise out of litigation and are posted by persons seeking or appealing a remedy in court. The principal on a hazardous waste bond Is an owner or operator of a hazardous waste facility and is responsible for closure and postclosure care of the facility. What type of miscellaneous bond do sureties often write as open penalty forms to provide for fluctuation of the value of the subject of the bond? A lost security bond The legally mandated hazardous waste facilities performance bond Can be posted only for hazardous waste facilities with permits, and it requires an underwriting review of the closure plan. Which one of these statements is true regarding financial guaranty bonds? When in place, the entire issue of these bonds would have a higher investment grade, allowing municipalities to sell their bonds at a lower interest rate A contract bond that guarantees the local governmental authority that a principal will complete a development in accordance with approved proposals and at the principal's expense is a Subdivision Which one of these accurately reflects a characteristic of license and permit bonds? C. A license and permit bond frequently must be furnished to the appropriate public entity by those who need licenses or permits. In this public official category of bonds, sureties pay losses when subordinates in the principal's office cause them, as well as when the principal causes them. This described category of bonds D. Is officials who handle public funds, and the principals are charged with honesty and faithful performance of duty while handling money as required by law. When selecting a surety company for a bonding relationship with a contractor, The producer should consider the surety's suitability factors to the contractor's needs, including the surety's philosophies, financial capacity, stability, and comfort with the projects. Which one of these statements is true regarding the surety producer's role in a bonding relationship? The producer assists the contractor and the underwriter in the bond application and analyses; when the bond or credit line is approved by the underwriter, the producer assists with communication and continues as an integral part of the contractor's management team. Which one of the following statements is true regarding a surety producer's role in its performance of credit analyses? The producer's credit analysis should include a recommendation of a "responsible" line of surety credit and an appropriate work program to encourage the contractor's responsible growth. Which one of the following contractor's assets would encourage a surety to underwrite contract bonds for the contractor or to extend a line of credit for bonding? Quality stocks and bonds and accounts receivable A pre-set surety bond credit limit Eliminates the need to reevaluate the contractor's need for every bond.