Reading 68: fintech in investment management

Question 1

Fintech is most accurately described as:
the application of technology to the financial services industry.
the replacement of government-issued money with electronic currencies.
the clearing and settling securities trades through distributed ledger technology.

Answer 1

Fintech refers to the application of technology to the financial services industry and to companies that are involved in developing and applying technology for financial services. Cryptocurrencies and distributed ledger technology are examples of fintech-related developments. (LOS 68.a)

Question 2

Which of the following technological developments is most likely to be useful for analyzing Big Data?
Machine learning.
High-latency capture.
The Internet of Things.

Answer 2

Machine learning is a computer programming technique useful for identifying and modeling patterns in large volumes of data. The Internet of Things refers to the network of devices that is one of the sources of Big Data. Capture is one aspect of processing data. Latency refers to the lag between when data is generated and when it is needed. (LOS 68.b)

Question 3

A key criticism of robo-advisory services is that:
they are costly for investors to use.
the reasoning behind their recommendations can be unclear.
they tend to produce overly aggressive investment recommendations.

Answer 3

One criticism of robo-advisory services is that the reasoning behind their recommendations might not be readily apparent to customers. Recommendations from robo-advisors tend to be conservative rather than aggressive. Low cost is a primary advantage of robo-advisors. (LOS 68.c)

Question 4

Which of the following statements about distributed ledger technology is most accurate?
A disadvantage of blockchain is that past records are vulnerable to manipulation.
Tokenization can potentially streamline transactions involving high-value physical assets.
Only parties who trust each other should carry out transactions on a permissionless network.

Answer 4

By enabling electronic proof of ownership, tokenization has the potential to streamline transfers of physical assets such as real estate. The high cost and difficulty of manipulating past records is a strength of blockchain technology. Permissionless networks do not require trust between the parties to a transaction because the record of a transaction is unchangeable and visible to all network participants. (LOS 68.d)