From the e-Activity, assess how changes in the regulatory environment related to money market funds

| March 31, 2017


1. From the e-Activity, assess how changes in the regulatory environment related to money market funds would cause companies to reconsider their holdings in a money market fund giving consideration to the impact of investor risk. Provide support for your answer.

2. Money market investments have little, if any, risk. Agree or disagree with the statement, providing support for your argument.

3. Given the Federal Reserve Board’s current and forward-looking position on interest rates, predict the level of risk associated with investing in bonds and recommend a portfolio percentage for investment in bonds for a financial institution. Provide support for your recommendation.

4. Assess how an increase in the interest rate would change your recommendation provided above. Indicate the basis for your rationale.


5. From the e-Activity Part 1, critics have suggested that the complexity inherent in securitization can limit investors’ ability to monitor risk. Evaluate the merits of this criticism, indicating your agreement or disagreement with the criticism. Provide support for your position.

6. Mortgage-backed securities are believed to have contributed to the recent subprime mortgage crisis. Assess the fairness of this statement, providing a rationale for your reasoning and a recommendation for future use of this type of investment.

7. From the e-Activity Part 2, based on the current-day performance of the U.S. stock market, assess the level of risk to a financial institution holding stock within its portfolio. Make a recommendation for a buy, hold, or sell strategy for the next day’s trading activity. Provide a rationale for your recommendation.

8. Warren Buffet’s strategy related for his stock portfolio over the past several decades was to buy U.S. “blue chip” companies, paying high dividends, and hold the position for the long term. Assess the effectiveness of using this strategy in today’s marketplace, including the risk-reward relationship. Indicate your level of comfort with today’s financial institutions adopting this same strategy. Provide support for your rationale.


9. From the e-Activity Part 1, based on your review of the currency exchange rates between the U.S. dollar and the various European currencies, evaluate in which country a financial institution should invest to maximize its return on investment for the minimum risk. Provide a rationale for your approach.

10. From the e-Activity Part 2, based on your research of the current EURO currency crisis, predict the future of the currency, including the impact to financial investment and risk within the EURO zone for financial institutions. Provide support for your prediction and evaluation.

11. The futures market concept began centuries ago with hedging in the agricultural commodity prices. The markets have since expanded into a variety of future contracts, including hedging related to metals, foreign currency, and interest rates. Assess the risk involved in modern-day future contracts, suggesting a strategy for using this type of investment within financial institutions. Provide support for your assessment.

12. From the e-Activity Part 3, based on your research related to the regulatory requirements of futures contract risk exposure reporting, assess the adequacy of the reporting requirement. Indicate whether or not the public may be misled by management’s reporting of the financial risk related to these types of investments. Make a recommendation for improvement to the reporting requirements, indicating how this improvement will minimize risk for public users of the financial information.

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