non depositary

Question 1

How are finance institutions like banks, unlike banks, and how do they obtain funding?

Answer 1

like banks: make loans
unlike: no deposits
obtain funding by issuing CPs and bonds

Question 2

What are insurance institutions, what do they do, what do their cash flows and operations look like

Answer 2

• Sell life insurance and general policies
• get premiums and cover comissions, admin expenses and claims
• put reserves aside as commitments to policyholders and to invest in securities of maturity equivalent to contracts

Question 3

common financial ratios for life and P/C

Answer 3

Net underwriting margin
Underwriting efficiency
Expense ratio
Loss ratio
Combined ratio
Overall profitability: combined ratio - investment yield, must be lower than 100 if not, not profitable

Question 4

Describe Investment banks and and securities firms

Answer 4

• underwrriting for debt and equity securities, private placements, M&A, restructuring finance
• trading, investment, hedging and derivative
• wealth management, back office activities such as research

Question 5

Whats the difference between open and closed end mutual funds?

Answer 5

open end buy and sell shares continuously while closed end issue fixed number of shares and no redemption until maturity

Question 6

What are investment trust

Answer 6

share in a specific portfolio such as real estate, oil, gas, you receive cash instead of dividend

Question 7

How do pension plans work

Answer 7

pay as you go, current inflows pay current payments, new inflows pay old outflows

Question 8

What defined benefit and defined contribution plans

Answer 8

Benefit: risk assumed by the employe, flat benefit based on salary, years of work
Contribution: risk assumed by employee, no garantee of benefits, depends on the market

Question 9

Performance measures of mutual funds and pension funds

Answer 9

Alpha: actual return - Capm expected return
Sharpe ratio: (risk premium/volatility)