Investment Answer Sheet
iExaminers’ commentaries 2011
Examiners’ commentaries 2011
23 Investment management Important note
This commentary reflects the examination and assessment arrangements for this course in the academic year 2010–11. The format and structure of the examination may change in future years, and any such changes will be publicised on the virtual learning environment (VLE).
Specific comments on questions – Zone A
Candidates should answer FOUR of the following EIGHT questions. All questions carry equal marks. Question 1 (a) List two recent financial innovations, as described in the subject guide, and explain to what perceived problem they provide the solution. [7 marks] Reading for this question To prepare for this question you should read Chapter 3 in the subject guide, in particular the section on recent financial innovations. Approaching the question A good answer will review two financial innovations, e.g. the floating-rate debt innovation and the zero coupon bond innovation, and look at the reason why these instruments were a success initially (why investors believed they could perform a useful role) and why they later became standardised (in the case of zero coupon bonds, for instance, the initial tax-motive for trading zero coupon bonds became eliminated through changes in the tax-code, but they continued to be a success because of the flexibility they offered to investors following certain investment and risk-management strategies). Weak or satisfactory answers will typically simply review the mechanics of how these instruments work, whereas a good answer will go deeper to cover how these instruments work within a larger context – by highlighting how these instruments offer benefits to the investors (as explained above). Learning outcomes The key learning outcomes here are to ‘broadly identify established examples of financial innovations and their fundamental characteristics’ and ‘discuss the main benefits financial innovations provide to investors’.
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Examiners’ commentaries 2011
23 Investment management Important note
This commentary reflects the examination and assessment arrangements for this course in the academic year 2010–11. The format and structure of the examination may change in future years, and any such changes will be publicised on the virtual learning environment (VLE).
Specific comments on questions – Zone A
Candidates should answer FOUR of the following EIGHT questions. All questions carry equal marks. Question 1 (a) List two recent financial innovations, as described in the subject guide, and explain to what perceived problem they provide the solution. [7 marks] Reading for this question To prepare for this question you should read Chapter 3 in the subject guide, in particular the section on recent financial innovations. Approaching the question A good answer will review two financial innovations, e.g. the floating-rate debt innovation and the zero coupon bond innovation, and look at the reason why these instruments were a success initially (why investors believed they could perform a useful role) and why they later became standardised (in the case of zero coupon bonds, for instance, the initial tax-motive for trading zero coupon bonds became eliminated through changes in the tax-code, but they continued to be a success because of the flexibility they offered to investors following certain investment and risk-management strategies). Weak or satisfactory answers will typically simply review the mechanics of how these instruments work, whereas a good answer will go deeper to cover how these instruments work within a larger context – by highlighting how these instruments offer benefits to the investors (as explained above). Learning outcomes The key learning outcomes here are to ‘broadly identify established examples of financial innovations and their fundamental characteristics’ and ‘discuss the main benefits financial innovations provide to investors’.
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