Chapter 15: Insurance Companies

What function(s) do they perform?

What are the two types of structure?

How is cost of premiums determined.

What is asymmetric information?

How does adverse selection and moral hazard relate to asymmetric information?

Identify the major regulators of the industry and the major legislation related to the stock market.

Chapter 16: Security Firms and Investment Banks

Describe the primary products and services offered by these institutions

Explain distinction between broker-dealer and security underwriting.

Identify the primary regulators.

Chapter 17: Mutual Funds Companies

Distinguish the primary types of mutual fund companies.

Relate the major legislations and regulatory/supervisory bodies of the mutual fund companies.

Contrast an index fund/ETF with an actively-managed fund.

Differentiate between a load and no-load fund and how the operating expenses and 12b-1 fees relate.

Contrast a hedge fund from a mutual fund.

Chapter 18: Pension Funds

Contrast a defined benefit plan from a defined contribution plan.

Describe the demographic factors that led to the switch in popularity between the two types.

Calculate annual benefits for a defined benefit plan.

Calculate potential retirement balance for defined contribution plan.

Chapters 19 - 24: Risks for Financial Institutions

Identify the various risks related to financial institutions.

Utilize various risk models to aid management in decision-making.

1. Credit Risk
   1. Utilize Altman-Z score to make lending decision.
   2. Calculate the return on assets using:

Formula = 1 + k = 1 + f + (BR + m) where k = contractually promised gross return on the loan 1-b(1 RR) f = direct fees BR = Base lending rate m = Risk premium b = compensating balance RR = reserve requirement charge

2. Liquidity risk Determine adequacy of proposed liquidity plan.
3. Interest rate risk Calculate and interpret duration as means of assessing interest rate risk.
4. Off-Balance Sheet risk
   1. Distinguish between microhedge and macrohedge. Provide examples of each.
   2. Analyze scenario for potential benefit of loan sale and/or securitization.