Whsy causes hyperinflation.

(a) (6 points) The Actuarial Standards Board (ASB) promulgated new ultimate risk- free reinvestment rates for 2019. Under these new rates, the short-term ultimate risk-free reinvestment rate-low will be equal to the long-term ultimate risk-free reinvestment rate-median. Scenarios A through E are a sample of five risk free rate scenarios as prescribed by the CIA standards of practice, and using the new ultimate risk free reinvestment rates promulgated by the ASB. Two graphs are shown below, one representing short-term risk-free rates and one representing the long-term risk-free rates. Graph X 5 Scenario - D 10 20 30 40 50 60 YearGraph Y 5 Scenario -A B Percentage D -4-E 2 10 20 30 40 50 Year (i) Determine which graph represents short-term rates and which graph represents long-term rates. Justify your answer. (ii) Identify the corresponding CIA prescribed scenario for scenarios A through E in the graphs above. Justify your answer.(b) (2 points) You have a block of business in the emerging market of the country of Catan. At the balance sheet date: . 1.00 Canadian dollar is equivalent to 1.02 of Catan currency. . The risk-free rates for Catan are within 0.10% of the risk free rates for Canada. In developing the risk free rates for Catan, the following recommendation was made: Continue to use the ASH's promulgated ultimate rate of returns (URR). Update the risk free implied forward rates using the exchange rate at the balance sheet date. Critique the recommendation. (c) (2 points) The investment policy for a block of business allows for a maximum mismatch of 6 months, with a target mismatch of 4 months. You are given the following historical mismatches: Period Duration mismatch in months 8 1-2 t - 3 1 - 4 1 - 5 t- 6 t - 7 t - 8 The following alternatives are being considered in determining the appropriate policy liabilities: (i) Assume the mismatch will move to the target mismatch position over time. (ii) Assume the mismatch will move to the maximum mismatch position over time. (iii) Assume the mismatch will remain at the four-period average mismatch position. Critique each alternative