LOMA 357

Chapter 2
Reference: c. 2, p. 4
For this question, if answer choices (1) through (3) are all correct, select answer
choice (4). Otherwise, select the one correct answer choice.

When financial services companies grow by global expansion, they encounter new
opportunities and new risks. The business opportunities associated with global
expansion typically include

A. reduced exposure to currency risk

B. reduced exposure to geopolitical risk
C. diversified product portfolios
D. all of the above
Reference: c. 2, p. 6
Governmental regulatory systems for the financial services industry generally
include administrative agencies, which are part of the (executive / legislative)
branch of government. Government agencies issue (regulations / statutes), which
are rules or orders that (have / do not have) the force and effect of law.

A. executive / regulations / have

B. executive / statutes / do not have
C. legislative / regulations / have
D. legislative / statutes / do not have
Reference: c. 2, pp. 9, 11, 12, 13
The following statements are about market conduct regulation and solvency regulation.
Select the answer choice containing the correct statement.

A. In financial services, transparency refers to the obligation of a natural person or

legal entity to act in the best interest of another party.
B. Market conduct regulations provide investors with protection both from fraudulent
and misleading conduct and from financial losses due to knowingly taking a
financial risk.
C. Privacy protection regulations generally limit sharing of publicly available
information, such as telephone directories or published government records.
D. Solvency regulations are far more extensive for insurance company general
accounts than for insurance company separate accounts.
Reference: c. 2, pp. 16-18
In the United States, four important federal securities laws are the following:

● The Securities Act of 1933

● The Trust Indenture Act of 1939
● The Investment Company Act of 1940
● The Investment Advisers Act of 1940

One true statement about these federal securities laws is that the

A. Securities Act of 1933 empowers the Securities and Exchange Commission (SEC) to supervise the investment
decisions of publicly-traded stock companies and to judge the merits of their securities
B. Trust Indenture Act of 1939 imposes requirements on the issuers of bond and other debt securities, including
municipal bonds and private placement bonds
C. Investment Company Act of 1940 applies to mutual funds, index funds, and exchange-traded funds, but not to
insurance company separate accounts
D. Investment Advisers Act of 1940 stipulates that all advisers who have at least $100 million of assets under
management or who advise a registered investment company must register with the SEC
Reference: c. 2, pp. 17, 18, 19
In the United States, a number of federal securities laws protect investors and regulate the activities of
participants in the securities markets. These laws include the Securities and Exchange Act of 1934, the
Investment Company Act of 1940, the Investment Advisers Act of 1940, and the Trust Indenture Act of
1939. According to the provisions of these securities laws, it is correct to say that

A. the Securities and Exchange Commission (SEC) is prohibited from delegating its authority to any
non-governmental association
B. investment companies must disclose their financial condition and investment policies to investors
when their shares are initially sold, and subsequently on a regular basis
C. insurance companies are exempt from the registration requirements of the Investment Advisers Act
D. the Trust Indenture Act applies to equity securities such as stocks but not to bonds or other debt
securities
Reference: c. 2, pp. 20
In the United States, the Financial Industry Regulatory Authority (FINRA) imposes a variety
of requirements on how broker-dealers and registered persons must conduct business. The
following statement(s) can correctly be made about FINRA conduct rules:

A. A registered principal must meet at least once a year with each registered representative
under his supervision to discuss regulatory and compliance matters.

B. A registered principal must review and approve a member's advertisements and sales
literature before they are released.

I. Both A and B
II. A only
III. B only
IV. Neither A nor B
Reference: c. 2, pp. 22
The Opal Mutual Fund is organized as an open-end management company. This
information indicates that Opal

A. can issue more shares as investors request them

B. issues only preferred stock shares and bonds
C. does not redeem shares that are outstanding
D. trades shares on securities exchanges or in the over-the-counter market
Reference: c. 2, pp. 22-23
The Cocoa Company is a closed-end management company. One true statement
about Cocoa is that

A. it redeems investors’ shares for cash upon request

B. it has a flexible number of outstanding shares
C. its shares sell at the net asset value (NAV)
D. its shares generally are traded on securities exchanges or in the over-the-
counter market
Reference: c. 2, pp. 26, 28
In the United States, the Securities Valuation Office (SVO), a department of the
National Association of Insurance Commissioners (NAIC), publishes designations or
unit prices for fixed-income investments of insurance companies. The NAIC's
designations may be considered a type of rating of these investments. In this rating
system, the highest quality investments receive a designation of (NAIC 1 / NAIC 6).
The NAIC designations (are / are not) intended to aid investment decision making.

A. NAIC 1 / are
B. NAIC 1 / are not
C. NAIC 6 / are
D. NAIC 6 / are not
Reference: c. 2, pp. 27-29
In the United States, the Investments of Insurers Model Acts offer two approaches to limiting the
investment risks that insurers undertake in the general account:

● The Investments of Insurers Model Act—Defined Limits Version

● The Investments of Insurers Model Act—Defined Standards Version

One true statement about these two model acts is that the

A. Defined Limits Version is also known as the prudent person version

B. Defined Limits Version provides much broader limits on risk taking than does the Defined Standards
Version
C. Defined Standards Version is also known as the pigeonhole version
D. Defined Standards Version does not specify categories of securities and issuers that are acceptable
to regulators
Reference: c. 2, pp. 27-29
The following statement(s) can correctly be made about state regulation affecting insurance company investments in the United States:

A. The Investments of Insurers Model Act-Defined Standards Version specifies the types of assets that insurers are allowed to treat as
admitted assets, and imposes quantitative limits on the amount of each type of asset held in an insurance company's general account.

B. The Asset Valuation Reserve (AVR) absorbs realized and unrealized investment gains and losses on assets sold, such that realized
gains increase the AVR up to a maximum level and realized losses decrease the AVR.

C. The Asset Valuation Reserve (AVR) and the Interest Maintenance Reserve (IMR) are both asset accounts that affect only insurance
company separate account investments.

A. A, B, and C
B. A and B only
C. B and C only
D. A only
E. B only
Reference: c. 2, pp. 30-31
With regard to the role of the Canadian federal government and the role of the
provincial and territorial governments in the regulation of securities and the regulation
of insurance, it is correct to say that

A. both the securities industry and the insurance industry are regulated by the
federal government
B. the securities industry is regulated by the provincial and territorial governments,
whereas insurance regulation is primarily a federal function
C. the securities industry is regulated by the federal government, whereas insurance
regulation is primarily a provincial and territorial function
D. both the securities industry and the insurance industry are regulated by the
provincial and territorial governments
Reference: c. 2, pp. 31-32
The following statement(s) can correctly be made about financial regulation in the
European Union (EU):

A. Within a given EU member country, financial institutions comply both with EU

regulatory requirements and the given country's regulatory requirements.

B. Solvency II is a European-sponsored solvency standard for insurance companies,

designed to support solvency testing and solvency supervision in the public interest.

I. Both A and B
II. A only
III. B only
IV. Neither A nor B
Reference: c. 2, pp. 34, 35
Several international bodies recommend policies for governments to apply in the
supervision of securities, banking, and insurance activities. Of the following
organizations, all originate from the United Nations EXCEPT for the

A. International Monetary Fund (IMF)

B. Organisation for Economic Co-operation and Development (OECD)
C. World Bank
D. International Association of Insurance Supervisors (IAIS)