Bcom Bachelor of Commerce Bachelor of Commerce: Banking & Insurance 4

Question 1

What is a 'credit default swap' (CDS)?

Accepted Answer

A financial derivative that transfers credit risk from one party to another

Answer

A credit default swap is a derivative contract in which a buyer makes periodic payments to a seller in exchange for protection against a credit event like default.

Question 2

Under the principle of 'indemnity' in insurance, what is the insurer's obligation?

Accepted Answer

To restore the insured to the same financial position as before the loss

Answer

The principle of indemnity ensures that insurance compensates the insured for actual loss, preventing them from profiting from a claim.

Question 3

What is 'fractional reserve banking'?

Accepted Answer

A banking system where banks hold only a fraction of deposits as reserves and lend the rest

Answer

Fractional reserve banking allows banks to keep only a portion of deposits as reserves and lend out the remainder, effectively creating money through lending.

Question 4

Which regulatory body primarily supervises federally chartered commercial banks in the United States?

Accepted Answer

The Office of the Comptroller of the Currency (OCC)

Answer

The OCC charters, regulates, and supervises all national banks and federal savings associations in the United States.

Question 5

What is a 'reinsurance' arrangement?

Accepted Answer

An insurance company purchasing insurance from another insurer to limit its own risk exposure

Answer

Reinsurance is insurance for insurers — a primary insurer transfers a portion of its risk to a reinsurance company to reduce potential large losses.

Bcom Bachelor of Commerce Practice Test

Bcom Bachelor of Commerce Practice Test

Bcom Bachelor of Commerce Bachelor of Commerce: Banking & Insurance 4