FINTECH IN INVESTMENT MANAGEMENT

Question 1

Fintech is most accurately described as:

A. the application of technology to the financial services industry.
B. the replacement of government-issued money with electronic currencies.
C. the clearing and setting securities trades through distributed ledger technology.

Question 2.

Which of the following technological developments is most likely to be useful for

analyzing Big Data?
A. Machine learning(ML).
B. High-latency capture.
C. The Internet of Things.

Question 3.

A key criticism of robo-advisory services is that:

A. they are costly for investors to use.
B. the reasoning behind their recommendations can be unclear.
C. they tend to produce overly aggressive investment recommendations.

Question 4.

Which of the following statements about distributed ledger technology is most

accurate?
A. A disadvantage of blockchain is that past records are vulnerable to manipulation.
B. Tokenization can potentially streamline transactions involving high-value physical
assets.
C. Only parties who trust each other should carry out transactions on a
permissionless network.
 KEY CONCEPTS
LOS a. Fintech refers to developments in technology that can be applied to the
financial services industry. Companies that develop technologies for the
finance industry are referred to as fintech companies.

LOS b. Big Data refers to the potentially useful information that is generated in the
economy, including date from traditional and nontraditional sources.
Characteristics of Big Data include its volume, velocity and variety.
Artificial intelligence refers to computer systems that can be programmed to
simulate human cognition. Neural networks are an example of artificial
intelligence.
Machine learning(ML) is programming that gives a computer system the
ability to improve its performance of a task over time and is often used to
detect patterns in large sets of data.

LOS c. Applications of fintech to investment management include text analytics,

natural language processing, risk analysis, algorithmic trading, and robo-
advisory services.
Text analytics refers to analyzing unstructured data in text or voice forms.
Natural language processing is the use of computers and artificial
intelligence to interpret human language. Algorithmic trading refers to
computerized securities trading based on predetermined rules.
Robo-advisors are online platforms that provide automated investment
advice based on a customer's answers to survey questions. The primary
advantage of robo-advisors is their low cost to customers. A disadvantage is
that the reasoning behind their recommendations might not be apparent.

LOS d. A distributed ledger is a database that is shared on a network, with a

consensus mechanism so that each participant has an identical copy of the
ledger.
A cryptocurrency is an electronic medium of exchange that allows network
participants in a distributed ledger to engage in real-time transactions
without a financial intermediary.
Potential financial applications of distributed ledger technology include smart
contracts, tokenization, and more efficient post-trade clearing and settlement.
 Answer

Question 1.

A is correct.
Fintech refers to the application of technology to the financial services industry, and
to companies that are involved in developing and applying technology for financial
services. Cryptocurrencies and distributed ledger technology are examples of fintech-
related developments.

Question 2.

A is correct.
ML is a computer programming technique useful for identifying and modeling
patterns in large volumes of data. The Internet of Things refers to the network of
devices that is one of the sources of Big Data. Capture is one aspect of processing
data. Latency refers to the lag between when data is generated and when it is
needed.

Question 3.

B is correct.
One criticism of robo-advisory services is that the reasoning behind their
recommendations might not be readily apparent to customers. Recommendations
from robo-advisors tend to be conservative rather than aggressive. Low cost is a
primary advantage of robo-advisors.

Question 4.

B is correct.
By enabling electronic proof of ownership, tokenization has the potential to
streamline transfers of physical assets, such as real estate. The high cost and
difficulty of manipulating past records is a strength of blockchain technology.
Permissionless networks do not require trust between the parties to a transaction
because the record of a transaction is unchangeable and visible to all network
participants.