Insurance and Risk Management 14

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Objective Questions and Answers of MBA: Insurance and Risk Management 14

Subject: Objective Questions and Answers of MBA: Insurance and Risk Management 14

Part 14: Objective questions and answers of Insurance and Risk Management


Q1. The ability of central banks to influence short-term interest rates rests upon:

a) Government policy

b) Their role as lenders of last resort

c) Their supervisory role

d) Sales of government bonds

e) Mandatory reserve ratios


Q2. The Caisses d'Epargne is:

a) Mutual banks providing services to local authorities

b) Private commercial banks

c) Co-operative savings banks

d) Mutual banks linked to particular economic activities


Q3. The demand for insurance derives from the fact that people want:

a) The certainty of a good return

b) To reduce the risk of accidents

c) The possibility of a large loss to the certainty of a small one

d) The possibility of generous compensation


Q4. The federal insurance of deposits is:

a) Compulsory for thrifts

b) Compulsory for all banks

c) Compulsory for nationally-chartered banks

d) Voluntary for all banks

e) Compulsory for state-chartered banks


Q5. The Glass-Steagall Act:

a) Set up the Federal Reserve System

b) Prevented national banks from opening branches

c) Made national banks subject to the same branching restrictions as applied to national banks

d) Established the Federal Deposit Insurance Corporation (FDIC)

e) Required commercial and investment banks to be kept separate


Q6. The idea behind a capital adequacy ratio is that banking risk should be borne by:


a) Creditors

b) Managers

c) Borrowers

d) Directors


Q7. The Italian banking system was similar to the US system in the 1930s in which of the following ways?

a) There were many small banks in both countries

b) The Mafia controlled both systems

c) Investment banking was kept separate from commercial banking in both countries

d) The state played a major role in both systems

e) The development of branch networks was discouraged in both systems


Q8. The major institutional holders of equity in Sweden are:

a) Mutual funds

b) National Pension Fund

c) Banks

d) Insurance companies

e) Mortgage credit institutes


Q9. The Phillips curve implied that there was a trade-off available to governments between:

a) Inflation and unemployment

b) Output and employment

c) The price level and unemployment

d) Unemployment and inflation

e) Output and unemployment

f) The price level and employment


Q10. The reason that finding the present value of a future sum of money requires us to discount it, is that:

a) Inflation will reduce its purchasing power

b) We can’t be certain of receiving it

c) We don’t know when we shall receive it

d) Waiting deprives us of its use

e) Waiting involves risk


Q11. The recent structural changes in the US banking system have been the result of which five of the following:

(a) The depression of the 1930s

(b) Mergers and acquisitions

(c) Legislative changes affecting interstate expansion

(d) The growth of off-shore banking

(e) Legislative changes affecting expansion by branching

(f) The junk bonds collapse

(g) Failures of depository institutions

(h) The end of the IMF fixed exchange rate system

(i) Increased international capital flows

(j) Changes in credit union membership regulations

a) (b), (c), (e), (g) and (i)

b) (b), (c), (e), (h) and (j)

c) (b), (c), (e), (i) and (j)

d) (b), (c), (d), (g) and (j)

e) (a), (c), (e), (g) and (j)

f) (b), (c), (e), (g) and (j)


Q12. The returns on the following 3-month instruments are quoted in the usual way (i.e. some as discount rates, some as interest yields). Which instrument offers the best rate of return?

a) 4.58% on a CD

b) 4.56% on commercial paper

c) 4.5% on a treasury bill

d) 4.55% on a repo

e) 4.6% on an interbank deposit


Q13. The risk free rate of interest is 6% while the market risk premium is 10%. A share which is twice as risky as the whole market portfolio should produce a return of:

a) 26%

b) 38%

c) 32%

d) 22%

e) 36%


Q14. The simple Phillips curve was attacked as suffering from:

a) Money illusion

b) Backward-looking expectations

c) Optimism

d) Lack of sufficient evidence

e) Rational expectations


Q15. The target inflation rate in the UK is set by:

a) The European Central Bank

b) The government

c) The European Commission

d) The Monetary Policy Committee


Q16. Two assets have variances of 24 (asset A) and 45 (asset B). The covariance between them is 15. If a portfolio is composed of the two assets in the proportions 70% in A and 30%

in B the portfolio standard deviation will be:

a) 4.7

b) 30.3

c) 11.6

d) 22.11

e) 69


Q17. Two assets have variances of 24 (asset A) and 45 (asset B). The covariance between them is 15. The correlation coefficient of returns is:

a) 0.33

b) 0.46

c) 0.64

d) 1.29

e) 0.22


Q18. Which of the following are bank assets?

a) Customer deposits and advances to the general public

b) Reserves and advances to the general public

c) Investments and capital

d) Reserves and customer deposits

e) Notes and coin and customer deposits


Q19. Which of the following are depository institutions?

a) Insurance companies

b) Credit unions

c) Money market mutual funds

d) Savings and loan associations

e) Investment banks

f) Commercial banks


Q20. Which of the following institutions are classified as thrifts?

a) Savings and loan associations

b) State chartered banks

c) Savings bank

d) Credit unions

e) Small commercial banks


Part 14: Objective questions and answers of Insurance and Risk Management


Q1. Answer b


Q2. Answer c


Q3. Answer d


Q4. Answer c


Q5. Answer d,e


Q6. Answer a


Q7. Answer a,c,d


Q8. Answer d


Q9. Answer a


Q10. Answer d


Q11. Answer f


Q12. Answer b


Q13. Answer a


Q14. Answer a


Q15. Answer b


Q16. Answer a


Q17. Answer b


Q18. Answer b


Q19. Answer b


Q20. Answer a,c

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