{"content":[{"text":"QUESTION 1","bbox":{"left":0.117647,"top":0.089072,"width":0.13780599999999998,"height":0.024446999999999997}},{"text":"i.","bbox":{"left":0.117648,"top":0.130851,"width":0.009491,"height":0.01849400000000001}},{"text":"Financial risks: \n • Market risk \n • Credit risk \n • Operational risk \n • Liquidity risk.","bbox":{"left":0.147053,"top":0.130851,"width":0.145652,"height":0.09198400000000001}},{"text":"Asset-liability mismatching risk is acceptable if the student specifies that this applies if the institution is \n investing to meet liabilities; Relative performance risk is acceptable if the student specifies that this \n depends on the nature of the institution.","bbox":{"left":0.117624,"top":0.242577,"width":0.744467,"height":0.05366599999999999}},{"text":"ii.","bbox":{"left":0.117623,"top":0.314488,"width":0.014496000000000009,"height":0.01849400000000001}},{"text":"Suitability of bonds: \n • Investing in government bonds can be considered to be a risk-free investment because: \n o credit risk is removed if the government is able to print more money to pay its debts. \n • An investment in government bonds might not be free from financial risks because: \n o credit risk exposure would remain if the ability of the government to print money is not a \n route available to them if they use a shared currency, or wish to tie their exchange rate \n closely to something else (which a developing country might want to do). \n • As the date of the liability is not known, this creates timing mismatch risk: \n o If the bond term is too short, there is considerable reinvestment risk; \n o If the bond term is too long, there could be market risk in selling the bond prior to maturity; \n o If the bond term is too long, there could be liquidity risk in that it may be difficult to sell the \n bond, or it may have to be sold at a discount. \n • Even if the term was known, or almost known, there may not exist sufficient bonds of suitable \n term; \n o However it might then be possible to use an immunization strategy. \n • Reinvestment risk for coupons contributes to risk and uncertainty. \n • Fixed interest bonds match nature and currency of the liability. \n • The market in government bonds is liquid and deep in terms of available terms.","bbox":{"left":0.147029,"top":0.314488,"width":0.725858,"height":0.33077100000000004}},{"text":"iii.","bbox":{"left":0.117659,"top":0.663504,"width":0.019502000000000005,"height":0.01849400000000001}},{"text":"Reasons: \n • The yield on developed country bonds may be higher than in the home country (allowing for \n likely exchange rate depreciation). \n • The bonds in the developed country may be mispriced according to the investor. \n • The investor may believe the developing country currency may be undervalued. \n • The investor may be looking to diversify his portfolio. \n • The developing country bond may be part of a world-bond index, and therefore part of the fund’s \n benchmark. \n • The investor may have liabilities in the developing country that need to be matched. \n • Take advantage of differences in tax regimes.","bbox":{"left":0.147059,"top":0.663508,"width":0.728761,"height":0.183797}},{"text":"F105 N2019","bbox":{"left":0.119118,"top":0.904795,"width":0.090442,"height":0.01849400000000001}},{"text":"© Actuarial Society of South Africa","bbox":{"left":0.621255,"top":0.904795,"width":0.259637,"height":0.01849400000000001}}],"images_bbox":[],"images_bbox_not_text_overlap":[]}