ICAR AIEEA-PG (Master's admission and PG scholarship) · India · National Testing Agency for ICAR
Original practice questions written to the published syllabus · not past papersThe risks farmers and agribusinesses face and the tools to manage them: insurance, hedging and sound credit policy.
In the exams: agricultural master's entrance examinations, crop insurance (heavy); agricultural economics PhD entrance and fellowship examinations, risk and insurance (heavy); agricultural field officer recruitment in banking (heavy); agricultural development bank officer recruitment (present)
How our questions for ICAR AIEEA-PG spread across the units of Agri Risk Management & Insurance. Difficulty: 20 easy, 14 medium, 3 hard.
| History of crop insurance | 7 | |
| Types of risk: production, price, institutional, financial and personal | 6 | |
| Risk diffusion strategies | 5 | |
| Yield-index insurance | 5 | |
| Weather-index insurance | 5 | |
| Publicly supported area-yield and weather-index crop insurance | 5 | |
| Hedging with futures and options | 2 | |
| Livestock insurance | 1 | |
| Credit risk in bank lending | 1 |
Choose an answer, then open the working. Each explanation says why the right answer is right and why the others are not.
Which source of risk rises directly with a farm's debt-to-equity ratio?
C. Financial risk
Financial risk arises from the use of borrowed capital: fixed interest and repayment obligations magnify the effect of any fall in income on the owner's equity. Production risk comes from weather and pests and does not depend on how the farm is financed.
A farmer expects net returns of 60,000 currency units with probability 0.3, 40,000 with probability 0.5 and 10,000 with probability 0.2 from a crop. What is the expected net return?
A. 40,000 currency units
EV = 0.3 x 60,000 + 0.5 x 40,000 + 0.2 x 10,000 = 18,000 + 20,000 + 2,000 = 40,000 currency units. The simple average (36,667 currency units) ignores the probabilities; leaving out the low outcome gives 38,000 currency units; swapping the first two probabilities gives 44,000 currency units.
The Federal Crop Insurance Corporation of the United States was created by the Federal Crop Insurance Act of:
B. 1938
The 1938 Act created the FCIC, first insuring wheat. The 1980 Act expanded the programme and brought in private insurers; the 1994 Reform Act introduced catastrophic coverage; 2014 is a farm bill, not the founding act.
What is the main advantage of making crop insurance compulsory for farmers who take seasonal crop loans?
B. It secures broad enrolment and lets a claim repay the loan after a loss
Credit-linked compulsory cover, used in several countries, gives insurers a large pool and protects lenders and borrowers together. It does not remove the need for subsidy, basis risk or moral hazard elsewhere.
In the US federal crop insurance programme, Revenue Protection differs from Yield Protection in that it:
B. Guarantees revenue, valuing the guarantee at the higher of the projected and harvest price
Revenue Protection insures yield times price, with the guarantee raised if the harvest price exceeds the projected price, so it covers both yield and price falls. Yield Protection insures yield only at the projected price; area plans use county yields.
A unit's yields over the past seven years were 22, 30, 18, 27, 25, 31, 20 q/ha. With an indemnity level of 70%, what is the threshold yield under the 'best five of seven' rule?
C. 18.9 q/ha
Best five yields: 31, 30, 27, 25, 22; average = 27 q/ha. Threshold = 27 x 0.70 = 18.9 q/ha. Using all seven years gives 17.3; forgetting the indemnity level gives 27; using the last five years gives 16.94.
Sales of a weather-index product are closed before the start of the season mainly to limit:
D. Adverse selection
If farmers could buy after seeing a weak monsoon onset or a dry forecast, only those expecting a payout would buy, which is inter-temporal adverse selection. Closing sales early keeps buyers and insurer equally informed. Buyers who already know the seasonal forecast or the early rainfall would otherwise buy only when a payout is likely.
A hailstorm destroys the standing crop on a few isolated farms in a village where the area yield is otherwise normal. Under an area-yield scheme with a localised-calamity add-on, these farmers:
A. Are assessed individually under the localised calamity provision if they report in time
Hailstorm, landslide, inundation, cloudburst and natural fire from lightning are localised calamities assessed farm by farm, precisely to reduce the basis risk of the area approach. The farmer must report promptly (within 72 hours under India's PMFBY guidelines).
Why is individual indemnity livestock insurance poorly suited to nomadic pastoral herds?
D. Checking the identity and cause of death of animals on remote rangeland is costly and open to fraud
High verification costs and moral hazard make indemnity cover unworkable for extensive herds, which is why index products based on area mortality or NDVI were developed. Drought mortality is strongly covariate, not uncorrelated.
Who normally supervises commodity futures and options markets?
B. A national market regulator, such as the US Commodity Futures Trading Commission
Exchange-traded derivatives are overseen by securities or commodity regulators (the CFTC in the United States; in India the securities regulator absorbed the commodity regulator in 2015). Credit, insurance and cooperative bodies have other roles.
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