BIBF Financial Advice Programme cheat sheet

Time value of money: FV = PV × (1 + r)^n for annual compounding; for m compounding periods per year use FV = PV × (1 + r/m)^(m×n).

Present value of a perpetuity with constant payment C and discount rate r is PV = C / r; a growing perpetuity is PV = C / (r − g), valid only when r > g.

Net present value rule: accept a project when NPV > 0 at the required rate of return; IRR is the discount rate at which NPV = 0, and IRR ranking can mislead when project scale or cash-flow timing differs.

Real versus nominal rates follow the Fisher relation: (1 + nominal) = (1 + real) × (1 + inflation); the approximation nominal ≈ real + inflation holds only at low inflation.

Risk–return: expected return is the probability-weighted mean of outcomes; portfolio variance depends on asset weights, individual variances, and pairwise covariances, so diversification reduces risk only when correlations are below 1.

Capital asset pricing model: required return = risk-free rate + beta × (market return − risk-free rate); beta measures sensitivity to systematic risk, which cannot be diversified away.

Duration approximates a bond's price sensitivity: percentage price change ≈ −modified duration × change in yield, with convexity correcting the estimate for larger yield moves.

Basel framework capital: common equity tier 1, additional tier 1, and tier 2 capital are measured against risk-weighted assets; liquidity is separately covered by the LCR (30-day stress) and NSFR (one-year stable funding).

Money-laundering control rests on three pillars: know-your-customer identification and verification, ongoing transaction monitoring, and suspicious-activity reporting to the financial intelligence unit.

Indemnity principle: a property or liability claim restores the insured to the pre-loss financial position and cannot exceed the insurable interest; life and personal-accident policies are valued rather than indemnity contracts.

Utmost good faith (uberrimae fidei) requires the proposer to disclose all material facts; non-disclosure or misrepresentation can render a policy voidable at the insurer's option.

Insurable interest must exist at inception for life cover and at the time of loss for property cover; its absence makes the contract unenforceable.

Premium components: risk premium (expected claims), expense loading, and a margin for profit and contingency; the gross premium equals the sum of these components.

Co-insurance (average) clause: claim paid = loss × (sum insured / required sum insured), applied when the sum insured falls below the agreed percentage of value.

Reinsurance: proportional treaties (quota share, surplus) share premiums and losses in fixed proportions; non-proportional covers (excess of loss, stop loss) respond only above an attachment point.

Subrogation lets the insurer that has paid a claim step into the insured's legal rights against a negligent third party, preventing double recovery.

Life underwriting uses mortality tables and the equivalence principle: the present value of expected premiums equals the present value of expected benefits plus expenses.

Regulatory conduct rules typically require clear product disclosure, a demands-and-needs assessment, and a cooling-off period during which the policyholder may cancel.

Core prohibitions: riba (interest or unjust increase), gharar (excessive uncertainty in contract terms), maysir (gambling), and haram (forbidden) underlying assets.

Murabaha is a cost-plus sale: the institution buys the asset and resells it to the client at a disclosed mark-up, payable by instalments; the profit is a sale margin, not interest.

Musharakah is a joint-equity partnership in which profits are shared by an agreed ratio and losses are shared strictly in proportion to capital contributed.

Mudarabah is a profit-sharing contract between a capital provider (rabb al-mal) and an entrepreneur (mudarib); the mudarib loses only effort on loss, while the capital provider bears the financial loss absent misconduct.

Ijarah is a lease of a specified usufruct for a rental; the lessor retains ownership and major maintenance obligations, so lease rentals cannot be structured as a simple loan repayment.

Sukuk are certificates evidencing undivided ownership in tangible assets, usufruct, or a project, so returns derive from the underlying asset rather than a debt obligation.

Takaful is mutual, cooperative protection in which participants contribute to a pooled fund; surplus and deficit are shared under the principle of tabarru (donation).

Zakat on financial assets is generally 2.5 percent of qualifying wealth held for one lunar year above the nisab threshold.

Shariah governance requires a supervisory board of qualified scholars to review products, and profit earned through late payment is commonly donated to charity rather than retained.

Open banking enables customers to share account data with licensed third parties through application programming interfaces (APIs), typically under consent-based frameworks such as PSD2 in Europe.

Tokenisation replaces sensitive card or account data with a surrogate token so the original credential is not stored or transmitted in the clear.

Strong customer authentication requires at least two independent factors drawn from knowledge (something known), possession (something held), and inherence (something inherent to the user).

Cloud shared-responsibility model: the provider secures the infrastructure, while the regulated firm remains accountable for data classification, access control, and regulatory compliance.

Data protection principles: lawful and fair processing, purpose limitation, data minimisation, accuracy, storage limitation, integrity and confidentiality, and accountability.

A digital operating model typically layers channels, APIs, core systems, and data platforms, with straight-through processing measured by the share of transactions completed without manual intervention.

Robotic process automation and machine learning differ in that rule-based bots execute deterministic workflows, whereas models infer patterns and require ongoing validation and monitoring.

Regulatory technology (RegTech) and supervisory technology (SupTech) apply data analytics to compliance reporting and supervision respectively, reducing reporting lag and manual reconciliation.

Resilience planning requires recovery time objectives, recovery point objectives, tested failover, and scenario testing for third-party and concentration risk.