ECON102 : risk management.pdf

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silvercoyote380

5 Dec 2014

School

University of Alberta

Department

Economics

Course

ECON102

Professor

Susan Kamp

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ECON102 Full Course Notes

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Legal disclaimer y p p: the sole responsibility for the content of this presentation lies with its author(s). Materials in this presentation are intended for informational purposes only and do not necessarily represent the views or position of atb financial. Atb financial assumes no responsibility or liability for any error, inaccuracy, omission or comment contained in this presentation or for any use that may be made of such information by any reader or recipient. Any use of, or reliance on, the information contained in this presentation by any third party is at that party"s sole risk. Permission must be granted by the author(s) of this presentation prior to the use, publication, circulation or distribution of any of the information contained in this presentation. p y y p y y y. C: branches and agencies service 243 communities across the province. Sole fi in 100 of them: full service financial institution offering:

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$30,000 QUESTION 3 Imagine you live in a society with progressive taxation. Your friend makes half of your salary and pays 20 percent in income taxes. Which rate most likely would be your income tax rate? (5 points) 2 percent 10 percent 20 percent 40 percent QUESTION 4 02_08_g4_q1.png Look at the bar graph. What kind of tax is depicted here? (5 points) Flat Proportional Progressive Regressive QUESTION 5 Which of these is an example of indirect tax? (5 points) Corporate income tax Gasoline tax Paycheck withholdings Property tax QUESTION 6 02_08_g6_q1.jpg Look at the graph. How does the tax shown differ from a proportional tax? (5 points) A progressive tax increases with income level; a proportional tax decreases with income level. A regressive tax decreases with income level; a proportional tax is the same percentage for everyone. A progressive tax increases with income level; a proportional tax is the same percentage for everyone. A regressive tax is the same percentage for everyone; a proportional tax increases with income level. QUESTION 7 Which of these investments may pay dividends? (5 points) Bonds Savings accounts Certificates of deposit Stocks QUESTION 8 02_08_g8_q1.jpg Assume that the blue section (D) of the chart stands for stocks and the red (A) for mutual funds. This would most likely represent the portfolio of a (5 points) young investor middle-aged investor nearly-retired investor elderly investor QUESTION 9 Assume that the blue section (D) of the chart stands for stocks and the red (A) for mutual funds. This would most likely represent the portfolio of a (5 points) young investor middle-aged investor nearly-retired investor elderly investor QUESTION 9 Which of the following investment plans best reflects diversification? (5 points) Ben has an investment portfolio with numerous stocks and futures. Kenya invests in stocks, bonds, and mutual funds. Jeremiah takes out a CD and keeps the rest of his money in a savings account. Molly splits her investment between mutual funds and a money market account. QUESTION 10 Rudy is a 52-year-old freelance writer who wants a short-term, low-risk investment with low liquidity. Which of these investment vehicles should he consider? (5 points) CD IRA Mutual fund Stocks QUESTION 11 Hometown Bank Products Minimum Opening Deposit Interest Paid per Year Monthly Fee Checking $100.00 0.00% $0.00 Savings $250.00 0.50% $0.00 Platinum Savings $1,000.00 0.75% $10.00 CD (1year) $1,000.00 1.05% $0.00 CD (5 year) $1,000.00 1.80% $0.00 Money Market $1,000.00 0.75% $10.00 Vesna has $1,000 to invest, and she will need to have her money available in the next six months. Which product will yield her the highest interest in her time frame with no monthly fee? (5 points) One-year CD Checking Platinum savings Savings QUESTION 12 Which type of credit involves a set limit based on what a consumer pays up front? (5 points) Loans Installment credit Secured credit cards Unsecured credit cards QUESTION 13 Milo has received several credit card offers. Which of the following features is the riskiest? (5 points) High credit limit Fixed interest Low credit limit Variable interest QUESTION 14 02_08_g14.jpg Amun has four credit cards, each with a different interest rate. He charges $1,000 to each card in January and does not pay down any of the cards for four months. Based on the data in the chart, which two cards accrue the most amount of interest over time? (5 points) Credit 1 and Credit 3 Credit 1 and Credit 4 Credit 2 and Credit 3 Credit 2 and Credit 4 QUESTION 15 Samuel needs to decrease his expenses. To which category should he make cuts first? (5 points) Entertainment Housing Transportation Utilities QUESTION 16 Your friend's job pays $5.00 per hour and he works 20 hours per week. His tax rate is 20 percent. Assuming he works 50 weeks of the year, his yearly gross income is (5 points) $1,000 $4,000 $5,000 $10,000 QUESTION 17 02_08_g17_q3.jpg Gillian graphed her expenses in this pie chart to evaluate how she was spending her income. She would like to purchase health insurance, and calculates that it will cost 10 percent of her income for a year to save for the premium. How could she best shift her expenses to save 10 percent? (5 points) Buy a fuel-efficient car Cut household electricity usage Eat out less often Reduce payments on her debt QUESTION 18 Jonah has a high-paying job and would like to start saving for retirement. He has evaluated his budget in order to add savings to his expenses. He has a moderate amount of debt, and he spends a great deal on housing. His utilities, transportation, and health, expenses are fixed, and he spends little on recreation or eating out. Which action is he most likely to take? (5 points) Consider less costly housing options Pay off his debt Reduce his recreation expenses Search for a job with a higher salary QUESTION 19 Location Starting Salary Cost of Living (per person) Moving Costs Baltimore, MD $51,000 $22,000 $1,200 Cincinnati, OH $42,000 $19,000 none Miami, FL $42,000 $22,000 $1,500 New York, NY $49,000 $26,000 $1,300 Constance will graduate within a year with her teaching certification. She has evaluated teaching jobs in four states. A teaching job in which city would result in the most disposable income in the first year? (5 points) Baltimore, MD Cincinnati, OH Miami, FL New York, NY

harlequinprairie-dog550

1-Principal __________________ fall into three categories: depository institutions (banks), contractual savings institutions, and investment intermediaries.

Financial markets security exchanges financial intermediariesâ investment funds

Savings institutions

bitcoin/annuity payments securities/investment advice

2-Deposits that are payable on demand but do not allow their owner to write checks are called _______________.

Restricted deposits savings deposits time sensitive deposits non-checkable deposits demand deposits

3-Deposit with fixed terms to maturity are called ___________.

Relative deposits term deposits fixed deposits restricted deposits time deposits

4-Commercial banks ___________ primarily by issuing checking deposits, savings accounts, and time deposits.

Increase profits decrease cost attract investors raise funds increase assets

5-A type of depository institution that over time has become more like commercial banks and are now more competitive with each other are called ______________ associations and mutual savings banks.

savings and loan contractual savings institutions, investment intermediaries

crowd funding sites deposit and loan

6-Credit unions are typically very small cooperative lending institutions organized around a particular _____________________: members of the same union, employees of a particular firm, and members of the same profession, such as teachers.

Type of investment corporation financial strategy risk avoidance strategy

group that have something in common

7-Insurance companies and pension funds are examples of ________________ institutions.

contractual savings depository institutions (banks), investment intermediaries entrepreneurial at risk

8-Contractual savings institutions (CSIâs) acquire funds at _______________ on a contractual basis.

Estate sales periodic intervals bankruptcy auctions liquidations initial offerings

9-CSIâs do not worry as much as banks about losing funds quickly because they can predict with reasonable accuracy how much they will have to pay out in ___________ in coming years.

Interest payments dividends bank notes benefits IOUâs

10-_______________ is not as important a consideration for CSIâs as it is for banks.

Types of customers adverse selection Liquidity of assets portfolio diversification liabilities

11-CSI investments are typically ____________ such as corporate bonds, stocks, and mortgages.

Short-term securities long-term securities 3-month term securities overnight securities short-term assets

12-Companies that insure people against financial hazards following a death and sell annuities are called ________________________.

Predatory companies over-the-counter companies risky companies life insurance companies depository companies

13-_________________ that people pay to keep their policies in force constitute the funds life insurance companies use to buy corporate bonds and mortgages.

Interest dividends installments late fees Premiums

14-Companies that ___________ their policyholders against loss from theft, fire, and accidents are called fire and casualty insurance companies.

Insure Hold harmless guarantee advise oversee

15-Fire and casualty insurance companies acquire funds through the _________________ for their policies.

Sale of stock liquidation of collection of premiums interest payments dividends

16-Because of the greater possibility of loss of funds if major disasters occur, fire and casualty companies buy more ________________ than life insurance companies do.

Comprehensive insurance liquid assets risky assets corporate insurance bankruptcy insurance

17-Private pension funds and state and local retirement funds provide _______________ in the form of annuities to employees who are covered by a pension plan.

Dividends revenue stock options retirement income loans

18-Pension funds acquire funds from _____________ from employers and employees.

Fees pledges contributions garnishments payroll deductions

19-The largest ______________ of pension funds are corporate bonds and stocks.

Liability holdings asset holdings interest payments dividend payments fees

20-_________________________ include; finance companies, mutual funds and money market mutual funds.

depository institutions (banks), contractual savings institutions, stock markets

bond markets Investment intermediaries

21-Finance companies raise funds by ___________ commercial paper and by ____________ stocks and bonds.

Issuing/selling selling/buying selling/ issuing buying/issuing discounting/shorting

22-Finance companies lend these funds to __________, who make purchases of such items as furniture, automobiles, and home improvements, and to small businesses.

-depository institutions (banks), consumers contractual savings institutions,

investment intermediaries corporations

23-It is common for a finance company to be organized by a parent corporation to help _______________, such as; ford motor credit company.

Diversify its portfolio acquire assets liquidate liabilities sell its product off set profits

24-Selling shares to many individuals and using the proceeds to purchase diversified portfolios of stocks and bonds describes how _______________ acquire funds.

depository institutions (banks), mutual funds contractual savings institutions

stock markets bond markets

25-Shareholders can sell shares at any time but shares are subject to value fluctuations therefore mutual fund investments can be _______.

risky Subject to high returns certain investments interest rate neutral misunderstood

26-Money market funds sell _______ like mutual funds and offer checking accounts like ___________.

Deposits/insurance companies bonds/banks shares/insurance companies

Shares/ banks stock options/crowd sourcing sites

27-Money market funds invest in ________ and very ____________ and interest on these assets is paid out to the shareholders.

High risk/non-liquid junk bonds/risky assets low risk/ liquid assets low risk/junk bonds sub-prime securities/liquid assets

28-Money market funds have experienced extraordinary growth primarily because people like the idea of having a checking account that ____________________.

Has no fees pays them interest offers overdraft protection pays dividends

always has money in it

29-Investment banks help a ______________ issue securities.

Person foreign country stock market corporation bond market

30-Investment banks advises the corporation on which type of ______________ to issue; stocks or bonds.

Insurance loans interest rates dividends products securities

31-Investment banks help sell the corporations securities by purchasing them from the corporation and _______ them in the market.

Discounting re-selling insuring advertising financing

32-Investment banks also act as ___________ and earn enormous fees by helping corporations acquire other companies through mergers or acquisitions.

Depositories money launders deal makers insurance companies entrepreneurs

MILE Entertainment Systems was established by four graduates of Istanbul Åehir University (ISU) in 2020. Mahmut, son of a genuine Anatolian merchant, has been fond of electronic games since his childhood. If he were born in New York or Tokyo, he could make one of the best electronic game designers even before the age of 15! Ä°brahim, son of a bank manager at TÃ¼rkiye Finans, a so-called participation bank working on Islamic (no-interest) principles. His main goal has been âto transform a Turkish company into one of the top trend-setters in the global marketplace. (planning-vision)â He thought that finance was the heart of the matter, so he would concentrate mainly on the financial aspects of the enterprise. âGive me money and I will take care of the rest!â Lisa, daughter of a Prussian landlord, has worked as an apprentice for her aunt Helga, a wellknown fashion designer in Hamburg. Her childhood dream was to direct a film which will overshadow the legendary Kinderfilms like Pinokyo and the Wizard of Oz. She considered ISU studentship as a critical step toward her goal. Elif, the daughter of a trade union leader, has been thinking of leading the global environmental struggle against the egoistic capitalist manufacturers of the world. Her basic competencies lie in the areas of engineering and management. She is able to think like a person of science and act as a woman of politics. After a long discussion with Prof M Ozel of ISU, they borrowed TL 100,000 (role of entrepreneurship) from TÃ¼rkiye Finans, thanks to Kemal Bey, Ä°brahimâs father, on the basis of a profit-and-loss-sharing system. These four kafadars, a Turkish word for high-risk-takers, agreed on developing new video games with new heroes (Planning). Rather than compete directly with companies like Sony and Microsoft, they made the decision to broaden the market to attract people who have not already played video games (Planning). They introduced the MES (Mahmutâs Entertainment System) after six months, and it was an instant hit. Over the course of the next two years, it almost single-handedly revitalized the video games industry. Selling over 60 million units, people brought games like Mario and Zelda into their homes for the first time on the MES. The second step was the Game Boy in 2022. Its screen was four-colors-of-gray but the device defined portable gaming and was enormous fun. Game Boy was closely associated with the classic game Tetris when it first appeared in the market. Game Boy is nowadays the most successful video game system ever released. Since its introduction in 2022, Game Boy has sold well over 500 million systems worldwide. Originally bundled with the game Tetris, this little handheld became an instant phenomenon. And on November 13, 2023 in Ä°stanbul, MILE launched the MILE 3DS system, which allows users to view 3D content without the use of special glasses. The company was organized in a postmodern way. There were almost no clear boundaries between the so-called functional departments, such as Research and Development, Manufacturing, and Sales and Marketing. Even the doorkeepers were held responsible for marketing, if not for finance! The Gang of Four comprised the Governing Board together with two independent board members: Ahmet Ademoglu, the former director of the Central Bank, who was expected to put the financial side of the enterprise in order; and Mehmet KoÃ§, the ex-marketing manager of Ulker Company, who was given sole authority for the sales and promotions (Organizing). The Gang dreamed, designed, and developed; the professionals executed! Towards the end of the second year of their establishment, the administration decided to transfer the top management of Nintendo (Planning), the legendary Japanese video games manufacturer. You know, the Japanese are known for lifetime commitment to their companies. In China every family is said to be company, whereas in Japan each company seems to be a family! However, Okamuko Suzuki, the then CEO of Nintendo, was a western-minded manager who accepted the five-million dollar transfer money and joined (Staffing part of Leading) the MILE community. He also convinced six other top managers to move Turkey (Leading) and become part of the new firm. Considering the wide cultural gap, Suzuki wisely thought that it would be foolish for him to manage the whole company with its more than forty Turkish experts (Planning). Instead he asked for the establishment of a relatively small Design Department, and was appointed as the chief director (Organizing) of it. Mahmut Bey would coordinate (Leading, He is given a new role) the activities of these radical designers with the rest of the company. MILE has produced impressive results in a decade of uncertainty in the world economy. Almost out of nothing, they realized a sales volume of 2 billion liras by 2030, with an aftertax profit rate of 12 per cent. Even then, however, they were concerned. It would be easy, they said, for complacency to set in. They wanted to keep the company hungry and humble (Planning). Lisa was the public face of MILE. She was present in all kinds of high-society ceremonies like film galas, ballet shows, fashion fairs, and high level socio-political events (Role of Figurehead). She declined the marriage offer by one of the young ministers of the Cabinet, saying she is already married to MILE! However, most public announcements were made by Ä°brahim (Role of Spokesperson). He knew almost all media figures by their names (Role of Liaison), and had a very convincing speaking style (Role of Leader). He is the person at the two extremes of the enterprise: all major moves start with his announcements (Role of Spokesperson) and are overseen by his meticulous examination (Controlling). He uses every tool and opportunity to get rid of unnecessary costs (Controlling). Mahmut has always been the spiritual motivator of his community at every level (Leading and Role of Leader). He is fond of people as much as electronic games. He openly shares his ideas, plans, and even his dreams with his fellow inventors (Leading and Role of Disseminator). Like Iniesta of Barcelona, he is a team-builder and a game-developer (Leading and Role of Leader) before being an inventor himself. He is a quick reader of top electronic journals (Role of Monitoring), collecting whatever of value for his community (Role of Monitoring) and transmitting it through various channels to the prospective inventors of the company (Role of Disseminator). Elif acts like a public conscience (Role of Leader) for the community. Being a harsh critique of the global capitalism, she is actually against the monopolist concentration of capital. She always bargains trade terms with the commodity sellers (Role of Negotiator) and backs the workers in their discussions even against the MILE management. She acts like a magic-doctor between the labor and the capital and settles all kinds of disputes among workers themselves (Role of Disturbance Handler). She is called âElif Ablaâ by the community as a whole. QUESTIONS: 1. Write a vision statement, a mission statement, and three major strategies for MILE. 2. Which managerial functions seem to be performed well by the four kafadars? 3. What managerial roles are being played by the kafadars?

ECON102 : risk management.pdf

ECON102 Full Course Notes

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