Exam 3 Study Guide - Charles Nyce PDF

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Module 10A  What is a derivative? Financial products or transactions o A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, index, or security. o Financial risk: risks that are generated by financial transactions. o Common underlying instruments include:  Bonds: If I am buying a bond, I am buying debt from that company.  Commodities  Currencies  Interest Rates  Market Indexes  Stocks: If I am buying a stock, I am buying ownership interest in that company  Derivative contract: bet on if stock goes up or down  Contract between two or more parties where the value is based on the underlying value of the stock market. o Common derivatives are:  Futures Contracts: is a derivative because its value is affected by the performance of the underlying contract.  You and I enter into a contract where I pay you a certain amount of money for a product in the future.  Forwards Contracts  Options: A stock option is a derivative because its value is “derived” from that of the underlying stock.  Swaps  Warrants  How are they used? o Derivatives can be used as a hedge: (this one says derivatives are used to: and its just hedge and speculate but he puts an extra roman numeral)  Limiting risk or offsetting risk or probability of loss due to fluctuations of prices.  Can limit risks by entering into contracts.  I am an airline and I will use 10 million barrels of aviation fuel this year. I don’t know what the price of aviation fuel will be when I need to buy it. I can enter into a futures contract to purchase the fuel at a specified price at a specified time. I have hedged my exposure to fuel price risk.  How can I use a derivative contract? I can hedge my risk. (As an airline you are exposed to price risk- what can they do to help reduce their risk? Enter into a futures contract to lock in a price that they’re going to pay for aviation fuel.  Already have some exposure to risk and the risk here is the price risk. You can minimize this risk by entering into a futures contract so you know how much you will be paying in fuel and will be able to set prices for certain things correctly.  Offset risks that are already faced. o They can be used to speculate: (How can I make money when I think price is going to go a certain way?)  I think that the S&P (Stock Prices) index is going to go down, how can I make money on that?

I can enter a derivative transaction where I “sell” the index at today’s prices. Problem, I don’t actually own shares of the index to “sell”. Well, when the index goes down, I can enter into a different derivative transaction to “buy” at the lower price. So I sell high, I buy low, I make money – without ever actually owning any shares of the index.  Never really had exposure to that index. Or, the index goes up and I sell low and buy high, and lose money.  Risk with derivative.  Create risk by speculating.  Offset risk- Hedge  Create risk- Speculating  How they should be regulated? o If you want to speculate, shouldn’t you be allowed? If I think stock market is going to go up or down shouldn’t you be able to speculate? Speculators often help to make markets work. o Very complex, can they be regulated effectively? Derivatives are complex, not enough people to regulate.  4 people in the world truly understand derivatives. o Looking back at failures, if internal supervisors could not see the risk, how could an external regulator? People from inside company couldn’t understand the risk how could outside people understand it? o Derivatives are a global product, who should regulate? (this one is a I,II,III and im pretty sure its all 3) Someone from Spain and US can they enter into derivative? Who regulates it? 

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Module 10B  Explain the causes of poverty. o What Causes Poverty?  Why are some countries poorer than others?  Quality of the labor force  Educated enough for the skills that they’re expected to deliver?  Stock of Capital / Capital accumulation  Natural resources necessary  Technology  Efficiency  Population (roman numeral problem: Its all of these but it says like lower efficiecny in front of each term) 

Describe the relationship between poverty and economics o Our Limited Means:  Limited amount of things that we need.  Resources are scarce  Technology: combining labor and capital to produce stuff.  Labor & Capital  Labor is us.

Physical and mental contributions that we as humans make, efforts of mind and muscle that can be used in the production process.  Capital is everything else  All the non-human ingredients that go into production. o The Capacity of the Economy to Produce GDP: Gross Domestic Product  Primary measure of production  Total value of everything we produce using market prices  You can make it look like you produce more this year than next year by changing prices.  Doesn’t take into account ownership.  Toyota has a dealership in Kentucky to build the Camry, those numbers count as U.S. GDP because they are produced here, even though profits of a car goes to different country.  GDP as the economic pie  Doesn’t tell us how things are being split up.  Doesn’t tell us what is produced  (Roman numeral ? that says does tell us what is produced i think)  Value of everything produced.  Doesn’t tell us what we should be producing. o Can Government Use GDP to measure well-being? Are we producing more stuff?  Have wee seen growth?  Real GDP: real dollars  Adjust for the inflation of prices.  GDP tells us the value of production using market prices. Are we using more (labor) resources?  Per capita real GDP: if we are producing the right amount or not.  Per person real GDP.  Explain the roles of developed and less developed governments in addressing poverty. o What Can Governments Do? Less Developed Countries  Communism vs. Capitalism  What is the best way that we can develop?  Planned vs. unplanned economy  U.S. has unplanned economy.  Choose whatever industry you want to go into.  Involvement in education  Should Government require more or less education?  Infrastructure  How much infrastructure is needed? Can they get people to help develop it?  Attract FDI (Foreign Direct Investment) (gives u multiple choice)  Develop things they don’t have. Developed Countries  Humanitarian aid  World Bank / loans  Partnerships / Cooperation 

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Outsourcing  Outsource production to other companies  Losing US jobs for overseas jobs.  Not producing here  Economic nationalism: hurting our own economy to help others

Module 11  Define global risk / global trends o Global Risk: occurrence that causes significant negative impact for several countries or industries over a time frame of up to 10 years.  Horizon risks: what is coming forward that is going to be a risk for us  Short term: 18 months  Long term: 10 years o Global Trend: long term pattern that is currently taking place and that could contribute to amplifying global risks and/or altering the relationship between them.  Patterns that take place that somehow alter either the risk itself or the relationship among the risks  Could change one individual risk or could change all but it looks at how they interact with one another  Identify significant global risks/trends o Risks analyzed along 3 parameters:  Likelihood and impact (quantitative) ← know that quantitative is likelihood and impact  Frequency and severity (how often will it occur and how bad will it be if it does occur)  Interdependencies (systemic)  How interdependent are these risks on one another?  If one has a bad outcome what is its impact going to be on the other 29?  The more interconnected the larger the diamond (a lot of interconnections and systemic)  Risk Trends Interconnections  What are the trends that are affecting the risks? o What risks appear on “Top 10” List for both likelihood & impact  4 Significant:  Weather events  Major natural disasters  Large-scale involuntary migration  South to North: Africa to Europe and Italy/Greece  East to West: Syria  Largest displacements  Terrorist attacks o Which risks have the most interconnections Which risks are most systemic? Most interconnections:  Large scale involuntary migration (big issue)  Failure of climate-change migration and adaption  Unable to adapt to climate change  Profound social instability

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 Migration and Unemployment lead to social instability What trends are driving the global risk landscape?  Rising income and wealth disparity  Biggest one this year: income and wealth disparity is decreasing  Poorer countries are gaining wealth  Richer countries are getting poorer  Changing climate  Increasing polarization of societies  Rising cyber dependency  More digital world  Ageing population  Identify the 5 “gravity centers” shaping global risks Slow growth, high debt, demographics  Great Recession  Old people cost a lot of money (ageing demographics) Corruption, short termism  Government decision making (short term focus rather than long term) Multi-polar world order Fourth industrial revolution (4IR)  How humanity has evolved  1) Water/ steam power  2) Electricity  3) Electronics, IT, Automation  4) Merger of physical, digital, and biological worlds  Thinking and living computers o Emotional decision making  Ignoring facts (Trump election)  Describe the three social and political challenges o Western Democracy in Crisis  Is the western democracy in crisis?  Great Britain wanted to leave EU  3 Trends Undermining Democracy: 1. Rapid economic and technological change 1. Things are changing very quickly- humans are slowest to adapt to change 2. People are dissatisfied with the way things are going b. Deepening social and cultural polarization 1. Do the people of the government take my views 2. Is there enough secular decision making being made? 3. Same-sex marriage, gender identity, abortion, death penalty 1. Agree-disagree 2. Hard to separate what a candidate is saying from political and social sides b. Post-truth political debate i. Fake news ii. Social media: is information correct? 1. If it is out there it must be true?  3 Strategies to improve democracy: 1. Generate more inclusive growth

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1. Real issue: how do you get better paying jobs for everyone? 2. Should we be adjusting minimum wage? 3. Jobs are being lost to technological improvements. 4. GIG Economy: short term employment b. Maintaining continuity in government while accelerating change 1. Want government to reflect what the voters want 2. Short term change; if that’s what everyone wants b. Reconciling identity nationalism and multiculturalism 1. How do you recognize the fact that people want to identify with their nationalities but still include multiculturalism? 2. You relate to people that are like you 1. Still want to have multiculturalism. Fraying Rule of Law and Declining Civic Freedoms  Triggers (Table 2.2.1)  Security concerns/counter-terrorism measures  Rising nationalism  Changing scene of development aid  Countries don’t want foreign influence  “market fundamentalism”  Implications for Citizens/Society  Diminished public trust  National interests over citizens’ well being  Do you put national before yourself?  Corruption  Polarization of views  Socio-political and economic instability  Some people are for more oversight and some people are against it. o The Future of Social Protection Systems  What are the challenges?  Many programs linked to employment, definition of employment changes:  Remote workers  Live in North Carolina  Work in Philadelphia  Work in Chicago  Worker displacement due to automation  Independent contractor/self-employed  Work for yourself by selling lectures to other universities  Demographic changes pressure funding  Low interest rates (funding)  How do you fund retirement?  Low interest rates: more money today  Labor migration  Income inequality  Maximum amount social security takes out of pay.  Solutions? A Whole of Life Approach  See Figure 2.3.1  Younger: education and health care

University Every stage of your life you need some kind of social protection Untethering health and income protection from jobs  Health insurance and income protection should not be part of job Revamping pension models in line with new realities of ageing and working  People are expecting to be retired for a longer amount of time Policies to increase “flexicurity” Alternative models of income distribution  Rich shouldn’t be getting richer Greater support for working into old age  More people working longer in their lives Describe the impact of technology on global risks o Explain the risks associated with artificial intelligence  What are the risks of AI? (for this one it said what are the risks associated with AI and im pretty sure it said avoid biases as a choice but i think thats wrong because thats an upside) Machines making decisions Question may be too late, we are pretty far down the road  Stanford’s computational pathologist  Studying diseases & found things for breast cancer patients that are unknown  Google’s DeepMind  IBM’s Watson Upside  Avoid biases  Machines don’t have biases  Analyze large data rapidly  Risk reduction (autonomous cars) Developing its own biases (machine learning Twitter account in 2016)  Racist because it was learning from what other people were tweeting at it.  What it was learning was not what it should have been learning. Not understanding how it makes decisions  Flash crashes Completely automated weapons systems (weaponization of AI)  Can fire any where because there is no human input Surveillance  When do computers start watching over us  

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Module 12  Differentiate among natural hazards, disasters, & mega disasters o Natural Hazards: Nobody was there to experience a potential loss  If a tree falls in a forest…

If a hurricane makes landfall, but there are no humans there to experience it o Natural Disaster: Fatalities, damage, economic effects (Experience a loss) o Mega disaster: (more of each) Death toll, damage, effect on economy  Not a clear definition, hard to bring precision to natural events  It is hard to bring PRECISION to natural events. Describe the evaluation of natural hazards o Gregory van der Vink study  80% of deaths from disasters in 15 countries  China, Bangladesh, Indonesia  Of these 15 countries, 87% below democracy index, 73% below median GDP  “Deaths from natural disasters can no longer be dismissed as random acts of nature. The are direct and inevitable consequences of high-risk land use and failures of government to adapt or respond to such known risks.”  Poorer countries are putting people at risks but aren’t concerned about it o Human response to disasters  People tend to be altruistic in times of emergency  Willing to put others ahead of ourselves.  Creates incentives in non-emergency times  What happens when you expect people to help you?  You don’t do anything to prepare for disaster because you think that people will do things for you after it occurs.  Charity hazard o Analyzing Natural Hazard Risk  Probability/Frequency  Earthquakes (floods, tornadoes, etc…) will happen  Return period (how many years between similar magnitude events)  How often something will occur with regards to natural hazards  Magnitude  Typically an inverse relationship between frequency and magnitude (really bad hurricanes don’t make landfall every year)  (Impact)  How bad it is...Category 3, 4...etc o Evaluate alternatives  Resilience  Being able to bounce back after something happens  How well can we respond after disasters  Mitigation  Prepare for something before hand.  Actions to eliminate or reduce future deaths, losses, etc… from natural hazards  Engineering, physical, social, political  Florida has some of the best building codes in the world designed to prepare for storms.  Three little pigs. 

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 Build out of hay, stick, or brick? o What about us? What have we been doing as a population?  When nobody was there to experience a natural disaster nobody cared but because of the exponential growth of the population people are more prone to them. Exponential growth  Moved into harm’s way bc of growth of population The more we can manipulate our environment  Increase in population growth  Lower infant mortality rates  Longer life (lower death rates in younger years)  Population explosion varies with:  Economic development  Urbanization  Explain the demographic transition and its influence on natural hazard risk o Three phases o (asks what are the 3 phases and i put all of the above) Pre-transition: high birth & death rates => population maintenance (most of human history)  Married young with a lot of kids Transition: high birth rates and low death rates => population explosion (1700-2000)  Industrial revolution is happening Post-Transition (developed nations): low death rates and birth rates => population maintenance  More worried about economy o Carrying capacity The ability of the environment to support a population Population size is regulated by resources available in environment  Describe the factors that explain why disaster risk is not evenly distributed o Biggest exposure (there was a question about this i just cant remember what) Small island developing states (SIDS) & landlocked developing countries (LLDC)  High death rates Potential losses relative to wealth/development/GDP  Haiti and Congo  Biggest exposure with percentage of their wealth at risk o Disaster Risk Drivers Poor urban governance Vulnerable rural livelihoods Declining ecosystems Global climate change Risk is changing  We may make progress (become less vulnerable)

However, exposure (population, economic development) is growing Why are poorer nations worse off?  Wealth is not evenly distributed.  Less resilient  No insurance/social coverage  Lead to income & consumption shortfalls (which they can’t afford)  Negatively affect welfare and human development (where they are already behind)  Can’t get out of poverty  From the Sendai Framework for Disaster Risk Reduction Describe the framework (Not as imporant)  The Sendai Framework  Opportunity for countries (see Preamble):  To adopt concise, forward looking and action oriented post 2015 framework  Complete the assessment and review following the Hyogo framework  Learn from experience gained in Hyogo framework  Work on modalities of cooperation  Periodic review moving forward o Explain the expected outcomes  How do we achieve the goals below?  Substantially reduce global disaster mortality by 2030  Substantially reduce the number of affected people by 2030  Reduce direct disaster economic loss (relative to GDP) by 2030  Reduce damage to critical infrastructure/basic services  Increase the # of countries with disaster reduction strategies  Increase international cooperation  (roman numeral ? and i think it was all 3)  Increase/improve multi-hazard early warning systems o Describe the priorities for each action  Achieve the goals by taking these actions!  Priority 1: Understanding disaster risk  Priority 2: Strengthening disaster risk governance to manage disaster risk  Priority 3: investing in disaster risk reduction for resilience  Priority 4: Enhancing disaster preparedness for effective response and to “Build Back Better” in recovery, rehabilitation, and reconstruction 

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Module 13 There was a true and false about aging trends i put true for both the true false questions  Describe global aging trends o Aging Trends (more old than young)  Aging population: people 65 and over outnumber those 5 and under  Life expectancy is increasing (lifespan?)  Life expectancy:  Life span:  The number of people with 80+ will doubl...