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LP2 > Investing in Cash and Bonds > Flashcards

Investing in Cash and Bonds Flashcards

1
Q

What are the FOUR main asset classes for investment?

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

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

A

Cash.

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3
Q

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?

A

National Savings and Investments (NS&I)

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4
Q

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

A

Cash.

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5
Q

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

A

Cash.

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6
Q

Are cash interest rates fixed or variable?

A

Variable.

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7
Q

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

A

Cash.

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8
Q

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

A

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

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9
Q

Who do deposit taking institutions usually require formal authorisation from?

A

Prudential Regulation Authority (PRA).

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10
Q

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

A

Deposit taking.

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11
Q

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

A

Fixed and variable.

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12
Q

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

A

Tiered rates.

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13
Q

What can cause cash returns to decrease significantly?

A

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

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14
Q

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

A
  1. The amount invested.

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

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15
Q

How are cash investments taxed?

A

As income.

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16
Q

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

A

£1,000

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17
Q

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

A

£500

18
Q

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

A

45%

19
Q

What is the main risk that comes with cash investments?

A

Inflation.

20
Q

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

A
  1. Current accounts.
  2. Instant access accounts.
  3. Notice accounts.
  4. Term or fixed rate accounts.
21
Q

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?

A

Instant access accounts.

22
Q

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?

A

Notice accounts.

23
Q

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

A

Term or fixed rate accounts.

24
Q

How do cash ISAs benefit from preferential tax treatment?

A

Income is received free of income tax.

25
Q

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

A

£20,000

26
Q

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

A

Foreign currency accounts.

27
Q

What is the money market?

A

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

28
Q

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?

A

Money market instruments.

29
Q

Who are money market instruments available to?

A

High-net worth individuals or investment managers.

30
Q

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

A
  1. Treasury bill.
  2. Commercial paper.
  3. Certificate of deposit (CD).
31
Q

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

A

Stamp Duty Reserve Tax (SDRT).

32
Q

At what percentage is SDRT charged at?

A

0.5%

33
Q

What is sometimes classed as ‘the invisible risk’?

A

Inflation.

34
Q

What is the main advantage of holding cash assets?

A

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

35
Q

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

A

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.

36
Q

Who are treasury bills issued by?

A

The Government.

37
Q

What is the term of a treasury bill?

A

Three months to a year.

38
Q

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

A

The face value.

39
Q

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

A

Commercial paper.

40
Q

Why is commercial paper higher risk than a treasury bill?

A

Due to their unsecured nature.

LP2 (6 decks)

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