non-depository institution

Question 1

Whats the major difference between investment banks and commercial banks?

Answer 1

• their role in retail markets

- They are not allowed to accept deposits in most countries

Question 2

What 3 areas do investment banks operate in?

Answer 2

1) security trading
2) asset management
3) investment banking (corporate funding & trade finance

Question 3

what are some sources of funds for investment banks

Answer 3

• financial advisory services
• underwriting the issue of new securities
• rights issue, share placements
  mergers & acquisitions
• organising meduim to L/T finance facilities
• Investment management

Question 4

what conflict of interest occurs with a invesment bank?

Answer 4

one part of the bank is advising on an asset sale or an initial public offering while the bank’s research
arm is producing research for the investment banks’ investor clients
about the quality of the assets or the IPO

Question 5

what % of financial assets are managed by managed funds (unit trusts)

Answer 5

19%

Question 6

4 main categories of managed funds

Answer 6

1) cash management trusts
2) Unit trusts
3) superannuation funds
4) hedge funds

Question 7

sources of funds for managed funds

Answer 7

investors pool funds to invest in claims against (shares) a
portfolio of securities managed by professional manager.
may be periodic payments or lump sum put into managed
funds

Question 8

uses of funds for managed funds

Answer 8

invested by professional fund managers according to fund’s

trust deed.

Question 9

4 types of managed funds and their aim

Answer 9

1. Capital guaranteed funds-seeks positive return but offers
   protection from loss-likely to invest in bonds and …
2. Capital stable funds- secure investment but no guarantee of
   capital
3. Balanced growth funds- longer-term income stream & some
   growth- likely to invest in range of financial assets
4. Managed growth funds- seeking maximum return from
   capital growth- % of equity highest of all & equity likely to be
   companies with higher risk but good growth prospects

Question 10

the 4 managed funds set up under a trust deed

Answer 10

1. Equity trusts
2. Fixed-interest trusts
3. Mortgage trusts
4. Property trusts

Question 11

are most managed funds listed or unlisted?

Answer 11

• most are unlisted with units being bought & sold thru. fund manager

Question 12

are most managed funds open or closed ended?

Answer 12

Majority of managed funds in NZ are open-ended & offered via fund
manager

Question 13

what securities an exchange traded fund hold?

Answer 13

they hold all or majority of shares in S&P/ASX200

Question 14

definition of open ended

Answer 14

: more units are created as demand increases.

Prices calculated regularly by fund manager

Question 15

definition of close ended

Answer 15

: number of units are generally fixed
- prices for listed trusts based on market value & can often differ
from net asset value (NAV) & trade at discount or premium

Question 16

Superannuation/Pension Sources of funds

Answer 16

• from members who make periodic

contributions & income derived from investing contributions

Question 17

Superannuation/Pension uses of funds

Answer 17

• invested in wide range of assets, generally

long-term that are expected to deliver growth

Question 18

features of a hedge fund

Answer 18

• Mainly for high-net worth individuals & institutional investors
• Specialise in strategies to try & achieve high returns
• Expectation they will achieve positive returns in both upward- &
downward-moving market
• Level of risk for investors much higher

Question 19

Advantages of managed funds

Answer 19

1. Pooling of funds by small investors which  investment
   activities on larger scale
2. Spread of risk/safety & diversification
3. Professional management have access to more info (big
   advantage for the small investor).
4. In general, unit trusts can be bought & sold at short
   notice (liquidity service) from fund manager (for unlisted)

Question 20

disadvatages of managed funds

Answer 20

• Fund performance- managers don’t tend to outperform
market
• Governance issues
• Not much persistency in performance

Question 21

life insurance company sources of funds

Answer 21

• offer contractual products e.g. whole of life, term

or endowment policies. Other insurance policies may be added on.

Question 22

life insurance company uses of funds

Answer 22

• invest bulk of funds in L/T securities, to match their L/T liabilities