CAIA - 05 - Sovereign Wealth Funds Flashcards Preview

CAIA > CAIA - 05 - Sovereign Wealth Funds > Flashcards

Flashcards in CAIA - 05 - Sovereign Wealth Funds Deck (65)
Loading flashcards...
1

SWFs' initial allocations are generally almost all in ___ and ___ ___, since assets are used to stabilize a country's economy against volatile revenues, foreign trade, and capital flows.

SWFs' initial allocations are generally almost all in cash and fixed income, since assets are used to stabilize a country's economy against volatile revenues, foreign trade, and capital flows.

2

The common sources of wealth for a sovereign wealth fund are:

 

1. ___ ___

2. ___ ___ Money

3. ___ ___

The common sources of wealth for a sovereign wealth fund are:

 

1. Trade Surpluses

2. Foreign Aid Money

3. Natural Resources

3

The ___ of ___ is a record of a country's transactions and cash flows associated with its foreign transactions in a given period.

The balance of payments is a record of a country's transactions and cash flows associated with its foreign transactions in a given period.

4

The balance of payments is composed of two accounts:

 

1. ___ Account

2. ___Account

The balance of payments is composed of two accounts:

 

1. Capital Account

2. Current Account

5

The ___ account measures investment flows of purchases and sales of foreign assets and debt.

The capital account measures investment flows of purchases and sales of foreign assets and debt.

6

A country with a ___ ___ ___ has more imported capital than exported capital.

A country with a capital account surplus has more imported capital than exported capital.

7

The ___ account measures trade in goods and services, investment income and gifts. Components include ___and ___goods and services.

The current account measures trade in goods and services, investment income and gifts. Components include commodities and manufactured goods and services.

8

In a country with a ___ ___ ___, the value of imports of goods and services exceeds that of exports, so more money leaves the country to buy goods/services than comes in from the sales thereof.

In a country with a current account deficit, the value of imports of goods and services exceeds that of exports, so more money leaves the country to buy goods/services than comes in from the sales thereof.

9

A central bank's ___ ___maintains its foreign currency holdings and is the sum of the capital and current accounts.

A central bank's reserve account maintains its foreign currency holdings and is the sum of the capital and current accounts.

10

What is the equation for change in the reserve account?

11

Countries with floating exchange rates that have capital account surpluses generally have current account ___ in a given year because the ___ ___ brings the two accounts into equilibrium.

Countries with floating exchange rates that have capital account surpluses generally have current account deficits in a given year because the currency market brings the two accounts into equilibrium.

12

A country's currency tends to appreciate in value when the country has the following characteristics:

 

1. Lower ___ than its trading partners

2. Higher ___ ___ ___than its trading partners

3. ___ that attract capital inflow

4. Slower ___ ___ than its trading partners

5. ___or ___ ___ in export-oriented industries.

A country's currency tends to appreciate in value when the country has the following characteristics:

 

1. Lower inflation than its trading partners

2. Higher real interest rates than its trading partners

3. Policies that attract capital inflow

4. Slower income growth than its trading partners

5. Competitive or comparative advantage in export-oriented industries.

13

___ ___ ___ can be held by central banks or can be invested in SWFs

Foreign currency reserves can be held by central banks or can be invested in SWFs

14

Commodity exporting countries have three key concerns regarding tax revenues:

 

1. Volatile ___ ___produce an ___income stream, which is incompatible with generally ___government spending

2. Commodity revenues will eventually experience ___since commodities cannot last forever

3. Governments prefer not to rely primarily on ______ but prefer to have a ______that also generates tax revenues from other industries.

Commodity exporting countries have three key concerns regarding tax revenues:

 

1. Volatile oil prices produce an unstable income stream, which is incompatible with generally stable government spending

 

2. Commodity revenues will eventually experience depletion since commodities cannot last forever

 

3. Governments prefer not to rely primarily on commodity revenues but prefer to have a diversified economy that also generates tax revenues from other industries.

15

Sovereign Wealth Funds may be divided into four categories:

 

1. ___ Funds

2. ___Funds

3. ___Funds

4. ___Funds

Sovereign Wealth Funds may be divided into four categories:

 

1. Stabilization Funds

2. Savings Funds

3. Reserve Funds

4. Development Funds

16

Central banks use reserves for three purposes:

 

1. To implement ___ ___

2. To intervene in the ___ ___market

3. To provide ___to prevent crises

Central banks use reserves for three purposes:

 

1. To implement monetary policy

2. To intervene in the foreign exchange market

3. To provide liquidity to prevent crises

17

Countries with sizeable revenues put reserves in sovereign wealth ___ funds, which use the funds to insulate the economy and enable relatively stable government spending

Countries with sizeable revenues put reserves in sovereign wealth stabilization funds, which use the funds to insulate the economy and enable relatively stable government spending

18

Stabilization funds are (cyclical/countercyclical), accumulating excess revenues during periods of high commodity prices and distributing the savings during periods of low commodity prices.

Stabilization funds are countercyclical, accumulating excess revenues during periods of high commodity prices and distributing the savings during periods of low commodity prices.

19

The 3 general rules on transferring commodity revenues into SWFs are:

 

1. ___ ___rule

2. ___ ___rule

3. ___from the ___ ___rule

The 3 general rules on transferring commodity revenues into SWFs are:

 

1. Fixed percentage rule

2. Hurdle price rule

3. Deviation from the moving average rule

20

Under the ___ ___rule, a fixed percentage of the commodity revenues is transferred to the SWF. The transfer is (procyclical/countercyclical) and the (easiest/hardest) rule to implement.

Under the fixed percentage rule, a fixed percentage of the commodity revenues is transferred to the SWF. The transfer is procyclical and the easiest rule to implement.

21

Under the ___ ___rule, all commodity revenues above a certain price are transferred to the SWF.

Under the hurdle price rule, all commodity revenues above a certain price are transferred to the SWF.

22

Under the ___ from the ___ ___ rule, commodity revenues that exceed a moving average are transferred to the SWF, while revenues below a moving average move proceeds out of the SWF into the government budget.

Under the deviation from the moving average rule, commodity revenues that exceed a moving average are transferred to the SWF, while revenues below a moving average move proceeds out of the SWF into the government budget.

23

Sovereign wealth ___ ___are designed to increase financial wealth that can be distributed in the future.

Sovereign wealth savings funds are designed to increase financial wealth that can be distributed in the future.

24

Some savings funds focus on investing in ___ ___assets that correspond to countries from which imported goods are purchased or the ___in which foreign debt is issued.

Some savings funds focus on investing in foreign currency assets that correspond to countries from which imported goods are purchased or the currency in which foreign debt is issued.

25

Sovereign wealth ___ ___funds use proceeds of commodity or manufactured goods exports to invest for high total returns in order to meet estimated future pension related liabilities.

Sovereign wealth pension reserve funds use proceeds of commodity or manufactured goods exports to invest for high total returns in order to meet estimated future pension related liabilities.

26

Sovereign Wealth ___ ___funds invest in total return portfolios in order to overcome the opportunity costs of cash and fixed-income dominated stabilization funds, while the assets in the ___ ___ funds are counted as reserves.

Sovereign Wealth reserve investment funds invest in total return portfolios in order to overcome the opportunity costs of cash and fixed-income dominated stabilization funds, while the assets in the reserve investment funds are counted as reserves.

27

Sovereign wealth ___ ___are established to allocate resources to socio-economic projects to increase the country's productivity and future wealth. As such they invest in human capital, infrastructure and local industries.

Sovereign wealth development funds are established to allocate resources to socio-economic projects to increase the country's productivity and future wealth. As such they invest in human capital, infrastructure and local industries.

28

Development funds are (more/less) concentrated than savings and reserve funds, and some are similar to private equity funds.

Development funds are more concentrated than savings and reserve funds, and some are similar to private equity funds.

29

Development funds can pose conflicts of interest:

 

1. They may ___ ___systems

2. They may become ___for ___

Development funds can pose conflicts of interest:

 

1. They may undermine public systems

2. They may become conduits for corruption

30

Development funds (should/should not) be separated from government agencies

Development funds should be separated from government agencies

Decks in CAIA Class (39):