BF+AA R5

Question 1

Effective investment governance (6 Steps)

Answer 1

Establish short and long term objectives

Allocate rights and responsibilities

Specify process for creating IPS

Specify process for SAA

Reporting Framework

Periodic Reviews

Question 2

Economic Balance Sheet

Answer 2

Includes human capital in balance sheet

Question 3

Compare concepts of risk relevant to asset-only, liability-relative, and goals-based asset allocation approaches

Answer 3

Asset only: Standard deviation of returns

LR: having enough assets to cover laibilities

GB: risk of not achieving goals

Question 4

Explain the use of risk factors in asset allocation and their relation to traditional asset class–based approaches

Answer 4

Investors choose their asset classes based on desired exposures to risk factors

Risk Factors:

Volatility, liquidity, inflation, interest rates, duration, FX, default risk

Question 5

Discuss strategic considerations in rebalancing asset allocations