PMT

Question 1

Financial Intermediation

Answer 1

The movement of funds between those who supply capital and those who use it.

Question 2

Major Factors Influencing Capital

Answer 2

Demographic influences, maturing of the baby boom generation.

Question 3

Proliferation and Growth of Pension Plans

Answer 3

Competitive pressure on corporations to attract and retain employees.

Question 4

Empowerment

Answer 4

Individual Investors becoming more capable of making their own desicions.

Question 5

Innovation

Answer 5

New types of financial Products

Question 6

Declining Securities Transactions Costs

Answer 6

Growth of Low or No Fee-Distributors of financial products, which encourage more individuals to invest in popular products

Question 7

Capital Market Liberalization and Deregulation

Answer 7

More competitive and cost-effective financial markets.

Question 8

Derivative Factors

Answer 8

1. Regulation influences greater derivative use
2. Use Financial derivatives in the creation and management of customized products.

Question 9

Collective Investment Vehicles

Answer 9

Mutual Funds, ETFS, Hedge Funds, Venture Capital Funds, Private Investment Partnerships.

Attractive risk return by pooling assets
- Better Risk Return
- More effective collection and processing of information
- Spreading fixed operational costs over a larger asset base
- Using Size as a tool in the market environment to obtain better security transaction terms such as smaller bid ask spreads / comissions

Question 10

Defined Benefit and Defined Contribution

Answer 10

Differ significantly in the distribution of investment risk between the sponsor and the beneficiary.

In DB, programs, pension plan entitlements are typically calculated on the basis of the employee’s salary and tenure of employment.

In DC programs the beneficiary is typically provided the menu of investment choices.

Question 11

Endowment Funds / Trusts

Answer 11

Portfolios that are managed to produce income for a beneficiary organization.

Usually invested in long term assets and attempt to earn a targeted rate of return.

Typically in the 5% range.

Question 12

Corporate Treasuries

Answer 12

Range of activities varies:

Small to medium sized in one country, cash management.

Very large multinational companies: Sophisticated Investment management requirements, substantial resources to to their treasury functions. No registration required.

Responsible for DB admin.

Question 13

Investment Consultatnts

Answer 13

Advise Institutional Asset holders on the choice of external investment managers.

Usually for pension funds.

Question 14

Fund Rating Agencies

Answer 14

Score a rated company’s quality

quant/qual

targeted to retail

Question 15

Market Index Providers

Answer 15

Measure the performance of a hypothetical inevstment

Only in DBs or life insurance products does the beneficiary not bear investment risk

with all other types the investor or beneficiary bears risk.

Question 16

Table 3.1

Answer 16

“Table 3.1 | Participants in the Institutional Investment Industry and their Activities

Question 17

Plan Sponsor

Answer 17

Employer offering the plan

Question 18

Board of Trustees

Answer 18

Established to oversee the pension plans operation

Question 19

OSFI

Answer 19

Supervise federally regulated institutions and pension plans to determine if they are in sound financial condition

Advise FIs and PPs if they are meeting regulatory and supervisory requirements

Advise on market deficiencies and take corrective measures expeditiously or require management

advance a regulatory framework

Monitor and evaluate system side or sectoral developments

Non securities regulator, recognizes that pensions plans and BoD is ultimately responsible for risk