ch22 - Financial Markets and Institutions, 6e...

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Unformatted text preview: Financial Markets and Institutions, 6e (Mishkin/Eakins) Chapter 22 1 Insurance Companies and Pension Funds 22.1 Multi ple Choi ce 1) The earliest form of insurance was _________ insurance. A) life B) health C) automobile D) property and casualty Answer: D Question Status: Previous Edition 2) The certainty equivalent for risk- averse people who buy insurance is the A) maximum loss they may sustain. B) expected loss they may sustain. C) insurance premium they pay. D) profit the insurance company earns. Answer: C Question Status: Previous Edition 3) The problem of _________ occurs when those most likely to get large insurance payoffs are the ones who want to purchase insurance the most. A) asymmetric information B) moral hazard C) adverse selection D) fraudulent behavior Answer: C Question Status: Previous Edition 4) When those most likely to produce the outcome insured against are the ones who purchase insurance, insurance companies are said to face the problem of A) fraudulent claims. B) moral hazard. C) adverse selection. D) pecuniary purchases. Answer: C Question Status: Previous Edition 5) To prevent adverse selection, health and life insurance companies may do all the following except A) charge higher premiums to people with certain pre- existing health conditions. B) require potential policyholders to submit medical records. C) refuse to sell policies to people with certain pre- existing health conditions. D) charge the same premiums to all policyholders. Answer: D Question Status: Previous Edition 6) In the case of an insurance policy, _________ occurs when the existence of insurance encourages the insured party to take risks that increase the likelihood of an insurance payoff. A) moral hazard B) opportunism C) adverse selection D) shirking Answer: A Question Status: Previous Edition 7) Some automobil e owners will drive faster knowing that they are covered by health and automobile insurance. This behavior creates the problem of A) fraudulent claims. B) moral hazard. C) adverse selection. D) pecuniary purchases. Answer: B Question Status: Previous Edition 8) In the case of an insurance policy, _________ occurs when the existence of insurance encourages the insured party to take risks that increase the likelihood of an insurance payoff; _________ occurs when those most likely to get large insurance payoffs are the ones who want to purchase insurance the most. A) moral hazard; insurance market discrimination B) moral hazard; insurance segregation C) moral hazard; adverse selection D) adverse selection; moral hazard Answer: C Question Status: Previous Edition 9) To...
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ch22 - Financial Markets and Institutions, 6e...

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