Investing in Cash and Bonds

Question 1

What are the FOUR main asset classes for investment?

Answer 1

1. Cash
2. Bonds
3. Property
4. Equities

Question 2

What is an example of an asset class that is considered a safe investment with low risk and low returns?

Answer 2

Cash.

Question 3

What is the name of the government back organisation that provides products with the aim of raising additional funding and reducing the cost of government borrowing for the taxpayer?

Answer 3

National Savings and Investments (NS&I)

Question 4

What type of asset class would NS&I be an investment in?

Answer 4

Cash.

Question 5

What is the name of the asset class where interest is received but there is no potential for capital growth?

Answer 5

Cash.

Question 6

Are cash interest rates fixed or variable?

Answer 6

Variable.

Question 7

With what type of asset class can allow access to liquid investments often easily and without restriction?

Answer 7

Cash.

Question 8

With cash assets, how much can investors expect to be paid back at the end of the term?

Answer 8

100% - They are exposed to no risk and will be repaid the full amount.

Question 9

Who do deposit taking institutions usually require formal authorisation from?

Answer 9

Prudential Regulation Authority (PRA).

Question 10

The prohibition contained in the Banking Act 1987 and Financial Services and Markets Act 2000 prevents unauthorised what?

Answer 10

Deposit taking.

Question 11

What are the TWO types of interest rates on cash deposits?

Answer 11

Fixed and variable.

Question 12

What is the name for the type of interest rate that offers higher rates of interest for larger sums invested?

Answer 12

Tiered rates.

Question 13

What can cause cash returns to decrease significantly?

Answer 13

If an investor withdraws early without giving notice where notice is required.

Question 14

What TWO things will the rate of interest on cash assets be dependant upon?

Answer 14

1. The amount invested.

2. The term the investor is prepared to tie up their money for.

Question 15

How are cash investments taxed?

Answer 15

As income.

Question 16

What is the 2020/21 savings allowance for basic-rate taxpayers?

Answer 16

£1,000

Question 17

What is the 2020/21 savings allowance for higher rate taxpayers?

Answer 17

£500

Question 18

At what percentage would additional rate tax payers be taxed at for savings income?

Answer 18

45%

Question 19

What is the main risk that comes with cash investments?

Answer 19

Inflation.

Question 20

What are the FOUR main types of bank accounts that are common for cash investments?

Answer 20

1. Current accounts.
2. Instant access accounts.
3. Notice accounts.
4. Term or fixed rate accounts.

Question 21

What type of bank account allows savers to access their money when they want but may limit the number of withdrawals within a given period?

Answer 21

Instant access accounts.

Question 22

What type of bank account would usually pay a higher rate of interest than an instant access account in exchange for investors having less access to their money?

Answer 22

Notice accounts.

Question 23

Which type of bank accounts offer no or very limited access to capital before maturity?

Answer 23

Term or fixed rate accounts.

Question 24

How do cash ISAs benefit from preferential tax treatment?

Answer 24

Income is received free of income tax.

Question 25

What is the maximum amount that can be invested across all ISAs in 2020/21?

Answer 25

£20,000

Question 26

What is the name of savings accounts that are denominated in a different currency than sterling?

Answer 26

Foreign currency accounts.

Question 27

What is the money market?

Answer 27

An environment in which governments and large institutions/companies can borrow and lend money to meet their sort-term cash needs.

Question 28

What is the name for short-term investments which provide individuals with a low-risk investment route with good returns, that is traded on the money market?

Answer 28

Money market instruments.

Question 29

Who are money market instruments available to?

Answer 29

High-net worth individuals or investment managers.

Question 30

What are the THREE main types of money market instruments that are issued and traded in the UK?

Answer 30

1. Treasury bill. 2. Commercial paper. 3. Certificate of deposit (CD).

Question 31

What is the name of the 0.5% tax that is applied to any shares bought electronically?

Answer 31

Stamp Duty Reserve Tax (SDRT).

Question 32

At what percentage is SDRT charged at?

Answer 32

0.5%

Question 33

What is sometimes classed as 'the invisible risk'?

Answer 33

Inflation.

Question 34

What is the main advantage of holding cash assets?

Answer 34

Being able to access funds to meet unexpected expenditure without incurring a fee.

Question 35

Which of the following asset classes is riskier, and why? - Equities or bonds.

Answer 35

Equities are riskier because if a company goes bankrupt, they are unlikely to be repaid whereas holders of company bonds are one of the first to be repaid.

Question 36

Who are treasury bills issued by?

Answer 36

The Government.

Question 37

What is the term of a treasury bill?

Answer 37

Three months to a year.

Question 38

What is returned to the investor in a treasury bill, upon the maturity of investment?

Answer 38

The face value.

Question 39

What money market instrument is the corporate equivalent of a treasury bill?

Answer 39

Commercial paper.

Question 40

Why is commercial paper higher risk than a treasury bill?

Answer 40

Due to their unsecured nature.