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AFSB 153 questions with verified solutions 2024/2025
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AFSB 153 questions with verified solutions 2024/2025
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AFSB 153Customs Bond - guarantees that tariffs and duties will paid and that the principal will abide by
customs laws and regulations
What is another name for surety? - guarantor
What does an investment grade determine for a principals credit rating? - interest rate
Broker - main point of contact for a principal in working with a surety
they start the dialogue with the surety
negotiate the rate and indemnity agreement
collateral requirements
help establish a single and aggregate program limit for your account
-they have access to multiple sureties and they will help the principal find the right product for
the right price based on the principals needs and financial situation
Why are governments so interested in surety bonds? - they want to protect the public and
safeguard our tax dollars
What local government entities require surety bonds? - city
township
county
local court
water authority
What state government entities require surety bonds? - transportation and general services
departments
courts
departments of environmental protection
What federal government entities require surety bonds? - military- Department of Defense,
Veterans Affairs, Customs
bureau
court
distinct classes of bonds - contract
court
license and permit
federal and public officials
miscellaneous
,Most difficult bonds to write - advanced payment
defendants appeal
pure financial guarantee
Easiest bonds to write - performance and payments
supply
license and permit
customs
Examples of License and Permit bonds - blasting, handling and explosives
travel agencies
real estate brokers
employment agencies
motor vehicle dealers
plumbers
electrician
plaintiffs bond - person bringing the legal action, it protects against damages to the defendant
that result from the legal action filed by the plaintiff
defendants bond - counteracting the effect of the plaintiffs bond and guaranteeing the payment
of damages should the plaintiff win the case
-permit the defendant to regain control of property seized in litigation
-guarantees payment if the judgment favors the plaintiff
injunction bond - requires the party to do something or refrain from doing something
it can be difficult to convince a surety to write these bonds
decedent - deceased person
trustee - the person named to hold the property in trust for the trust's beneficiaries
executor - person named by the will to handle the estate of the decedent
-appointed by a testator
-court must approve the appointed person
administrator - a person appointed by the court to handle the estate of the decedent
trustee in bankruptcy - someone named by the court to administer a bankrupt estate for the
benefit of the estate and creditors
How much are bid bond amounts? - 5 to 20 percent of the bid amount
,How much are performance and payment bond amounts? - generally for 100 percent of the
contract amount but they can be for lower amounts
reclamation bond - guarantees that the property will be put back to the way it was found
long tail exposure - liability is high
hazardous
surety is liable for claims that incurred during the time the surety bond is in force
can last for decades
hard to obtain
posting for collateral is needed
New York's Appleton Rule - prevents most sureties from guaranteeing the payment of a debt
transportation bond - owners of commercial vehicles that spend a fair amount of time on the
roads
-wear and tear they cause to the roads and they use the funds to help pay for building new
roads
advance payment - supply obligation
type of financial guarantee
Examples of transportation bonds - fuel tax
toll
road use
premium - cost of the bond
priced at a per rate per thousand dollars and are based on the bond penalty or contract amount
Rates - can vary from $1 to $25 per thousand or 10 t0 250 basis points or .1 to 2.5 percent
The cost of the bond covers - surety's prequalification services, underwriting and profit
reinsurance and broker's commissions
indemnitors - the principal or any other individual who might be signing on to back up the
principal financially
they are typically required to have enough assets to cover any potential claims
may be required to put some collateral
exonerate a bond - declare that the surety is no longer on the hook for guaranteeing the
performance that the bond was written to cover
-another word for cancel
do this as soon as possible to avoid unnecessary liability
, Joint Venture - partnership of two or more companies for the purpose of conducting business
combine their skills, expertise, finances and property
considered a standalone entity
joint and several liability - the member companies of a joint venture are each liable for
performing as they have agreed
Co-Sureties - drive down rates and keep companies honest
increase competition
provides extra capacity
Irrevocable Letters of Credit other names - LCs
letters of credit
ILOCs
Irrevocable Letters of Credit - bank instruments that are offered by one party to guarantee the
fulfillment of an obligation
-guarantee ad advance payment for services or receivables or the availability of funds for a
large deductible program
Irrevocable Letters of Credit Obligation - ranging from 5 to 20 percent
demand instruments- the beneficiary has more power over the payout of an Irrevocable Letters
of Credit
demand instrument - the beneficiary can declare default, go to the bank and demand payment
Where are Irrevocable Letters of Credit used? - Europe, Asia and Africa
-they are more common than bonds
-it is custom and comfort
Where have people gotten more Irrevocable Letters of Credit than surety bonds? - collateral for
self-insurance and large deductible programs
Price of Irrevocable Letters of Credit - banks were practically giving them away for free for
strong clients and if they were a little bit risky it was still a very low cost
-they were not required to recognize their outstanding Irrevocable Letters of Credit on their
balance sheet
-it changed after the financial crisis of 2008
Why are people choosing bonds over Irrevocable Letters of Credit now? - helps diversify their
collateral
less expensive
don't tie up lines of credit
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