 Welcome back everyone. So for today, what we're going to do, carrying on from what we've done for the last time, we'll have some few exercises. We'll go through a case study and give you a little bit of an insight of how you can prepare for your tests. Today's case study is about a financial institution that is based in the US. This financial institution has few subsidiaries under its belt. And the question and the main theme here is around financial technology. So fintechs, cryptocurrencies, it's also around money laundering and compliance and compliance issues. So this is going to be the main predominant theme of the case here today. Again, as we've done last week, what I would recommend is that you go through the case, analyze its merits, have a notepad near you, just take some of the important issues, note them down, keep them handy so that when the questions come, you know exactly how to answer them. Without further ado, let's start with the very first question. So one of the companies that are owned by Porto is called Jam. And Jam is thinking about implementing the new measures and you appropriate anti-money laundering measures. And so for us and for this particular question, the company or the financial institution wants to basically... The very first question is about one of the subsidiaries owned by Porto. So the subsidiary is Jam and Jam is basically implementing anti-money laundering measures. And now the question here is asking us about the importance of adapting new measures and why should we care about implementing anti-money laundering measures. Now here what you'll have to do, you'll have to go through the material that we studied in Unit 10 and you'll have to remember what are the consequences of allowing dirty money to be floating within the economy. And of course, one of the main side effects or one of the main consequences if we allowed dirty money to be floating in the economy is basically higher inflation. Thus, the answer to this particular question is A. Now, moving on to the next question. The next question is about the compliance. The compliance department in Peachtree. Again, another subsidiary of Porto. The question here is asking you to position yourself as a member of the compliance department. And here what you need to do is basically you'll have to pot some of the dirty money that's been coming in. And here what you need to look into is the question is trying to ask you about a specific frame or about a specific stage in the phase of washing or laundering dirty money. And as you remember, there are three main stages or three main levels for money laundering and for the money to be integrated within the financial system. The first one starts basically with the placement and then we go into the layering phase and then after this into the integration phase. And so here very much what we are looking into is the layering phase. And so what you'll have to keep in mind is what is the definition or what are the actions that fall under the layering phase. Now, normally within the layering phase, it is when you try to hide the source of the money. So here you are trying to relocate and disguise basically the source of the dirty money just to basically make it look as if it is legitimate. So the answer to this question is basically a number B. What I would recommend of course is for you to go again through the material through unit 10 try to understand the differences between the different layers and between the different stages of washing dirty money and how money laundering takes place. This will help you understand the how to answer this particular question. Now, as we move forward, this particular question is asking us about fat about the recommendations and specifically recommendation number nine that is implemented by fact. And here what you are based with the question is trying to ask you to position to position yourself as the senior compliance officer within three and to implement the recommendation number nine of fact. And so this is a very straightforward question. So the only thing that you'll have to remember is what is recommendation number nine all about. And if you look at the answers, you'll understand basically that some of them are trying to trick you that three of them are trying to get you to answer the wrong way. And of course, as part of the recommendation, the fact recommendation number nine, you as a compliance officer will have to request to basically report transactions that are above $15,000, 15,000 US. And so the answer to that question is basically number D. Now, this particular question that we're dealing with right now is above the regulatory framework that the financial institutions so peach tree in our case is expected to comply with. Now, peach tree is basically considering to keep the same level of equity that they have now. So what you are meant to be is trying to advise each tree how they can comply with that with the regular with the regulatory frameworks all while basically they keep the level of equity in the same way that that it is currently. And what we need to keep in mind what we need to understand here is that what are the consequences of increasing equity and how this increasing equity or decrease equity. And that is all in line within the different regulatory frameworks. Now, the, some of the answers here are trying to take you into the wrong directions so some of them will, as you'll see are citing the Frank act, some of them are citing the recommendations and SCC regulations, or some issue or some recommendations by the Fed. Now, the main focus. And if you remember from what we studied together in unit number 10 and you're from unit number 10 and number six. You would remember from that, basically, the main predominant theme or the regulator in that respect is going to be the basal three recommendations and so the company or the financial institution will have to comply and take into accordance or into account. The recommendations set forth within the basal three within within the basal three. And so, for this reason, the answer to this particular question is basically be now as we move forward. The next question is asking us about central bank backed digital currencies. And here what we're looking into is basically whether the Fed should consider allowing or issuing a central bank backed central bank currency, a digital currency or not. And for us what we need to look into within this sphere here is the, what are the consequences of issuing digital currencies. And so one of the main things that we need to keep in mind when issuing digital currencies and as we begin to phase out traditional currencies is that we don't leave segments of the society or some members of the society behind and so integrating the digital currencies and allowing it to be circulated through the mass and by the mass is going to be key. And thus, the answer to this particular question, as you can see is basically number C. Now, moving forward, the, this question is basically asking us about some of the situations or economic downturns and financial downturns that one of the countries where portal the financial institution has invested in is experiencing. And so this particular question is about Argentina is about the case of Argentina and is asking us basically what kind of measure we need to look into what is the situation basically that Argentina is suffering from and how do we understand the consequences that we might experience due to this particular situation that the country is going through. And, as you can see, there are a few different options here. One of them is citing hyperinflation. Another is citing hyper deflation. One is just discussing normal rising a normal raise in inflation while other normal decline in deflation. Now, of course, based on the mirrors that we have here in the question, we can see that this case is very much related to inflate to inflation. However, the question that we need to look into or perhaps the analysis that we need to make further is whether this inflation is a normal type of inflation or is it hyperinflation. And so the analysis that we need to do is based on that and also what we need to understand is the answers that are provided the question that so the answers that we have here we've limited them to basically A and C. Now, you need to take this a little bit further and you need to read A and C carefully to understand which one basically applies. Now as hyperinflation is when you have a rapid increase or a rapid inflation inflammatory rate and within the economy of a particular country, and here the money basically loses its value rapidly so the money becomes worthless. And because of that, any investments that have been made within this particular region or within this particular economy that is suffering from hyperinflation is likely to suffer from sufficient losses. And so, based on that, answer number A is basically the most accurate answer to describe the situation in Argentina and to describe basically the consequence that the investments made by the portal would have based on the economic situation or the current economic situation in Argentina within this particular question. Now, in here, in this question, again, where we are asked about one of Porto subsidiaries, Peachtree, and here we are thinking and what we're doing is basically we're trying to understand whether Peachtree as an organization is regarded as a systemically important financial institution or not. Now, if you remember from unit number 10, and from unit number six, when we discussed the interconnectedness of financial institutions, we explained that financial institutions are very much interconnected to one another. And so whatever touch, whenever something, whenever a one of the financial institutions suffers from a particular downturn, this may affect other financial institutions, whether on a national or international level. So they are very much in a way interconnected to one another. Thus, since Peachtree is basically considered to be one of these financial institutions, they are going to be interconnected. So they are systemically important financial institutions. They are interconnected with other financial institutions, and they'll have to be basically overseen by the financial services oversight. And the correct answer for us for this particular question is number B. Now, here in this question, again, we are looking at Peachtree, and a Peachtree is asked to flag suspicious transactions. Now, these suspicious transactions that is basically the company is asked to flag, you have different, you have basically different scenarios on how you can spot these suspicious transactions. And as one of the very first things that we need to keep in mind is the amount of money that is being transacted and the persons that are involved within these transactions and basically their backgrounds and what they do. And to whom the funds are going to. And based on these merits, every time there is a transaction, we need to ask clients, whoever they may be, who are making these large transactions, questions about the reasons for these transactions, who the ultimate beneficiary from the transaction. Thus, if we go into that direction, as you can see, the answer for this question would be number C. Now, central bank digital currencies. And the question here that we are trying to answer is basically if issuing central bank digital currencies would have an effect on the interest rates that are paid by the financial institution. In our case study basically quarter. And you are presented with numerous options or with numerous different possible scenarios. One of these scenarios basically revolve around whether the whether portal would have to basically be sorry, I'm mixing this up now. Now, as you can see for this question we are again discussing the issue of central banks digital currencies. And here, what we're looking into is basically if having or issuing central bank digital currencies will have an effect on the interest rates that are paid by the financial institution subject to our case study portal or not. Now, what we need to keep in mind is that central bank digital currencies could if they are interest bearing basically or if they are interest bearing, they might have an effect on the interest pay interest rates paid. Now, the reason being is because, again, financial institutions that are holding these digital currencies, they are also holding other liquid, low risk instruments and so there would be an effect on how on the interest rate that is paid by the financial institutions holding these digital currencies and thus, for this reason, answer number B answer number D is the correct answer in our case. Now moving forward to the next question, as you can see the next question is about portal. And what you are doing here is you are advising portal on whether they could use the blockchain technology and how it could help them with it could help them raise their international trade into a new level. Now, here, it's very much all about blockchain technology and what you need to know you need to recall the material that we studied together in unit number 10. You will have to remember some of the benefits of using blockchain technology within the financial industry. And one of the main things that this technology allows us to do is basically to have better transparency and allows even better access or more enhanced access for smaller organizations or smaller firms to do to access international or global markets. Now with that in mind. Yes, these are some of the main benefits of the block of blockchain technology. However, the transactions that take place within the blockchain technology or using the blockchain technology are very much slow. And as you can see, the correct answer in our scenario is going to be answer number D. Moving on to the next question, the next question is again about cryptocurrencies. And what we're thinking what we're doing here you are having a chat with the board of director you're working with the board of directors of Porto, the financial institution that you're working with about some of the negative, the negative sentiments that central banks have about on cryptocurrencies. And what you're trying to do is you're trying to represent to present the point of the digital banks as to why digital currencies or cryptocurrencies are not a good option. And here, it's very much all about you trying to recall the material that we studied in the December seven years somebody trying to understand the nature of cryptocurrencies and some of the criticism that was made to cryptocurrencies. And as you can remember, many states basically or many countries do not believe or do not trade a treat cryptocurrencies as a medium of trade or as a medium of payment, they do not give it the same treatment as they give to money. Thus, it is not considered as a monetary element or as a monetary as a monetary instrument, rather, it does not meet the criteria according to these states, and based on that analysis as you can see, the correct answer is going to be B for this particular question. Now, the next question that we are handling is basically about a possible. Now, we are presented with specific data about this new member state or this new candidate to become a member state. Some of the data that we have is that this new potential member state has a 2% annual growth, 2% annual government deficit. They have a 59% of governmental debt, and they have a long term interest rate of 3%. Now, what you are asked to do is to provide recommendation for this particular country as to whether they need the criteria set forth within within the EU or not. So, here to answer this question, you'll need to recall what we studied together in unit number eight, and you'll need to recall the criteria for member states to become for potential candidates to become a member state of the EU. Now, as you remember, member potential member states should have their interest rate reduced to 2%. And so that because of that, and since this potential member state within this particular case within this particular question has an interest rates of 3%. So, the application should be rejected until they are able to reduce the interest rate limit to 2%. Does the correct answer here is going to be number D. As we move to the next question is about the different types of currencies. And so here this question is trying to ask you about what kind of currency do you think is a fixed currency that is allowed to slowly appreciate by the central bank. Now, you may remember we have different types of currencies we have we have fixed currencies we have basically pegged currencies we have unpacked currencies or free floating currencies. We also have currency boards. And what you are meant to be doing here is explain what do you think this question is related to. Now, if we're looking at currency that is that has a fixed rate. It is slowly is slowly allowed to appreciate by the central bank what we're looking into is basically a crawling peg type of currency. And thus, the correct answer is answer number eight. Now, as we continue on to move forward. Again, this question is all about currencies. Now here the difference is the question is asking you what you believe is going to be a better solution. Do you think that pegging a currency is a viable solution or dollarization is a viable solution for the question that we are basically handling. Now, here, as you will see, the answers are very much mixed up just to confuse you. And so you'll have to analyze and you'll have to have a deeper understanding of the differences between tax currencies and the differences between and have a deeper understanding of dollarization and how dollarization works. And if you analyze the different possible answers and for this question you're going to notice that the correct answer is going to be answer number C about dollarization. And the reason being is that the this particular answer have involved have included the correct details about what dollarization is all about, unlike the other answers unlike the other potential or possible answers that had the details a little bit mixed up. And for this question you a forward question like these are you will have to have a deeper analysis of each of the possible answers to understand which one applies and how it applies, which one is correct. And basically, for you to undo. I mixed that part up. Although it was going good. So it's good. Sure. I think if we can just remove the last part when I was saying okay you just have to analyze, maybe if we can stop it from there and just keep going what do you think. That's great. Okay, I think I'm ready and ready to move on to the next question as well. Now are discussing another subsidiary invest and invest is basically a hedge fund company. And this hedge fund company is considering to implement a event driven strategy. And as you remember we have different strategies that financial institutions will deploy. This question is very much asking you to look at what the meaning of event driven strategy is and how events strategies are basically deployed. And if you remember event driven strategies are very much related to when when an organization or financial institutions, a financial institution buys the debt of companies that are suffering from severe financial distress. And these particular institutions or the companies that they're buying into our on the verge of bankruptcy and have indeed have indeed filed for bankruptcy. And so, for this reason, you will notice that correct answer for this particular question is answer number C. Now, again, this question, the question that we have on the screen right now is also about another strategy that is implemented by financial institutions. Well, this time we are discussing a merger arbitrage investment. And the question that we have in front of us is asking us about the measures that we need to consider before we implement a merger arbitrage investment strategy. And as you can notice, all of these answers are very much logical and will be correct in theory. However, there is something there is one of those that would stand out among the others. And I think you are able to notice which one. So question that the answer number C estimating the likelihood of a government or antitrust organizing of a government on antitrust investigation is something that is very much going to be the center of attention. And it is going to be very important for us to consider. Thus, the answer for this question is going to be basically answer number C. Moving on to the next question. The next question is basically discussing a recommendation that you made to Porto, the financial institution that they use a currency hedging investment strategy. Now, what you're trying to do and what you're trying to explain to Porto is some of the effects that Porto should expect as a result of deploying the currency hedging investment strategy. And what you'll need to do here is to recall the material that you learned in a unit seven and units five. You'll need also to understand what is currency hedging and what are some of the, the impacts of implementing currency hedging. And as you remember currency hedging is all about moving large sums of money over a short period of time. And so here what you're trying to do is basically to sorry for that. I think after I've presented the question. I think from there we can basically starting. Great. Now, as you can remember from the material that we studied together in unit seven and unit and unit five about currency hedging currency hedging is all about moving large amount of money within a short time frame. Thus, due to this, you can see that the answer or the correct answer for this particular question is number eight. Now, the next question is, again, you trying to assume a position of advocacy to court and you are trying to to advise Porto on using head hedged and unhedged strategies. What you're trying to do here is basically recommend something that would help them gain better, better position in foreign bonds. And so what you're going to have to do is to remember and to recall again. Number seven units number five, in particular, you have to remember what unhedged and hedge strategies are all about. Now, in our case, because we're looking into into bonds basically into foreign bonds, what you remember is that unhedged portfolios basically would have higher type of volatility or higher rates of volatility, just due to their nature. Now, because of this, you can see that the correct answer here that we have is answer number C. Now the other answers that were presented here are very much have inaccurate data and inaccurate information. And thus, your analysis is going to be very crucial and your deeper understanding of what hedged and unhedged strategies are all about is also going to be important. So, keep that in mind as you answer as you answer questions like these. Now, as we move forward to the next question is about some of the strategies that you could recommend to Porto. Sorry, can we stop for a second. Just as I was catching my momentum. Exactly. Sometimes in my lectures I would be drinking three or four bottles of water. No, I think it's a valid hypothesis to be fair. Perfect. Let me check. Okay, so we are looking for investment strategy. Okay, so we still have here. Okay, ready for now so I'm going to get away. Now for this. Sorry. Don't worry about it. Don't worry about it. Now for this question. Again, we are asked about different investment strategies that you could recommend to Porto. And here, as you can see, there are different options. But most of these options, as you will notice, have in an accurate information. So they are represented inaccurately just to try to confuse you. And so you have to be a little, you have to pay a little more attention and you'll have to recall everything that you studied in unit seven and unit five. Now, for us, what we need to look into is basically a triangle or arbitrage, which is the correct answer, because the answer here for triangular arbitrage is very much the exact definition of what triangle or arbitrage is all about. As you can see, triangular arbitrage as it was represented here is basically one of the strategies that would allow Porto to take advantage of the exchange rate discrepancies if basically it was performed quickly and in large sizes. And so if you look at the other options, you will see that they have been misrepresented on purpose. Keep, stay focused and pay close attention to the answers. Read them carefully so that you can spot where the answer is inaccurate. Now, the next question is again about Porto and Porto is considering to use a value investing strategy. Now, the question here is, how would you implement a value investing strategy? As you recall from the material that we learned in unit five, a value investing strategy is all about trying to filter the stocks that have been that have not been presented within their proper value. So they have been underestimated within the market. And thus, the correct answer for this particular question is answer number B. Now, the next one or the next question is about growth investing. Now, here what you are asked is, you are asked to present the reasoning behind why you would have suggest growth investing as a suitable investment strategy for Porto. And again, what you'll need to remember, you'll need to recall the data and information you know about growth investing, and as growth investing basically leads to higher growth rates to higher revenue growth. When you invest in small companies that have basically high potential. And thus, the correct answer here for this case is number C. Now, moving on to the next question, we are we are discussing again another investment strategy, an investment strategy that represents or resembles momentum investing. Here, what you have to do is try to remember what momentum investing is all about and what it does and its consequences to implement a proper momentum and momentum investing strategy. What you'll need to do is to watch the yield curve, the treasure yield curve and use the data that you collect from the treasure yield curve as a signal for you to for entries and exits from for entries and exits. And as you can see the correct answer here is basically number eight. Now the next question is about the profit that Porto is likely to see if they use a momentum investment strategy. Like the previous question here, you'll have to again consider the data and the knowledge that you have on the momentum investing. And as if you were to deploy a momentum investing strategy, some of the profits that you will see are going to be generated from buying and selling short securities whenever they are strongly traded. And thus the correct answer in our scenario is going to be number D. Now, the next question is about a recommendation that you made to Porto to invest in money markets and why you recommended money markets over capital markets. Now here you'll have to remember the differences between money markets and capital markets and what are the benefits of investing in either of these markets as well. These are things that we started together in unit number four. And as you remember investing in capital markets could be a little volatile as compared to money markets. And also what you what you may remember is that money markets provide an extra layer of security or better security as compared to money markets. Thus, if we look at the answers or the possible answers that we have here we can find out that answer number A is the correct answer or the most suitable answer. The next question, again, is about one of the countries that Porto has invested within. So Porto invested in the Argentinean currency and the Argentinean government because of the economic situation that they were going through they've introduced what is known as a Tobin tax. Now, as a result of this Tobin tax, what you're expected to do here is explain why do you think Argentina introduced a Tobin tax. And thus, you'll have to recall the data that we've learned together about what Tobin tax is, when Tobin tax is deployed or implemented. And as you remember, we've also gone through an example while we studied Tobin taxes on during unit seven that Italy even implemented the Tobin tax to control its inflation. Now, recall the data about Tobin tax and try to analyze it and to help and use it to help guide you to answer the to choose the correct answer. Now, if you recall what we've said about Tobin tax, especially here now in the case of Argentina, what you may need to consider is that when it's used to control currency is basically used to regulate and penalize short term currency trading speculation. The reason being here is that if the country is going through hyperinflation, and we are trying to control the currency, what we want to do is we want to cut down on speculation, and thus introducing a measure that would help us to cut down on speculation and short term trading is something that is meant to be an effective measure. That's the correct answer for our case is going to be number eight. Now, as we move forward, the next question is about one of the subsidiaries of Porto. Porto, so sand basically is a hedge fund organization or hedge fund financial institution that in that is considering to invest in a new startup. The startup here is called wind. Now, as sand is considering to invest in wind, they are presented with a few options a few stock options to recommend that that may that they may opt for investing within. And here what you're looking into is basically what are these different options and why should they basically recommend within the stocks of wind. Now, for our particular case and for this question. Now, the company sand is one of the active investors and as an active investor, what they need to do they want to have a control over the organization so they want to have a say in the organization and having and using or investing in common shares is something that would provide sand with the opportunity to control and to have a say in the decision making of wind as an organization. That's the correct answer here is going to be answer number eight. So remember the different answers or the possible answers that were presented here we're trying to mix the data about or trying to confuse you about the difference between the common shares and preferred shares. So, you have to have a deeper understanding of what is a common share and the attributes of common shares, and the same thing what kind of rights and obligations are attached to preferred shares. And these are things that we started together and unit number four so try to recall them. And as you go through this particular question alone and try to read it, you will notice and you will end up while you analyze it you will notice where the discrepancies lie, and why we chose basically answer number eight. Now the next question here is asking you to position yourself as an advisor that or as an expert that was commissioned by the Fed to conduct a systematic risk risk assessment. Now, as you do a systematic risk assessment this question is trying to basically ask you about the very first step that you would do to implement a risk analysis to to implement a systematic risk assessment. Now, from among the different options that we have here, the very first thing that you want to do is to define the critical elements of the financial system. And then, based on that you can see that answer number C is the correct answer. Now again, try to recall whatever we studied together in unit number six. I will help you understand different steps associated with conducting a systematic risk assessment, which ones comes first, and why, and what are they related to. The next question is, again, asking you to be in a position as a financial expert, and again recommend to the fed on on how they are implementing basically the risk, their systematic risk assessment. Now, what you are meant to be doing is basically to use the Bank of England's wheel of misfortune. Now, what you'll have to do again you'll have to recall the material that we studied in unit six. And you'll have to remember what are the components of the wheel of misfortune that is basically introduced by the Bank of England. And if you remember, the one of the elements of the wheel of misfortune is basically distinguishing between the internal damages to the financial system and the damage to the real economy. And thus, the answer here for this question is a number C. Now, as we move forward, we are, we are looking at another subsidiary of Porto Mark, and you are working with Mark on identifying different risks that Mark may be experiencing or that they may encounter. The question here is asking you to choose which of these different risks that are presented are going to be the most prominent type of risk. Again, the different options that are presented here, they have been misplaced and miss, they have been misplaced in a way to try to confuse you into choosing them. So you'll have to have a deeper understanding of each of these components, and you'll have to recall again the data that we studied together in unit number six. Now, for our particular, for this particular case, you'll have to think about what credit risk is all about, what default risk is, what is operational risk. And finally, get to understand moral hazard. And as moral hazard is all about when you take risk, or when you're comfortable taking risk because you know that you'll have the backing off of another institution that will help you, or that will save you in case you fail. And here you're taking bigger risk than you normally would do. And this is what moral hazard is all about. And thus, the correct answer for that question is going to be number C. Now for this question, which is our final question, what we're looking into, we're looking at the peach tree, again, one of the subsidiaries of Porto, and here what you're doing, you are assuming a position within the Fed. So you're trying to advise the Fed whether peach tree, who is currently experiencing somewhat difficult situations, somewhat difficult financial situations. Are they considered to be, should they be considered for bailing out or not? Now, again, the bailout is going to be, again, what you'll have to consider here is the basal three recommendations and how you think the total loss observing capacity could affect peach tree. Here you're going to have to recall the material that we've learned in unit number six. You'll have to recall the data about the total loss observing capacity, what it means, what it stands for, and how it would connect to the decision making as to whether peach tree deserves to be saved as a financial institution or it should be allowed to fail. Now, after analyzing the different possible answers that you have or that you've been presented with, you can notice that the answer number C, which is the correct answer, is basically provides the correct analysis of the total loss observing capacity and its consequence. Now, here, the way it was presented to us as peach tree being as big as it is considered as a too big to fail financial institution, and because it is considered as a too big to fail financial institution, we may have to save it because not saving it could lead us to basically financial losses to significant market chaos. And that's answer number C here, as we mentioned, is the correct answer. Now, I hope you have a better clarity as to how you can analyze the case studies that you are presented with and how you can analyze the answers and choose the correct answer. And I wish you all the best of luck with your studies. And I hope to see you again very soon. Good luck.