lect 9

• Life insurance pools risks to transfer income-related uncertainties
• Life insurance companies only sell life insurance policies.

  False
• What are individuals and their beneficiaries protected against through life insurance?

  Losses in income
• What is the most common type of life insurance policy?

  Term life
• A term life policy is closest to pure life insurance with no savings
• A whole life policy protects the individual for a fixed term only.

  False
• An endowment life policy combines pure insurance with a savings
• What is the dual nature of a whole life policy?

  Savings and insurance
• Steps life insurance companies take to manage risks and liabilities

  1️⃣ Measure credit risk

  2️⃣ Measure interest rate risk

  3️⃣ Manage actuarial risk

  4️⃣ Manage financial risk
• Match the objectives of prudential regulation with their purpose:

  Deceptive sales practices ↔️ Prevent

  Market power ↔️ Limit

  Unfair discrimination ↔️ Avoid
• What do variable life insurance premiums invest in?

  Mutual funds
• In 2019, pension funds and insurance corporations accounted for about a third of the growth in NBFI assets.
• What is reinsurance for insurance companies?

  Insurance for insurers
• Insurers diversified their portfolios pre-pandemic to hedge against inflation risks.
• What is the primary role of pension funds?

  Invest funds for retirement
• Match the type of pension plan with its characteristics:

  Defined benefit ↔️ Guaranteed monthly amount

  Defined contribution ↔️ Benefit depends on contributions
• The US is the largest pension market in the world.
• What are institutional investors specialized in managing?

  Collective savings
• Mutual funds are the second most important financial institution group in the US by asset size.
• Steps central banks took in March 2020 to reduce redemptions from prime money market funds

  1️⃣ Increased liquidity

  2️⃣ Restored confidence
• Government money market funds invest primarily in corporate debt securities.

  False
• What are money market funds primarily used for?

  Short-term funding
• What is a key difference between mutual funds and hedge funds?

  Investment strategies
• Hedge funds typically require a minimum investment of $1 million or more.