Surety Bonds and Commercial Transactions, Exams of Nursing

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AFSB 151 EXAM 2024/2025 WITH 100%

ACCURATE SOLUTIONS

Large accounts should be monitored to ensure that when companies add subsidiaries or affiliates or are acquired by new owners, the new parties sign a new indemnity agreement. Otherwise, if a claim arises, the surety might have only which one of the following to fall back on? Select one: A. The bond form B. The three-party surety agreement. C. Its common-law rights D. An obsolete indemnity agreement - Precise Answer ✔✔C. Its common-law rights The Barker Group hired Meyer Construction to build a new high-rise office building. As part of the construction contract, Meyer Construction was required to secure a number of contract bonds naming The Barker Group as the obligee. Which one of the following types of bond guarantees that bills incurred by the contractor for labor and materials will be fully paid at the completion of the project? Select one: A. Bid bond B. Payment bond

C. Performance bond D. Maintenance bond - Precise Answer ✔✔B. Payment bond Which one of the following statements is true regarding a surety producer's role in its performance of credit analyses? Select one: A. Producers help contractors when they recommend a slightly larger credit line than the contractor's experience and finances support, because it will enable the producer to grow its business. B. The producer's credit analysis should be lengthy and contain full details on the contractor's history, organization, management, performance, financial performance and condition, and related items. C. 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. D. Producers assist contractors and sureties when they recommend a credit line for a contractor that is smaller than the contractor's experience and finances support because it reduces the chance of bond default. - Precise Answer ✔✔C. 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. Lisa is a contract surety bond underwriter. After reviewing the work-on- hand report for one of the contracting principals, she is concerned that the contractor has too much backlog relative to its financial position. Lisa will likely do which one of the following until the contractor

demonstrates that the job programs as practically and financially feasible? Select one: A. Restrict future bidding for the contractor B. Increase the contractor's line of credit C. Forfeit existing bonds for the contractor D. Reduce the contractor's line of credit - Precise Answer ✔✔A. Restrict future bidding for the contractor Which one of the following statements regarding commercial transactions law is true? Select one: A. Under a UCC filing, the creditor having the first lien on security interests in property receives a pro rata share of the proceeds from a sale before any other lien holders. B. Under the UCC, a creditor receives a security interest in goods in return for granting credit to a buyer. C. All states have adopted the entire Uniform Commercial Code (UCC). D. Under the UCC, a security interest in goods means that, if a buyer defaults on a loan, the creditor can seize all of the buyer's property, sell it, and keep all profits. - Precise Answer ✔✔B. Under the UCC, a creditor receives a security interest in goods in return for granting credit to a buyer.

Allison was underwriting a new account that another surety previously bonded. She was concerned that the contractor might have problems not readily apparent that might cause a potentially large loss. Which one of the following facts might indicate that such a loss is a particularly relevant concern? Select one: A. The contractor's prior surety refused to write a bond the contractor wanted. B. The contractor had an uncooperative certified public accountant or banker. C. The contractor had a personality conflict with the prior producer. D. The contractor had a personality conflict with the prior surety. - Precise Answer ✔✔A. The contractor's prior surety refused to write a bond the contractor wanted. Which one of the following types of bond would make a surety liable for the difference between what should have been collected and the amount that can be accounted for, even though a public official might not have been dishonest? Select one: A. Fiduciary bond B. Malfeasance bond C. Faithful performance bond. D. Collection bond - Precise Answer ✔✔C. Faithful performance bond.

Bonds that are required by business entities and individuals to protect them from loss, and for which the obligation is dictated by the contract between the principal and the obligee and by the bond provisions, are Select one: A. Fiduciary bonds. B. Commercial surety bonds. C. Nonstatutory bonds. D. Statutory bonds. - Precise Answer ✔✔C. Nonstatutory bonds. Sureties underwrite both attachment and replevin bonds similarly, but they usually write replevin bonds Select one: A. More slowly and for larger amounts. B. More quickly and for larger amounts. C. More quickly and for smaller amounts. D. More slowly and for smaller amounts. - Precise Answer ✔✔C. More quickly and for smaller amounts. Robert is the job estimator for Haley Brothers Construction (HBC). He was putting together a proposal for a large job, that would require HBC to hire a number of subcontractors. As part of the process, Robert required each subcontractor to provide a contract bond naming HBC as

the obligee. The bond would guarantee that the subcontractor would enter into the contract to perform the work if the proposal was accepted. 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? Select one: A. Performance bond B. Payment bond C. Bid bond D. Maintenance bond - Precise Answer ✔✔C. Bid bond Which one of the following statements regarding recovery rights of the surety is true? Select one: A. In a fidelity claim founded on employee dishonesty, the insurer will have no rights against a person, other than the employee, including any person who collaborated with the employee. B. In a claim founded on a forgery, the insurer will have no rights against parties who were innocent of intent to do wrong, but who may have legal obligations to the insured. C. Successful salvage collection procedures benefit the insurance-buying public in the same way that good management of insurance affairs generally benefits the public. D. The right of indemnification applies to suretyship and is extended to the surety within the bond contract as a common-law obligation of the bond principal. - Precise Answer ✔✔C. Successful salvage collection

procedures benefit the insurance-buying public in the same way that good management of insurance affairs generally benefits the public. Springfield Dance Studio has been in business for 15 years, and most of the employees have worked there for over 10 years. In addition to the owner Theresa, there are 10 part-time dance instructors, 2 receptionists, and a bookkeeper. Because it is a small business, the bookkeeper makes daily deposits, handles payroll, and manages all other aspects of the checking account. Theresa recently discovered that over the last 18 months, the bookkeeper had been taking up to $2,500 in funds from the business on a monthly basis. Which one of the following loss control practices would have been most effective in preventing or mitigating this fidelity loss? Select one: A. Monthly account reconciliations B. Mandatory annual vacations C. New hire reference checks D. Annual inventories - Precise Answer ✔✔A. Monthly account reconciliations In general, the Equal Credit Opportunity Act (ECOA) and Regulation B affect or preempt Select one: A. All other legislation at the federal, state, and municipal levels that relates to background examinations.

B. Only state laws that are inconsistent with federal laws and only to the extent that they are inconsistent. C. State laws that are more protective than ECOA and Regulation B requirements. D. All laws that deal with the race, color, religion, or national origin of an applicant. - Precise Answer ✔✔B. Only state laws that are inconsistent with federal laws and only to the extent that they are inconsistent. Which one of the following is true regarding commercial bond claims? Select one: A. Most commercial bond claims involve many varied circumstances that contribute to the extent of the surety's liability. B. Future events and behavior have a tremendous effect on the extent of the surety's liability. C. Under commercial bond claims, the dollar amount of a bond loss is usually a variable amount and is not fixed. D. Commercial bond claims can take time to establish the exact amount of the loss, as in the case of a guardian's bond. - Precise Answer ✔✔D. Commercial bond claims can take time to establish the exact amount of the loss, as in the case of a guardian's bond. Which one of the following statements is true regarding surety producers' marketing? Select one:

A. Developing a target market helps a surety producer develop a sphere of influence with surety underwriters. B. By dividing a target market into more specific trade groups, an agency can tailor services, expertise, and promotional material to that group's needs. C. For surety producers, general marketing efforts are often more productive than a targeted marketing effort that focuses on specific business segments. D. The four Ps of marketing, product, promotion, portability, and position, help surety producers successfully market bonds. - Precise Answer ✔✔B. By dividing a target market into more specific trade groups, an agency can tailor services, expertise, and promotional material to that group's needs. Which one of the following statements regarding the goals of the fidelity and surety claims process is true? Select one: A. As part of determining the surety's liability under the bond, claims personnel should assume the surety is fully liable for all claims that are presented to the surety. B. Once the claims personnel have determined that the surety is probably liable to the obligee under the bond, they begin the information gathering process. C. Surety personnel do not begin considering the surety's options for recovering from the principal or mitigating the loss until after the claim has been paid.

D. As part of determining the surety's liability under the bond, claims personnel should determine the existence of the surety's obligation to the producer and the extent of liability, if any. - Precise Answer ✔✔B. Once the claims personnel have determined that the surety is probably liable to the obligee under the bond, they begin the information gathering process. Which one of these accurately reflects a characteristic of license and permit bonds? Select one: A. A license or permit bond frequently must be furnished to the appropriate public entity by those who need licenses or permits. B. The obligee of license and permit bonds is usually an individual or organization. C. Because license and permit bonds are not statutory, they contain language reflecting the requirements of the occupation or profession. D. License and permit bonds are common types of contract surety bonds.

• Precise Answer ✔✔A. A license or permit bond frequently must be furnished to the appropriate public entity by those who need licenses or permits. Typical businesses using compliance-only and permit bonds are which one of the following? Select one: A. Oil and gas producers

B. Construction related C. Motor vehicle dealers D. Dealers in agricultural products - Precise Answer ✔✔B. Construction related Anita is a surety producer. She is compiling a contractor's financial documents to present to the surety underwriter. 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? Select one: A. Office buildings that are owned free and clear B. Quality stocks and bonds and accounts receivable C. Significant value in owned construction equipment D. Contractor's home that is owned free and clear - Precise Answer ✔✔B. Quality stocks and bonds and accounts receivable Quota share reinsurance is a type of pro rata reinsurance in which the primary insurer and the reinsurer Select one: A. Divide the reinsurer's excess profits equally. B. Split losses according to a sliding scale. C. Split policy premiums according to a negotiated sliding scale.

D. Share the amounts of insurance using a fixed percentage. - Precise Answer ✔✔D. Share the amounts of insurance using a fixed percentage. Joann is a contract surety bond underwriter. In addition to the information that she receives directly from the principal and financial institutions, she also likes to contact the bond obligee. The obligee of a contract bond can provide Joann with information on all of the following, EXCEPT: Select one: A. The amount of credit available B. The principal's progress in fulfilling obligations C. The underlying contract obligations D. The reason the bond is required - Precise Answer ✔✔A. The amount of credit available Southern Insurance Company is concerned about its state's regulation limiting Southern's retention on any one exposure as well as several potential policyholders who are in the construction and blasting business. Southern realizes such businesses could be highly lucrative but also present higher loss exposures than the insurer has previously undertaken. Halley Reinsurance can help Southern increase its large-line capacity by Select one: A. Providing high layers of insurance above the underlying limits.

B. Influencing regulations related to the maximum amount of insurance allowed. C. Supplementing primary insurers' earnings. D. Accepting liability for loss exposures that the primary insurer is unwilling or unable to retain. - Precise Answer ✔✔D. Accepting liability for loss exposures that the primary insurer is unwilling or unable to retain. Which one of the following statements regarding bids is true? Select one: A. Any irregularities in the contractor's high bid must be communicated to the underwriter immediately. B. Bid bonds and bid results can be furnished to the surety underwriter only upon submission the bond or credit line application. C. Any spread greater than 30 percent between the contractor's low bid and the second bidder must be communicated to the underwriter before the bonds are authorized. D. Usually, at least thirty days elapse from bid opening to contract award. - Precise Answer ✔✔D. Usually, at least thirty days elapse from bid opening to contract award. Producers of public official bonds serve themselves and their prospective principals by

Select one: A. Attending legislative committee meetings to learn about bond requirements presented in existing laws. B. Writing bonds from various categories to offset the less profitable public official bonds. C. Recognizing that some government entities purchase qualifying bonds directly from their officials. D. Offering their services in September after primary elections are over and the candidates are known. - Precise Answer ✔✔D. Offering their services in September after primary elections are over and the candidates are known. Chester is a surety underwriter for LI Surety. In addition to determining the feasibility of the surety's undertaking a particular risk, the premium for the risk, and the conditions that the applicant should meet, the underwriter determines Select one: A. The necessity for the principal to file collateral. B. How the surety should settle a bond claim. C. Whether to recommend the bond applicant. D. The facts in a bond default case. - Precise Answer ✔✔A. The necessity for the principal to file collateral. Anna is a commercial surety bond producer. The rates and premiums for the bonds that she provides do not vary greatly from one surety to another. In most cases, the bond principal must post cash or equivalent

collateral with the surety. Anna generates business by providing convenient and superior service to local attorneys. Anna is a producer of which one of the following types of bonds? Select one: A. Municipal bonds B. Court bonds C. License bonds D. Public official bonds - Precise Answer ✔✔B. Court bonds Porter Company's creditor offered the company a cash discount. The creditor's terms appear as "2/10 N 30" on a credit report. This means that Select one: A. The creditor offers a 2 percent (2/10) discount if the balance due is paid within ten days; otherwise, payment is due in full within thirty days (N 30). B. The creditor has received two out of ten payments (2/10) and each payment is due on the thirtieth day of the month (N 30). C. Two times out of ten (2/10), the customer has paid the balance due in full within thirty days (N 30). D. The creditor will allow the customer to pay 1/5 (2/10) of the total amount due every thirty days (N 30) until the obligation is paid in full. - Precise Answer ✔✔A. The creditor offers a 2 percent (2/10) discount if the balance due is paid within ten days; otherwise, payment is due in full within thirty days (N 30).

As a surety underwriter, Andrew's objectives include writing a high percentage of public official bonds. Despite the potential legal and political issues, most sureties are eager to write public official bonds because Select one: A. They want to perform a needed public service. B. They are required by insurance regulations to offer these bonds. C. These bonds have proven to be profitable. D. They benefit from favorable tax treatment. - Precise Answer ✔✔C. These bonds have proven to be profitable. As a fidelity bond underwriter, Millie learned that 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. Millie's experience describes which one of the following unique characteristics of fidelity bonds? Select one: A. Losses can be hidden. B. Management might be reluctant to prosecute employee thefts. C. Management controls are the primary loss control devices.

D. Management might be reluctant to believe that some employees are thieves. - Precise Answer ✔✔B. Management might be reluctant to prosecute employee thefts. Stanton Surety Agency has two producers with special bonding expertise for abatement and remediation contractors. The producers attend the annual convention for abatement and remediation contractors, and participate in industry seminars. The agency also advertises in trade publications. Which one of the following factors of marketing do these activities illustrate? Select one: A. Price B. Product C. Position D. Promotion - Precise Answer ✔✔D. Promotion Justin found a house that he wanted to buy, and applied for a mortgage. After being declined by several mortgage lenders, he learned that the consumers reports that the mortgage companies were using contained inaccurate information. Which one of the following sections of the Consumer Credit Protection Act protects individuals like Justin from inaccurate information in consumer reports that can affect eligibility for a mortgage? Select one: A. Title I - Truth in Lending Act

B. Title IV - National Commission on Consumer Finance C. Title VI - Fair Credit Reporting Act D. Title VII- Equal Credit Opportunity Act - Precise Answer ✔✔C. Title VI - Fair Credit Reporting Act The state of Texas requires that Dallas Livestock obtain a bond to guarantee that it will pay the livestock farmers. Which one of the following types of bonds guarantee that buyers will pay farmers or other sellers of goods? Select one: A. Tax or fee bonds B. Merchandising and dealer bonds C. Compliance bonds with third-party liability D. Forfeiture bonds - Precise Answer ✔✔B. Merchandising and dealer bonds Aaron is a contract surety bond underwriter. When competitive bid results for a project become available, he likes to compare the bid of his principal contractor with those provided by other contractors. Which one of the following might cause Aaron to restrict performance, payment, and maintenance bonds until the principal proves the adequacy of the bid price and profitability of the job? Select one: A. If his principal's bid includes ca complete on-time clause

B. If his principal's bid differs from the next higher bid by more than 15% C. If his principal's bid differs from the next higher bid by more than 10% D. If his principal's bid is within 5% of the other contractors - Precise Answer ✔✔B. If his principal's bid differs from the next higher bid by more than 15% Ellen is a contract bond underwriter trying to assess a contractor's capacity in terms of management control. Which one of the following is the first step in the construction process that the contractor must demonstrate the ability to control? Select one: A. Experience B. Education C. Estimating D. Funding - Precise Answer ✔✔C. Estimating Karen is a surety bond underwriter. She is working on contract bonds for a large heating, ventilation, and air-conditioning (HVAC) job for James HVAC Services. In order to properly evaluate the contractor's capacity, she is asking questions about their fabrication facilities, and the methods used to obtain materials and equipment. Which one of the following attributes of James HVAC Services is Karen evaluating? Select one: A. Credit reports

B. Management control C. Plant and equipment D. Continuity planning - Precise Answer ✔✔C. Plant and equipment A comparison of how surety operates with how insurance operates shows that underwriting must contrast the nature of insurance policies with bond forms. Which one of the following is a feature that is unique to insurance policies? Select one: A. They incorporate statutes or other legal documents by reference, thereby extending the obligation beyond the language of the policy itself B. Special forms drafted for unique circumstances C. Special forms drafted to exclude specific elements D. They are typically filed with and approved by insurance departments in each state in which they are to be used - Precise Answer ✔✔D. They are typically filed with and approved by insurance departments in each state in which they are to be used Douglas is reviewing the contract bond application for Gates General Contractors (GGC). After reviewing the schedule of contracts in progress, he decided that GGC required a more careful evaluation. Which one of the following in GGC's schedule of contracts in progress would raise a reason for concern? Select one:

A. The schedule shows current jobs are similar in size, type, location, and complexity to previously completed jobs. B. The profits earned to date on nearly completed jobs are slightly higher than the estimated profits for those jobs. C. The schedule shows a job with an adjusted contract price due to change orders mid-project. D. The profit margins on previous jobs were significantly lower than the contractor's estimates for the current work in progress - Precise Answer ✔✔D. The profit margins on previous jobs were significantly lower than the contractor's estimates for the current work in progress After many years of paying high premiums for workers compensation insurance, Shelton Manufacturing decided to file for self-insurance. Shelton Manufacturing was required to provide a bond which guarantees that the company will pay workers compensation benefits to their employees as required by law. Which one of the following types of bond does the company need to provide? Select one: A. Fidelity surety bond B. Contract surety bond C. Performance surety bond D. Commercial surety bond - Precise Answer ✔✔D. Commercial surety bond Shin Company is a large, strong company with a number of subsidiaries. The company has infrequent and relatively benign commercial bond

needs. Which one of the following types of general agreement of indemnity (GAI) would the surety most likely use for Shin Company? Select one: A. Short form general agreement of indemnity B. Contract surety indemnity agreement C. Parental general agreement of indemnity D. Individual surety indemnity agreement - Precise Answer ✔✔A. Short form general agreement of indemnity Under a cosurety agreement for which a principal defaults on the bond, how is the cosurety's share of the risk determined and how are losses paid? Select one: A. The cosurety agreement defines each cosurety's share of the loss that is paid by the designated controlling cosurety, which then collects the agreed-upon portion of loss and expense amounts from each cosurety. B. The cosurety agreement defines each cosurety's share of the loss that is paid by the first named cosurety in the agreement, which then collects the agreed-upon portion of loss and expense amounts from each cosurety. C. The cosurety agreement defines each surety that provides a specified type of bond for the principal; the surety for the specified bond pays the loss and then collects an equal portion of loss and expense amounts from each cosurety.

D. The cosurety agreement specifies the designated controlling surety, which pays the entire loss and t - Precise Answer ✔✔A. The cosurety agreement defines each cosurety's share of the loss that is paid by the designated controlling cosurety, which then collects the agreed-upon portion of loss and expense amounts from each cosurety. When evaluating a contractor's capital, a contract bond underwriter will review the contractor's balance sheet. Which one of the following relationships between equity capital and debt capital would normally be most desirable for a bond underwriter? Select one: A. A bond underwriter would normally prefer to see a 50/50 split between equity capital and debt capital. B. A bond underwriter would normally prefer to see 100% of the contractor's capital being debt capital. C. A bond underwriter would normally prefer to see a split of 30% equity capital and 70% debt capital. D. A bond underwriter would normally prefer to see a split of 70% equity capital and 30% debt capital. - Precise Answer ✔✔D. A bond underwriter would normally prefer to see a split of 70% equity capital and 30% debt capital. Which one of the following statements is true regarding financial reporting to reinsurers? Select one:

A. The primary surety should determine the reinsurance recoverable for losses and expenses paid and should regularly bill each reinsurer. B. When the primary surety makes a salvage recovery of losses and expenses on which it has made reinsurance recoveries, it is not required to share the salvage with the reinsurer. C. The primary surety's prolonged retention of reinsurers' shares of recoveries causes an overstatement of losses and expenses paid. D. A reinsurance agreement usually enables the primary surety to finance a contract bond principal without the reinsurer's prior approval as long as it is reported in retrospect. - Precise Answer ✔✔A. The primary surety should determine the reinsurance recoverable for losses and expenses paid and should regularly bill each reinsurer. Boca Insurance Company enters a quota share reinsurance treaty with Beetle Reinsurance Company (Beetle Re). Boca retains 60% of each loss exposure subject to the treaty while reinsuring the remaining amount to Beetle Re. Assuming a $100,000 loss occurs that is subject to this reinsurance agreement, Beetle Re's portion of the loss is Select one: A. $0. B. $40,000. C. $60,000. D. $100,000. - Precise Answer ✔✔B. $40,000. Which one of the following statements is true regarding the surety underwriter's use of information received from financial institutions?

Select one: A. The surety underwriter accepts all forms of collateral that a financial institution offers, and the surety can demand a higher priority on jointly held collateral than a financial institution. B. A loan commitment letter from a bank showing a high rate of interest and collateral requirements indicates the bank's strong degree of confidence in the principal. C. If the principal is highly dependent on a financial institution as determined from the information, then the conditions of the credit line are increasingly important to the surety. D. The surety can obtain information from a financial institution without getting prior authorization from the principal and is privy to any information the financial institution has. - Precise Answer ✔✔C. If the principal is highly dependent on a financial institution as determined from the information, then the conditions of the credit line are increasingly important to the surety. 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. Select one: A. Subsidiary omnibus agreement B. Omnibus agreement C. Subsidiary indemnity agreement