Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFA Level 3 > Institutional Investors > Flashcards

Institutional Investors Flashcards

You may prefer our related Brainscape-certified flashcards:
CFA flashcards
1
Q

Cash balance plan

A

A defined-benefit plan whose benefits are displayed in individual recordkeeping accounts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Accumulated benefit obligation (ABO)

A

The ABO is the present value of pension benefits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Projected benefit obligation (PBO)

A

The PBO includes the ABO as well as future compensation increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Total future liability

A

Total future liability can be defined as the present value of accumulated and projected future service benefits, including the effects of projected future compensation increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Shortfall risk

A

The risk that portfolio value will fall below some minimum acceptable level over some time horizon

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Asset/liability management

A

A subset of a company’s overall risk management practice that typically focuses on financial risks created by the interaction of assets and liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

The Employee Retirement Income Security Act of 1974 (ERISA)

A

A federal law that establishes minimum standards for pension plans in private industry

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Fund Functioning as Endowment (FFE)

A

Funds functioning as endowments (often referred to as quasi-endowments) are used to report resources that the endowment, rather than the donor, has determined are to be retained and managed like an endowment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Spending rules for endowments

A
  • Simple spending rule
    • Spendingt = Spending rate × Ending market valuet – 1
  • Rolling three-year average spending rule
    • Spendingt = Spending rate × (1/3) [Ending market valuet – 1 + Ending market valuet – 2 + Ending market valuet – 3]
  • Geometric smoothing rule
    • Spendingt = Smoothing rate × [Spendingt – 1 × (1 + Inflationt – 1)] + (1 – Smoothing rate) × (Spending rate × Beginning market valuet – 1)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Disintermediation

A

The withdrawal of funds from intermediary financial institutions, such as banks and savings and loan associations, to invest them directly

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

The National Association of Insurance Commissioners (NAIC)

A

The U.S. standard-setting and regulatory support organization for insurance industry accounting rules and financial statement forms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Risk-based capital (RBC)

A

A method developed by the NAIC to measure the minimum amount of capital that an insurance company needs to support its overall business operations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Risk of insurances companies

A
  • Valuation concerns
  • Reinvestment risk
  • Credit risk
  • Cash flow volatility
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Foundations versus endowments

A
  • Foundations are typically grant-making institutions funded by gifts and investment assets
  • Endowments are long-term funds generally owned by operating non-profit institutions such as universities and colleges, museums, hospitals, and other organizations involved in charitable activities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Types of foundations

A
  • Independent (private) foundation
  • Company-sponsored foundation
  • Operating foundation
  • Community foundation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Insurance companies regulatory and legal considerations

A
  • Eligible investments
  • Prudent investor rule
  • Valuation methods
17
Q

Long-tail

A

Liabilities for claims that have long settlement periods

18
Q

Underwriting (profitability) cycle

A

The underwriting cycle is the tendency of property and casualty insurance premiums, profits, and availability of coverage to rise and fall with some regularity over time

19
Q

Leverage-adjusted duration gap

A
  • DA - kDL
  • DA is the duration of assets
  • DLis the duration of liabilities
  • k = L/A and is the ratio of the MV of liabilities to the MV of assets
20
Q

Positive interest rate shock effect on duration gap

A
  • Banks with a positive gap → decrease in MV
  • Banks with a zero gap (immunized) → no effect on MV
  • Bank with a negative gap → increase in MV
21
Q

Value at Risk (VaR)

A

Is a money measure of the minimum value of losses expected over a specified time period (for example, a day, a quarter, or a year) at a given level of probability (often 0.05 or 0.01)

22
Q

Pledging requirement

A

A required collateral use of assets

23
Q

Then the present value of an eternal benefit obligation attributable to future wage growth (this does not include the accrued benefit portion of the liability) starting in s years

A
24
Q

The present value of an eternal benefit obligation attributable to future wage growth (this does not include the accrued benefit portion of the liability) for s years till retirement but starting in d years equals

A
25
Q

The present value of a benefit obligation attributable to future wage growth, starting in s years and ending in d years

A
26
Q

Liability mimicking assets - active group

  • Nominal bonds
  • Real rate bonds
  • Equities
A
  • Accrued benefits:
    • The term structure of these benefits is mimicked by nominal bonds
    • The portion that is indexed to inflation is mimicked by real rate bonds
  • Future wage increases:
    • Future wage inflation is mimicked by real rate bonds
    • Future real wage growth is mimicked by equities
27
Q

Liability mimicking assets - retiree group

  • Nominal bonds
  • Real rate bonds
A
  • The term structure of these benefits is mimicked by nominal bonds
  • The portion that is indexed to inflation is mimicked by real rate bonds
28
Q

Liability mimicking assets - deferred group

  • Nominal bonds
  • Real rate bonds
A
  • The term structure of these benefits is mimicked by nominal bonds
  • The portion that is indexed to inflation is mimicked by real rate bonds
29
Q

Foundations vs banks

A

Foundations have lower liquidity requirements than banks because they mostly consist of anticipated grant needs. Foundations also have higher return objectives and tolerance for risk than banks, as well as much longer time horizons

30
Q

Net interest margin

A

The net interest margin equals net interest income (interest income minus interest expense) divided by average earning assets

31
Q

The interest spread

A

The interest spread equals the average yield on earning assets minus the average percent cost of interest-bearing liabilities

32
Q

Policy surrender

A

During periods of rising interest rates, policyholder redemptions accelerate as policyholders seek the most competitive rate

33
Q

Segmentation approach to insurance portfolio management

A

Most life insurance companies segment their portfolios to group liabilities with similar interest-rate-sensitivity characteristics. Portfolios are then constructed by segment in such a way that the most appropriate securities fund each product segment

34
Q

Policyholder reserves

A

Funds held by the company for future disbursement

35
Q

Types of foundation in the United States

A

CFA Level 3 (19 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions