The Truth about Actuarial Science

Some people ask me why I didn’t post something about actuarial science here. Maybe because I’m not a qualified person to talk about it though it has been 3 years I’m majoring in that course. Well,  majoring in actuarial science and being an actuary are two different stories. You don’t even need a degree in actuarial science to be an actuary. But, having a degree in actuarial science doesn’t mean that you are qualified to be an actuary. People who have acquainted with actuarial science and actuary know what I’m talking about.

And today, because of my boredom, I googled some information about actuarial science in Malaysia. And guess what? I found this thread at lowyat forum. The monkeyseemonkeydo guy has written a good introduction and what people need to know about actuarial science. For me, his words are almost 100% true. I have the same thoughts too but just don’t really know how to put them in words. I quote his introduction here and you guys can read further discussion about actuarial science at the thread. Oh ya! For readers who have no idea what actuary is all about,I would recommend you guys to watch this youtube video. Hopefully, it will help.

Well, upon SPM you might consider several things before choosing a right path to take in the future. Your interests, salaries, career status, career development etc. But I’m sure you’ll reach a point where you realize those things aren’t the ultimate ones. I’ll rather not be in a rat race, doing a routine job, working 9 to 7 for 6 days in a week. Even if it pays me 5 digits salary. Less time to spend and communicate with Allah. Less time to spend with family and friends. Less time to contribute to the society. Less time to learn your deen. Less time to do what you love (such as blogging, facebooking.haha). It’s a pathetic state for me. Seriously. But everyone has his/her opinion on this. It’s a debatable subject. So the question now, am I on the right path? Haha. I should keep the answer for myself.

I believe that people are doing Actuarial Science for the wrong reasons. I hope that this post will actually shatter the disillusionment that people have. Don’t get me wrong, I am not trying to discourage people to pursue this challenging course, its challenge being its ultimate reward. However, it is disheartening to see so many people get into this course and ending up not being qualified actuaries, because they fail to understand what this course is all about.
First and foremost, my qualifications: I have wanted to do Actuarial Science since I was in Form 4. In college, I did my research and I have looked at the qualifications provided in the UK, US, Australia and Malaysia. I have now finished my final year in Actuarial Science in the UK. I have interned in an insurance company in Malaysia as well as in my current location. And I have been in your shoes before.

To get the ball rolling, here are some misconceptions that need to be cleared up:

1. I want to do Actuarial Science because I like Math.
This is the biggest misconception that people have about Actuarial Science. In actual fact, a good knowledge of Mathematics is necessary, but a great knowledge is not. In the UK, the first 8 professional papers are somewhat Maths-based, but the tougher papers at the end are all written papers, which require a good command of English, a good knowledge of the insurance industry and good critical thinking skills. Throughout my course, the most difficult branch of Maths we did was Calculus and Linear Algebra, and that is not saying much. When you do start working, you will realise that the only Math you need are mostly addition and subtraction. Computer Programming will be the most important skill you will ever need. And to all of those who says that they need Further Math in their A-Levels, I did Math, Economics and Law. If you like Math, do a Mathematics degree.

2. I want to do Actuarial Science because the pay is good.
True, we have one of the highest starting salaries in the business world. Not by much though. The thing is, a qualified actuary does earn a lot. But to get that qualification, one has to pass professional papers, and those are not easy by a mile. The average time it takes to pass all your papers in Malaysia is around 6 years, depending on how good you are. (Some do take more than 10 years) And truth be told, all other professions will be able to earn a satisfactory remuneration within 10 years. If you want the money, go into Investment Banking. In a magazine which I have read, in business, while all other financial workers are paying off their mortgage for their first house, Investment Bankers are buying their second home.

3. I can pass all my professional exams if I work hard enough.
I want to believe this. I really do want to believe this. But with only 50 qualified actuaries in Malaysia, doesn’t it make you doubt that the only reason people are failing is because of a lack of effort? Studying is easy enough. Working is easy enough. Studying while working is not. While I was working in Malaysia, a colleague of mine works from 9 to 7 everyday, if he is lucky. On his way to and back from work, he studies on the LRT. If there is overtime, he will need to stay back and continue working. On weekends, he studies. At night, after being thoroughly exhausted at work, he studies. And while doing all these, he needs to find time for his girlfriend, family and friends. Now, ask yourself this: can you picture yourself doing that for a year? 3 years? 10 years?

I am really glad I chose this course. I know I would spend half my time working staring in a computer at spreadsheets. I know it will be a hard few years in front of me. I also know that I want nothing more than to qualify as a professional actuary, as I do love what I do very much. But I wished I knew what I was in for before I made the decision. And I do hope that people who read this will have the ability to make an informed decision about the course that is Actuarial Science.

Financial Distress

Just now, I stumbled across 2 interesting paragraphs commenting on financial difficulty face by GM and Ford in my MGMT textbook. Its kinda late since I have learned this topic 2 weeks ago. I should share them earlier if I make this book as my best companion. Unfortunately, I read it for the sake of the final exam since lecture notes are not enough to prepare me for the final.

Ok la..I rewrite them here.Keep in mind, they are not very insightful, but still helpful to understand US auto crisis from a managerial perspective. They are taken from Chapter 17 of the book-’Financial Laverage and Capital Structure Policy’.

Meanwhile, as the wheels of justice turn in their ponderous way, the assets of the firm lose value because management is busy trying to avoid bankruptcy instead of running the business. Normal operations are disrupted, and sales are lost. Valuable employees leave, potentially fruitful programs are dropped to preserve cash, and otherwise profitable investments are not taken.

For example, in 2006, both General Motors and Ford were experiencing significant financial difficulty, and many people felt that one or both companies will eventually file for bankruptcy. As a result of bad news surrounding both companies, there was a loss of confidence in the companies’ automobile. A study showed that 75 percent of Americans would not purchased an automobile from a bankrupt company because the company might not honor the warranty and it might be difficult to obtain replacements parts. This concern resulted in lost potential sales for both companies, which only added to their financial distress.

-Ross, Wasterfield and Jordan. Corporate Finance Fundamentals. New York: McGraw Hill, 2008.

2 years later, GM and Ford are not in the state of financial distress anymore. They are on the brink of bankruptcy. I love the idea of customer confidence though. That’s true right? Would you buy a car from an auto company that will be wiped out of the market anytime soon? I won’t. The issue of customer confidence is rarely mentioned and focused in the media here. For me, it’s crucial for them to win back the confidence of Americans since they can’t afford to keep having drops in sales. Well, you can’t get it overnight. It takes years, or maybe decades. Letter like this won’t do anything.

Mengaji

Assalamualaikum.

Maaf kalau bahasa agak cincai..

Tengah hari ni tadi FED potong kadar faedah sebanyak 0.5% kepada 1%. Nampak sikit. Tapi 0.5% potongan adalah angka yang sangat besar bagi ahli ekonomi. Menjelang pemotongan tu, aku berada dalam kelas econ. Sekarang ni pun memang tengah belajar pasal economic fluctuations dan business cycles. Menang betul-betul kena ah timing belajar benda ni. Dapat gak belajar benda ni di ambang kegawatan ekonomi sekarang ni. Lagi, belajar pasal stabalization policy, demand shocks, supply shocks. Semua ada kena mengena ngan krisis sekarang. Hari ni Prof Kanda cerita la sikit details pasal cutting interest rate (the FED does not ‘cut’ interest rate actually) and faderal funds rate. Agak menarik dan pengetahuan baru jugak la bagi non-economics student seperti aku ni. Tapi aku malas nak tulis sini. Mesti orang kata subjek-subjek ni membosankan. Lagipun, yang mau gawat hanya US je. Ekonomi Malaysia kan masih kukuh seperti biasa menurut TPM cum Finance Minister of Malaysia kite. 

Cuma satu benda aku nak kongsi sini. Aku bersyukur sangat sebab dapat belajar semua ilmu ni. Apa yang dipelajari dalam kelas boleh diaplikasi bila membaca berita. Dalam kata lain, sambil baca berita sambil buat ulangkaji. Sebab setiap hari ada sahaja berita mengenai makroekonomi, terutama diambang kegawatan sekarang. Dan hari ni Prof Kanda cerita pasal prinsip dia ajar student-student dia. Basically dia tak ajar kami cuma untuk dapat A untuk subjek tu. Dia tak kisah pun student dia fail ke, dapat A ke. Bagi dia takde makna kalau dapat A tapi apa yang dipelajari tak dapat diguna dalam hidup. Tapi, dia kata dah cukup bermakna bagi dia kalo apa yang dia ajar dapat digunakan dalam kehidupan seharian, walaupun sedikit. Susah nak jumpa lecturer macam ni sekarang. Memang..dia tak mendidik(sebab didik dengan kasih sayang). Tapi dia buat aku tak boleh cari alasan untuk skip kelas. 

Compare sikit dengan apa yang aku belajar weekend lalu dari MSA Retreat. Belajar pasal 4 imam mazhab dari Syaikh Bachir yang di bawa khas dari Orlando, Florida. Basically, subjek 4 imam ni dah belajar masa SPM dulu. Tapi dek kerana belajar untuk lulus exam, benda yang dipelajari dulu jadi kaku. Tak dapat nak aplikasi. Tak dapat nak ambil hikmah dari kisah 4 imam tu. Padahal pemahaman kepada hikmah disebalik kisah mereka lagi penting daripada penghafalan fakta tentang mereka. Banyak pengajarannya. Mungkin generasi sekarang lebih terbuka kepada perbezaan pendapat kalau ustaz dan ustazah di selolah menengah fokus pada hikmah-hikmah dari 4 imam besar tu. Tak lupa juga..silibus pun kena lebih fokus pada pemahaman dan aplikasi. Bukan penghafalan untuk lulus peperiksaan semata-mata. InsyaAllah kalau sempat aku buat catatan sikit kat sini pasal hikmah dari kisah 4 Imam tu.  Sekarang ni perlu bagi prioritas pada benda lain. 2 exams, 3 assignments, 1 kursus online perlu dihadapi dalam masa seminggu. Tak lupa juga, memerhati pilihan raya 4 Nov ini.

Sekian Wasallam.

Terus Turun

1. Satu yang menarik tentang kelas EAS adalah setiap kali sebelum bermulanya kelas, Mr Zinsmeister akan mengupas mengenai harga minyak mentah yang tercatat di pasaran kira-kira 1 jam sebelum kelas (12:00pm).

2. Seperti semua sedia maklum, hari ini harga minyak turun sebanyak $6 kepada $108. Paras terendah dalam tempoh 5 bulan.

3. Menurut Mr Zinsmeister, trend penurunan ini akan berterusan walaupun 3 taufan lagi(Hanna, Ike, dan Josephine) dijangka berkunjung ke Teluk Mexico selepas Gustav melanda 2 hari lalu.

4. Untuk maklumat, Teluk Mexico mempunyai hampir 4000 pelantar minyak.

5. Salah satu fenomena yang boleh memberi penjelasan kepada penurunan harga minyak mentah adalah pengukuhan nilai Dolar. Jika diperhatikan, memang Dolar kembali kukuh semenjak akhir-akhir ini. Nilai Dolar berbanding Pound kembali kukuh ke rekod yang paling tinggi untuk tempoh dua setengah tahun.

6. Malah nilai Dolar berbanding Ringgit kembali kukuh dan mencecah RM 3.4209 untuk $1 hari ini. Pada awal musim panas, nilai Ringgit hanyalah pada sekitar RM3.18 untuk $1.

7. Pengukuhan nilai Dolar membawa keluar pelabur dari pasaran komoditi untuk beralih kepada pasaran modal dalam Dolar. Sebelum ini, kejatuhan nilai Dolar menarik pelabur ke arah aset komoditi yang lebih selamat seperti kontrak minyak mentah.

8. Permintaan yang kurang di pasaran komoditi terutamanya bagi permintaan terhadap minyak mintah telah membantu kearah penurunan harga minyak mentah global.

9. Walaubagaimanapun, menurut Mr. Zinsmeister, pengukuhan nilai Dollar bukanlah satu-satunya faktor yang menerangkan trend kejatuhan harga minyak sekarang. Banyak lagi faktor yang perlu diambil kira.

ps: Menulis dalam bentuk point sebegini agak mudah. Anda tidak perlukan sangat kata/ayat penghubung yang baik untuk menyampaikan idea.

Gas Buddy

I got to know this website from my EAS lecture yesterday. A very cool website indeed. From the website, you can compare gas prices across the United States(here, retail price of gas varies). The diagram below is not a weather map. But it is US National gas temperature(read: price) map. As you can see, the prices get higher as you go north and get lower as you travel south. The answer for the pattern is here. Most of the refineries is USA are located in southern states like Texas, Louisiana and Mississippi. Also, the prices are different between states. According to my lecturer, it is caused by the different tax structures imposed in every state. Apart from mapquest, googlemaps and weather.com, I think this is another website I must consult before travel. At gas station, 0.4 cent different in prices is quite big for me. haha

Btw, EAS class is quite an interesting class. I’m looking forward to learn more about oil and other fossil fuels which I think one of the most hotly debated topics either here or in Malaysia. I have to admit that before this I only get the information about this topic by watching TVs, reading newspapers and hearing from some politicians. Put aside what politicians have told me about energy crisis, oil and fossil fuel. Now I get a chance to study, do research and write papers on this topic. My lecturer have assigned 3 reading materials(books) for this course. I already have one which is The Prize by Daniel Yergin. But I haven’t opened the book yet caused the thickness of the book make me scare. For the time being, I just gonna watch these videos.

Tarif Import.

Assalamualaikum

Hujung minggu ini aku nak tulis sedikit coretan ringkas tentang apa yang aku pelajari dari kelas ekonomi minggu lepas mengenai tarif import. Jika dilihat dari perspektif pengguna, tarif import ni memang menyusahkan.

Coretan ini hanya menyentuh pada situasi yang mirip Malaysia sebagai sebuah negara ‘kecil’. Negara kecil dalam konteks penguatkuasaan tarif adalah tarif yang dikenakan oleh negara itu keatas sesuatu produk tidak mampu mengubah harga produk itu di pasaran dunia.

Ok..tenung graf ni betul-betul.

Jika dilihat pada graf itu, bila tarif import dikenakan, harga barang yang diimport dipasaran berada pada paras yang lebih tinggi berbanding dengan harga tanpa tarif(dari $50 ke $60). Perubahan ini secara lansungnya mengurangkan costumer surplus. Pengurangan pada costumer surplus diwakili oleh kawasan CEJF.

Dalam pada itu, kenaikan harga akan memberi peningkatan sedikit keuntungan kepada pengeluar dalam negara yang diwakili oleh kawasan CDGF pada graf(producer surplus). Manakala kawasan kelabu DEIH adalah mewakili peningkatan kutipan hasil oleh kerajaan selepas tarif berkuatkuasa.

Setelah ditolak dan dicampur kerugian dan keuntungan yang dialami ketiga-tiga pihak, kerugian yang dialami oleh sesebuah negara diwakili oleh 2 kawasan hijau pekat dalam graf (DGH dan EIG) yang dipanggil deadweight loss.

Mungkin ada yang tertanya mengapa sesebuah negara kecil masih mahu mengenakan tarif keatas sesetengah produk sedangkan ia akan mengalami kerugian selepas itu? Mengapa tidak kekal pada harga tanpa tarif ($50) dimana tiada deadweight loss muncul?

Apa yang aku belajar dari kelas, tujuan sesebuah kerajaan negara kecil menguatkuasakan tarif ada dua. Pertama, tarif merupakan satu sumber pendapatan yang segera untuk sesebuah kerajaan itu. Tarif boleh dikategorikan sebagai ‘easy-to-collect taxes’ dan merupakan sumber pendapatan utama negara-negara membangun merangkap negara kecil dalam konteks perlaksanaan tarif. Adalah lebih senang untuk mengutip dan memperoleh pendapatan yang begitu banyak daripada tarif berbanding dengan ‘hard-to-collect taxes’ seperti cukai pendapatan dan cukai harta. Kadar kutipan cukai-cukai itu banyak bergantung kepada kejujuran pengisytiharnya dalam melakukan pengisytiharan.

Sebab kedua pula adalah politik. Seperti yang dibincangkan tadi, tarif boleh memberi peningkatan surplus kepada pengeluar. Dan ini merupakan alat yang terbaik bagi sesebuah kerajaan untuk melindungi golongan kapitalis dalam negara mereka dari persaingan dengan produk global. Dengan adanya tarif pengeluaran sesuatu produk akan meningkat dari Y1 ke Y3 seperti dalam graf. Golongan kapitalis pula semestinya akan membalas jasa baik golongan politik ini dengan sesuatu. Simbiosis antara mereka la katakan. Mungkin kisah pak cik Bush ini boleh dijadikan contoh.

Seperti yang dinyatakan pada perenggan awal, kesimpulan yang aku nampak di sini adalah golongan yang mengalami kerugian akibat tarif import adalah rakyat yang terpaksa menaggung harga yang lebih tinggi daripada sepatutnya demi kelansungan sesebuah kerajaan dan golongan kapitalis.

Sekian untuk kali ini. Di lain waktu nanti, insyAllah aku cuba ceritakan mengenai outsourcing dan apa signifikannya ia pada kita bila melangkah ke alam pekerjaan nanti.

Sekian Wasallam.

The Inflation Tax

Today I would like to share something from my economics reading. I’m sure everyone knows what is inflation. It’s a simple economic term right? But, do you guys know what’s the factor that controls a country’s inflation?

Ok..let me introduce you a simple equation.

V=( P x Y)/ M

V is velocity of money. (P x Y) is the production function where P is the price level and Y is the quantity of output (GDP). Last, M is the quantity of money.

What is the velocity of money? From my book, it states that the velocity of money refers to the speed at which the typical dollar travels around the economy from wallet to wallet. In most cases, the velocity of money is relatively stable. The inflation rate is reflected by the P variable. Meanwhile, Y is determined by the factors of production (land, labor, capital, technology) and thus it is unaffected by change in M.

Based on the equation, one of the ways to alter inflation is by changing the money supply (M).

Now, let’s get back to the inflation tax. One of the ways to explain the inflation tax is by looking at the government’s spending (build roads, buildings, pay wages and allowances) . There are many ways out there for the government to raise money and pay for its spending. It can increase its revenue by raising the income or sales taxes. The government can also borrow from the public by selling bonds. Other lending options are IMF and other countries. Yet it can also pay for spending just by printing more money.

When the government print more money, quantity of money will raise. M increases. Since V is a constant and Y is unaffected by the change in M, therefore P is the one that will offset the change in M. In conclusion, the price level will raise with the raise of M. With the raise of the price level, the money you hold now are less valuable. That’s what they call the inflation tax. The inflation tax is subtle and thus different from other taxes. It’s a hidden tax.

For example, let’s take a look on what’s happening in Malaysia. Recently, the government has announced a lot of mega projects involve billions of Ringgit. Some of them are WPI, NCER, ECER and RECORDA. How about the Ninth Malaysia Plan, the salary increase for civil servants and the scholarship increase for students abroad?

Intrigue citizens may ask where do the government gets the money to support the giant projects and excessive spending. We can’t get the exact answer since there are many ways for the government to pay the spending. But, we can’t ignore the possibility that the government will choose to print more money in order to implement all the projects and developments.

If that kind of action is taken, some of the government’s burdens are actually transferred to the citizens in the form of inflation tax. Eventually, we’ll experience price hike for many of goods and services. In fact, it is happening in Malaysia nowadays. Price hike for consumer goods is normal even though opposition parties, CUEPACS, and MTUC are all stand up against the hike.Before this, we can get a roti canai for 50 cents. But now you probably get one for 60 cents. Or you can still get one for 50 cents, but its size might have shrunk.

That’s the the price we have to pay for development to take place in our country. Please don’t get me wrong. I’m not supporting price hike, inflation, or government spending. What I’m trying to say is that inflation is unavoidable. I’m tired of hearing many voices lament the price hike. You want more developments coming your way but don’t want to pay the price for them. Instead, why don’t we concentrate more on our productivity (Y) so that the Y could ‘replace’ the inflation(P) in offsetting the effect of increase in money supply (M).

Terlepas Pandang.

Assalamualaikum.

Dah hampir sebulan setengah aku belajar subjek linear algebra ni. Tetapi oleh kerana kelajuan pembelajaran yang terlalu pantas dan sikap aku sendiri yang suka skip bahagian-bahagian yang kurang penting dalam buku teks, aku terlepas pandang satu perkara asas dalam subjek ini yang mana bagi aku harus kita sebagai umat Islam tahu. Lebih-lebih lagi untuk muslim yang mempelajari linear algebra. Perkara tu betul-betul terletak di perenggan pertama isi buku teks linear algebra yang aku pakai sekarang.

Berikut adalah perenggan pertama buku teks itu:

Jadi mulai hari ini, bila aku ke kelas tak ada lagi rasa rendah diri dan memandang tinggi pada bangsa mat saleh dalam kelas aku kerana apa yang mereka pelajari selama ini adalah hasil dan sumbangan daripada ketamadunan dunia Islam.

Satu perkara lagi, alangkah malangnya nasib aku kerana hanya menyedari kehebatan ketamadunan ini setelah sekian lama. Seakan-akan sumbangan ini cuba dipadam dan tidak diberi pengiktirafan sewajarnya. Ataupun sumbangan ini tidak penting dalam prosos pembelajaran? Bukan la aku tak tahu tentang sumbangan ini. Cuma ‘alertness’ kurang. Tak dinafikan perkara ini disentuh dalam kelas pendidikan Islam. Tapi setakat mana sangat hasilnya jika perihal tokoh-tokoh itu di’compile’ dalam satu bab subjek pendidikan agama. Berbeza jika ianya disentuh sekali ketika mempelajari subjek sains dan matematik. Bandingkan dengan nama-nama tokoh sains barat yang kita kenal.

Sebut sahaja kepada murid umur 12 tahun akan nama-nama seperti Alexander Graham Bell, Henry Ford, Thomas Alva Edison, Wright Brothers dan Neil Armstrong. Pasti ramai antara mereka yang mengenali mereka. Dan tak lama lagi nama Dr Sheikh Muszaphar pula akan meniti di bibir mereka (walaupun hanya melancong ke angkasa). Masakan tidak Nama-nama besar dari barat itu diajar sejak dari darjah 3 sekolah rendah lagi sedangkan nama-nama cendekiawan Islam diajar ketika akhir tingkatan 5 sekolah menengah. Di situ mungkin boleh dijadikan bukti bahawa penekanan dan acuan yang mahu diberikan oleh sistem pendidikan negara lebih menghala ke barat.

Bagi yang dah tahu dan sedar tentang sumbangan cendekiawan Islam, yang penting bagi kita adalah bagaimana mahu mengembalikan kegemilangan dan sumbangan kita pada dunia sains dan matematik?

Pasti ramai yang boleh memberi jawapan bla bla bla….

Sekian Wasallam.

Math & Girls.

Girls (or you can tell this to your bro n sis), take some of the words by Danica McKellar seriously especially in the middle part of the video. I found some of her advices very useful. I wonder whether Malaysia has this kind of smart artist that could give some good inspirational values to our younger generation nowadays. With that kind of role models present in the mind of young kids, at least they would be more motivated and inspired to explore science and math field. Much better for them rather than dreaming of competing in AF or practicing their singing and acting skills in front of their parents.

What Is Actuary?

Assalamualaikum.

While taking a break, I searched for “actuary” in YouTube and found this nice video about actuary. It’s pretty cool and articulate in explaining all the things people need to know about actuary. I assume this career is not a popular one and lots of people out there still do not have clear idea about it. Moreover, students too usually do not put it on their list when selecting their majors. So, I post the video here.

Yet, it’s still not a complete video for a muslim to know about this career since most actuaries today deal with riba. But, as Islamic financial products and institutions are growing rapidly nowadays, I’m not consider riba a big issue unless financial institutions make use of the Islamic terms with their products when the products actually are not completely follow the muamalat law. A simple analogy for it is when Dr M proclaimed Malaysia as an Islamic country during his tenure, but based on jumhur ulama’s definition of Islamic country, Malaysia is still far away behind the title.

Sekian Wasallam.