FIMana questions:

INSURANCE:
1. What is the largest item on liability side of balance sheet for life insurance
companies?
Ans: policy reserves
2. What is the loss ratio?
Ans: in the property/ casualty insurance, the actual losses incurred on an
insurance line, divided by the premium earned.
3. What is the essence of adverse selection problem in insurance?
Ans: the customer most eager to apply for an insurance contract will be those
most likely to have a claim against the insurance company.
4. What kind of asset insurance companies have?
Ans: long-term assets
5. What kind of liabilities insurance companies have?
Ans: long-term liabilities
6. What is long-tail loss?
Ans: the term referring to a phenomenon in the property-casualty insurance
business when a claim may occur many years after the relevant insured
event
7. Example type of life insurance?
A: universal life, mortgage, term
8. What is not type of life insurance?
A: wholesale insurance
9. What universal life insur allow policyholders?
A: allow policyholder to alter their payment over time
10.What mortgage life insur do?
A: pay off policyholders mortgage in event of persons death
11.What premium pay for life insur depend on?
A: - personal characteristics (such as age)
- Cash value
- Amount of insur
12.What institution offer life insur?
A: - financial insti provide banking n brokerage service
- Subsidiary of financial conglomerate
- Independent firm
13.What relationship betw value of the home n value of insur premium?
A: positive, higher higher, lower lower
14.Who provide to auto insur?
A: property n casualty insur company
BROKER AND INVESTMENT BANKS:
1. What is investment bank?
Ans: the financial institution that helps corporations raises funds
2. What investment bank sell, and to whom?
Ans: sell new securities to the public
3. What securities firm sell, and to whom?
Ans: sell existing securities to the public

4. What is the primary function of investment bank?

Ans: helping the corporations raise funds
5. What tasks inv bankers perform when act as underwriter to sell securities to
public?
- pricing security
- prepare filings required by Securities and Exchange Commission
- arrange for security to be rated
6. What does the process underwriting stock or bond requiresecurities firm?
Ans: to purchase entire issue at predetermined price and then resell it in the
market
7. What is syndicate?
A: group of inv banker, each one buy only a portion new secur to be issue
8. Who are buyers of private placement issue?
A: insur com n pension fund
9. What diff betw broker n dealer?
A: - brokers are pure middleman
- Dealers make mar standing ready to buy n sell at given price
10.What r key activities of Secur Com n Inv Bank?
A: - invest
- Mar making
- - proprietary trading
- -advise M&A
11.What r not key act of Secur Com n Inv Bank?
A: deposit taking
12.What example is deposit taking insti?
A: -commer bank
- Saving bank
- Credit union
- Saving n loan
13.What inv bank not do?
A: deposit taking insti
14.Where inv bank perform main function?
A: primary amr for secur
15.Wheresecur broker n dealer perform main unction?
A: secondary mar
FUNDS:
1. what is close-end mutual fund?
Ans: the fund offer investors professional management
2. What the investors in closed-end funds must to liquidate their positions?
Ans: sell their shares through a broker
3. Comparing to NAV, the offering price of open-end funds :
Ans: greater than NAV
4. What make the price offering in open-end funds greater than NAV?
Ans: because of the loads and commissions
5. What Money Market Mutual Funds invest in?
- commercial paper
- CDs
- Repurchase agreements

6. What MMMF usually offer?

Ans: check-writing privileges
7. What are advantages of mutual funds?
- Offer variety of investment styles
- Help small investor get benefits of diversification
8. What form mutual fund offer a return to investor?
A: - security price appre
- Dividend payment
- Coupon payment
9. What is 12b-1 fee?
Ans: the fee mutual funds use to help pay for advertising and promotional
literature
10.What include in management fee n other expense of MF?
A: front-end loads, back-end loads, 12b-1 charges
11.What differences between hedge funds and mutual funds?
- Hedge fund only subject to minimal SEC regulation
- HF typical open only to wealthy or institutional investors
- HF manager can pursue strategies not available to MF (such as short
selling, heavy use of derivatives, and leverage)
- HF common structure as private partnerships
12.What strategies HF can but MF cannot?
- Short selling
- Heavy use of derivatives
- Leverage
13.How risk Hedge funds are?
Ans: Hedge funds are high risk, even though they may be market-neutral
14.How long inv in share n MF (op-en) shown?
A: over 5 yr bucket
15.How long inv in MMF shown?
A: under 1yr bucket
16.What happen when shift port from long-dated bond to money mar
instrument, yield unchanged?
A: rise in long-term IR
FINANCE COMPANIES:
1. Who provide most automobile financing?
Ans: finance companies owned by automobile companies
2. What are finance companies?
- Money market intermediaries
- Borrow in large, lend small amounts
- Are mostly unregulated
3. What distinguish consumer finance companies and commercial bank?
- Con fi com often accept loans at higher default risk than bank would
- CFB often wholly own by manufacturer who willing to offer favorable credit
terms to sell product
4. Who do consumer finance companies make loan to?
Ans: the consumers cannot obtain credit from other sources
5. What are consumer finance companies?
- Make loan to consumer cannot obtain credit from other sources

- Owned by separate corporations or banks

- Charge high interest rates because their loan are high risk
6. What do business finance companies provide?
- Factoring
- Equipment that can be leased
7. GMAT is an example of what?
Ans: captive finance company
8. What is the primary asset of a typical finance company?
Ans: its normal loans
9. What is the primary source of income for finance companies?
Ans: interest income from its loan portfolio
10.What is the largest bank asset?
Ans: loans
11.What is the largest bank liability?
Ans: checkable deposit
12.What is secondary reserve often referred?
Ans: the short-term security holdings by banks
13.When will a bank lost reserves?
Ans: when it purchases an earning asset (security or loan)
14.What is the main concern of liability management?
Ans: acquire funds at low cost
15.What is the gap in gap analysis mean?
Ans: the difference between banks rate-sensitive assets and rate-sensitive
liability
16.What finance intermediaries can do to manage credit risk?
- Screen and monitor customers
- Develop long term relationships with customers
17.What are activities of off-balance sheet?
- Speculation in future market
- Secondary loan participation
- Loan commitment fee
18.What fi.insti bal.sheet tell us?
A: - total A = total L + equity capital
- List source n use of FI fund
19.What FI L mean to it?
A: its source of fund
20.What FI A mean to it?
A: its uses of funds
21.What fixed deposit in bank BS?
A: fixed deposit in L of bank BS
22.How FI make profit?
A: sell short-term L, buy longer-term A
23.When deposit in cur at bank, whaty happen?
A: - reserve increase same amount
- A increase same
- L increase same
24.What is the goal of asset mana?
A: buy secur high return n low risk
25.When a bank failure occur?

A: bank cannot satisfy its obligation to pay deposit n have enough reserve to
meet reserve require
26.What help prevent FI failure? Why?
A: hold large amount of cap
b/c: it can be used to absorb loss result form L outflow
27.In return on Asse, what happen?
A: return to owner of FI higher when amount of cap lower
28.What happen when FI has more rate0sensitive L than A?
A: increase in interest rate will reduce FI profit
29.What happen when FI more rate-sensitive A than L?
A: increase interest rate lead to increase FI profit
30.What example of rate-sensitive A?
A: - security with maturity less 1yr
- Variable-rate mortgage
31.What not example rate-sen A?
A: fixed-rate mortgage
FX RISK
1. Example of foreign exchange?
- Ex of claim denominate another cur
- Ex of bank deposit
- Ex of cash issue by for.central bank
2. What Vietnam firm favor borrow? Why
A: borrow from for.mar b/c less expensive
3. Who are usual suppliers of Euro?
- Us exporters
- Us for.investor remit profit
- European direct investor
4. What fisher effect theory about?
A: different in nominal interest rate eliminate in exchange rate
5. What happen when inflation in Vietnam go up relative other countries?
A: price of VND fall
INTEREST RATE RISK
1. What happen when bond sell at premium (price higher than face value)
A: market interest rate below coupon rate
2. What happen when bond price increase?
A: yield to maturity decrease
3. What is interest rate risk?
A: risk associate change in return with change in interest rate
4. What is systemic risk?
A: risk due to failure of entire bank system
5. What is the shape of yield curve?
A: upward sloping
DURATION
1. What is duration gap analysis?

A: a complement to basic gap ana account for effect of interest rate change
on market value
2. What is basic gap ana?
A: measure sensitivity bank profit to change in interest rate by multiply gap
time the change in interest rate
3. What is maturity bucket approach to gap ana?
A: measure sensi of bank profit to change in IR by X gap for several maturity
subinterval by change in IR
4. What is problem in duration gap ana?
A: calculate assum that yield curve is flat
5. What prob in basic gap ana?
A: cal assume IR all maturities change by equal amt
6. What bank manager does to make IR rise when bank has positive gap?
A: incre rate-sen A n decre rate-sen L
7. What bank mana do to make IR fall when bank has pos gap?
A: decre rate0sen A n increase rate-sen L
8. What happen in absence of regulation?
A: bank would hold too little cap
9. What should do to eliminate bond/loan price change?
A: use ma\odified duration using Mcaulay Duration Xyield change relationship
10.What is VaR?
A: potential worst case loss at specific confidence level over certain period of
time