1. (Mishkin 13.5) Why do property and casualty insurance companies have large ho
ID: 1105297 • Letter: 1
Question
1. (Mishkin 13.5) Why do property and casualty insurance companies have large holdings of municipal bonds, whereas life insurance companies do not? 2. (Mishkin 13.7) "In contrast to private pension plans, government pension plans are rarely underfunded." Is this statement true, false, or uncertain? Explain your answer 3. (Mishkin 13.17) How do hedge funds differ from mutual funds? 4. (Mishkin 17.1) Classify each of these transactions as an asset, a liability, or neither for each of the "players" in the money supply process-the federal reserve, banks, and depositors a. You get a $10,000 loan from the bank to buy an automobile b. You deposit $400 into your checking account at the local bank. c. The Fed provides an emergency loan to a bank for $1,000,000 d. A bank borrows $500,000 in overnight loans from another bank e. You use your debit card to purchase a meal at a restaurant for $100Explanation / Answer
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Insurance industry is a big industry. In the US about 1,800 insurance firms offer a variety of product lines from property protection & casualty protection, to life insurance & health insurance. In exchange for regular premiums, insurance firms protect persons, governments & corporates against losses. To operate in a profitable way, insurance firms must obtain more from premiums, that are invested among a range of asset categories, than they give out as claims. Bonds are appealing to insurers as regular principal & interest payments can be matched against anticipated claims. Corporate bonds signify the maximum part of the industry's bond investing. Municipal bonds comprise the 2nd -largest kinds of bond . Other fixed-income investments comprise Treasury bonds. As the earnings of life insurers is partially exempted from taxation on account of accumulation of reserves in course of time. Life insurers park funds in higher yield giving taxable investments rather than investing in tax-exempted municipal bonds.