Class test: Acronyms 1-19 Flashcards

Question

Risks affecting bonds specifically: | CLAIM R

Answer 1

``` Credit Liquidity Actuarial Inflation Market Reinvestment ```

Answer 2

``` Mismatching domestic liabilities Tax Volatility due to exchange rate Custodianship/ currency risk Administration Time delays Expense/ expertise Regulation poor Political problems Information lacking Language Liquidity Accounting differences Restrictions on share ownership ```

Answer 3

Current market valuation Added diversification Marketability/ market regulation Possibility of high future economic growth/ political stability Economic growth - lower base, demographic advantage Regulation and restriction on foreign investment Currency stability

Answer 4

``` Comparables Age/condition Location Lease structure Size Tenant quality Usage of building Development Potential ```

Answer 5

``` Systematic risk considered Nature of cash flows (real vs. nominal) Current cost of raising capital WACC (Explain fully) Alternative investments considered Compare riskiness – similar projects, other companies Sensitivity testing ```

Answer 6

``` Political Economical Business Project Natural Financial Crime ```

Answer 7

Similar risks insured – data, expertise, admin systems Level of cover offered – exclusion, excess Appetite of insurer (risk) Reinsurance available Profitability of business History of claims in similar business Ability to write new business – Financial Position Competitiveness in business Aim of company – does this business fit in? New Business Strain ``` Cost to target market Availability of market data Risk such as anti selection and moral hazard Competition products that are similar Economic condition correlation Exclusions Needs of customers ```

Answer 8

``` Diversification Economies of scale Less costs of direct investments Tax and marketability advantages Access - wider range of investments Share Price (ITC only) -> Discounted NAV (bought cheap) Expected return higher than normal shares (extra volatility) Expertise of investment managers Divisibility of assets ``` ``` Control lost Lack diversification away from equities (Property equity) Extra volatility Management costs Tax disadvantages ```

Answer 9

``` Diversification Increase expected returns: - higher risk markets - inefficient markets Match Liabilities in foreign currency Investing in a number of different countries or economies with a low degree of correlation helps reduce portfolio risk ```

Answer 10

Multinationals based in domestic markets Holding companies with foreign holdings Domestic companies with substantial Exports Derivatives based on foreign underlying assets CIS's

Answer 11

Specialist knowledge of foreign markets acquired No need for research of foreign markets Still local Practically easy: Admin and accounting made easier Access to markets you usually wont have No control over the market exposed to Extent of currency risk is uncertain- hedges, derivatives, swaps Dilution of foreign exposure Correlation with local market- market segment, political, etc. Taxation problems - possible double tax

Answer 12

``` Bid/offer spread higher for ITC Assets bought cheaper: ITC (Discounted NAV) Gearing ITC – higher Return and Volatility Wider asset range for ITC Change in NAV of ITC Marketability higher – UT Tax Open ended- UT, Closed ended - ITC ```

Answer 13

Public confidence Economies of scale No abuse Independent from rest of the industry Moral hazard of industry Unnecessary rules Costly Inflexible

Answer 14

``` Rapid response to change Easy cooperation Knowledge of industry Public confidence low Entry barriers Lack of experience to manage ```

Answer 15

``` Correlation with equity market Expected return and volatility Control Diversification Marketability expertise Divisibility ``` Diversification added over a large ray of properties Smaller entry costs Liquidity No need to invest time in finding tenants and letting to them No unique risks such as obsolescence and void periods Expertise from investment managers gained Property equity is correlated with equity market Control lost

Answer 16

``` Diversification Expertise by investment managers Marketability - sale guaranteed Specialist sector No need to carry out own INvestment Track specific INdexes ``` Cheaper ASSets - Discount to NAV GEARing - higher expected returns ``` Control lost Additional charges - management fees Tax differences Limited gearing Limited amount of assets that can be invested in ``` Control lost Additional charges - management fees Tax differences Extra volatility

Answer 17

``` Practicality Factors affecting the company are similar Information from a common source Expertise only on one area Portfolio valuation is easy ``` Correlation due to similar: Markets Resources Structure

Answer 18

Profit/Loss = Premium + Investment income - Claims - Expenses

Answer 19

``` Distributors Competitors Expensive/inexpensive Marketing Guarantees/Options Attractiveness of benefits Product popularity ```

Answer 20

Chinese walls Avoiding conflict, such as declining a job Records kept in detail of the work done Disclose the conflict to all parties involved Regulators notified if TCF not complied with

Answer 21

Payments should be made on a timely basis Authorisation required to sell insurance Minimum solvency requirements should be regulated Sales volume restriction to eliminate monopolies Audited financial returns need to be submitted on a regular basis Minimum benefits should be required Brokers should be trained appropriately Advertisement should be regulated Maximum/minimum premium rates should be set to avoid overcharging/undercharging Valuation of assets and liabilities should be regulated Rating factors used should be regulated

Answer 22

Act with Honesty and integrity - Fulfill responsibilities to clients and public, consider best interest of clients, avoid COI Competence and care - acquire technical skills, maintain and update skills, non experts supervised Compliance- rules of society, whistle blowing, accept society's punishment Communication - with stakeholders(clearly, low level. jargon), allow for informed decisions to be made

Class test: Acronyms 1-19 Flashcards

(46 cards)