AFSB 151 Final Exam|Complete With A+ Graded Answers
A surety bond is a written document in which one party guarantees a second party's
Performance to a third party for the second party's failure to fulfill an obligation.
Which one of the these groups, for the most part, serves the market for fidelity and surety bonds in
the United States?
Multiline property-casualty insurers
Sureties use what written document to authorize a producer to act as the surety's agent in bond
production?
A power of attorney
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.
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.
A legal remedy that a surety can use against a defaulting bond principal, in which the surety exercises
its right to force the principal to perform by exhausting the principal's resources instead of its own, is
Exoneration
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.
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
Maintenance bond
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 bond
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
,Under a public official bond guaranteeing the honesty of a treasurer,
He or she must account for the cash that he or she holds while in office.
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
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.
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.
In the next step of the bond prequalification process, once the producer has compiled the
contractor's financial documents showing significant liquidity,
The producer may facilitate underwriter interviews to help determine the contractor's experience in
meeting past contractual obligations.
A contractor's percentage-of-completion estimates
Are based on the contractor's ability to estimate the cost to complete the project and recognize
income and profit as they accrue during the project.
A $5 million/$20 million contract surety credit line means that the surety is willing to
Bond single jobs up to a contract price of $5 million when the aggregate contract backlog does not
exceed $20 million.
Which one of the following statements is true regarding surety producers' promotion?
Participating in professional seminars and construction industry associations is an excellent way to
communicate to a target audience.
When developing one aspect of the business plan, the planning group should consider their agency's
philosophy and culture, management quality and commitment, team motivation and dedication,
resources, and the continuity of ownership and management. Which one of the following describes
this aspect of the planning process?
Identify the agency's strengths and weaknesses
Which one of these categories of court bonds is written primarily on the basis of an attorney's
character and reputation for trustworthiness?
Fiduciary bonds
, Producers of public official bonds serve themselves and their prospective principals by
Offering their services in September after primary elections are over and the candidates are known.
Staff underwriting activities generally include which one of the following?
Formulating underwriting policy
In the protective phase of the bond underwriting decision, indemnity is waived only for what type of
bonds?
The smallest and least hazardous bonds
When a corporation has a number of subsidiaries that will all require bonds, what type of agreement
can be used that would allow the parent to provide indemnity for its current subsidiaries and
affiliates, as well as for companies it might acquire or form in the future.
Omnibus agreement
An example of a common addendum that might address a principal's concern about the conditions of
a general agreement of indemnity (GAI) is
Spousal exemption
Generally, what type of individuals cause most public official bond losses?
Dishonest individuals
Courts often order attachment bonds to secure property when who is within the court's jurisdiction?
A nonresident defendant
Sureties underwrite both attachment and replevin bonds similarly, but they usually write replevin
bonds
More quickly and for smaller amounts.
Which of the following bonds guarantee that buyers will pay farmers or other sellers of goods?
Merchandising and dealer bonds
Compliance bonds with third-party liability allow a direct right of action against which party for
damages a third party may suffer because of the principal's acts?
Surety
Which special characteristic related to fidelity bonds most directly concerns the following statement?
Many employers will not sign complaints or testify at criminal proceedings against their employees.
They often wish to avoid damaging publicity; accept employees' "hard luck" stories; and wish to
resolve matters quickly, especially when employees accused of theft promise restitution or are
valuable employees.
Management might be reluctant to prosecute employee thefts.
A surety bond is a written document in which one party guarantees a second party's
Performance to a third party for the second party's failure to fulfill an obligation.
Which one of the these groups, for the most part, serves the market for fidelity and surety bonds in
the United States?
Multiline property-casualty insurers
Sureties use what written document to authorize a producer to act as the surety's agent in bond
production?
A power of attorney
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.
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.
A legal remedy that a surety can use against a defaulting bond principal, in which the surety exercises
its right to force the principal to perform by exhausting the principal's resources instead of its own, is
Exoneration
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.
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
Maintenance bond
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 bond
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
,Under a public official bond guaranteeing the honesty of a treasurer,
He or she must account for the cash that he or she holds while in office.
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
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.
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.
In the next step of the bond prequalification process, once the producer has compiled the
contractor's financial documents showing significant liquidity,
The producer may facilitate underwriter interviews to help determine the contractor's experience in
meeting past contractual obligations.
A contractor's percentage-of-completion estimates
Are based on the contractor's ability to estimate the cost to complete the project and recognize
income and profit as they accrue during the project.
A $5 million/$20 million contract surety credit line means that the surety is willing to
Bond single jobs up to a contract price of $5 million when the aggregate contract backlog does not
exceed $20 million.
Which one of the following statements is true regarding surety producers' promotion?
Participating in professional seminars and construction industry associations is an excellent way to
communicate to a target audience.
When developing one aspect of the business plan, the planning group should consider their agency's
philosophy and culture, management quality and commitment, team motivation and dedication,
resources, and the continuity of ownership and management. Which one of the following describes
this aspect of the planning process?
Identify the agency's strengths and weaknesses
Which one of these categories of court bonds is written primarily on the basis of an attorney's
character and reputation for trustworthiness?
Fiduciary bonds
, Producers of public official bonds serve themselves and their prospective principals by
Offering their services in September after primary elections are over and the candidates are known.
Staff underwriting activities generally include which one of the following?
Formulating underwriting policy
In the protective phase of the bond underwriting decision, indemnity is waived only for what type of
bonds?
The smallest and least hazardous bonds
When a corporation has a number of subsidiaries that will all require bonds, what type of agreement
can be used that would allow the parent to provide indemnity for its current subsidiaries and
affiliates, as well as for companies it might acquire or form in the future.
Omnibus agreement
An example of a common addendum that might address a principal's concern about the conditions of
a general agreement of indemnity (GAI) is
Spousal exemption
Generally, what type of individuals cause most public official bond losses?
Dishonest individuals
Courts often order attachment bonds to secure property when who is within the court's jurisdiction?
A nonresident defendant
Sureties underwrite both attachment and replevin bonds similarly, but they usually write replevin
bonds
More quickly and for smaller amounts.
Which of the following bonds guarantee that buyers will pay farmers or other sellers of goods?
Merchandising and dealer bonds
Compliance bonds with third-party liability allow a direct right of action against which party for
damages a third party may suffer because of the principal's acts?
Surety
Which special characteristic related to fidelity bonds most directly concerns the following statement?
Many employers will not sign complaints or testify at criminal proceedings against their employees.
They often wish to avoid damaging publicity; accept employees' "hard luck" stories; and wish to
resolve matters quickly, especially when employees accused of theft promise restitution or are
valuable employees.
Management might be reluctant to prosecute employee thefts.
