AFSB 151 Practice Exam Questions &
Answers Graded A+
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
Answers Graded A+
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
