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CeMAP Unit 1 > Topic 6 Direct Investments: Cash & Fixed-Interest Securities > Flashcards

Topic 6 Direct Investments: Cash & Fixed-Interest Securities Flashcards

(84 cards)

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1
Q

What are the main assets classes?

A
  • Cash
  • Property
  • Fixed Interest Securities
  • Equities
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2
Q

Fine wine, works of art, antiques

Can be classed as an?

A

Alternative Investment

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3
Q

The most common type of direct investment is?

A

A deposit account

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4
Q

Why would an invester use a deposit account?

A
  • Security of capital
  • Convenience
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5
Q

Which of these accounts have these functions?

  • Salary can be received
  • Bills are paid
  • Debit card, electronic transfer, cheque book
A

Traditional Current Account

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6
Q

Which of these accounts have these functions?

  • Simplified current accounts aimed a people who haven’t had them before
  • Money received in many ways
  • Cash withdrawals are limited
  • No cheque books or overdrafts
A

Basic Bank Account

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7
Q

Which of these accounts have these functions?

  • Provide Investors with access to their account without loss of interest
A

Interest Bearing Current Account

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8
Q

What are High-Interest Current Accounts?

A
  • Current accounts that earn high interest
  • To qualify you need to pay a minimum amount or set up a number of direct debits
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9
Q

Breakdown cover, mobile phone insurance & travel insurance

Are features of what?

A

Package Current Accounts

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10
Q

Package Current Accounts normally have what?

A

A monthly or an annual fee

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11
Q

Which of these accounts have these functions?

  • Instant access to savings
  • Low interest rate linked to bank
  • ideal for “emergency funds”
  • Interest tiered for large deposits
A

Instant Access Savings Accounts

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12
Q

Why do instant access current account pay more interest?

A

Admin is performed by the account holder or centralised function meaning lower costs involved

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13
Q

Which of these accounts have these functions?

  • Offers a higher rate of return for the period time funds saved
  • Access to the account is restricted
  • Notice periods required to withdraw funds
  • withdrawals are limited
A

Restricted Access Accounts

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14
Q

How much does the FSCS cover per investor and financial institution?

A

Up to £85,000

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15
Q

Why do NS&I products offer a lower rate of return?

A

The return of invested funds is guaranteed by the government

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16
Q

What is the minimum age a person can buy an NS&I product?

A

Age 16

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17
Q

What do the below NS&I products all have in common?

  • Direct ISA
  • Junior ISA
  • Premier Bonds
A

They are all tax free

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18
Q

At 3 years which NS&I product has the longest maturity?

A

Green Saver Bonds

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19
Q

What is the maximum a person can deposit in a NS&I Direct Saver account?

A

£2 Million

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20
Q

What is a Cash ISA?

A

Tax free interest earned on a bank or building society deposit accounts

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21
Q

What is an offshore account?

A

A bank/building society account held outside the UK which offers an advantage tax on investments

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22
Q

What are the risks of an offshore account?

A
  1. Account may not be in GPB so conversation may cost investments
  2. May not be covered by investor protection schemes
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23
Q

Since 2016 how have HMRC and Crown Dependencies helped each other?

A

They have exchanged details of people with offshore accounts

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24
Q

What must a UK resident do if they receive offshore account interest?

A

Declare it to HMRC

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25
What is a Gilt?
Fixed-Interest security that is a form of borrowing by the UK government
26
How is a Gilt categorised?
By the amount of time left until it's redemption
27
What is the redemption date for a Gilt?
The date which the original issue value is to be repaid
28
What is the coupon on a Gilt?
Is the interest payable on the par value of the Gilt?
29
How do the financial press classify Gilts?
In 3 types 1. Short-dated Gilts 2. Medium-dated Gilts 3. Long-dated Gilts
30
What type of Gilt is this? - less than 5 years to redemption
Short-dated Gilt
31
What type of Gilt is this? - 5 - 15 years to redemption
Medium-dated Gilt
32
What type of Gilt is this? - More than 15 years to redemption
Long-dated Gilts
33
Who issues Gilts?
The UK Debt Management Office
34
What is different with how the UK Debt Management Office dates Gilts?
Short-dated Gilts **Less than 7 years remaining** Medium-dated Gilts **7-15 years remaining**
35
What are Index-linked Gilts?
Gilts who's coupon and capital value move with inflation
36
What is an advantage of Index-linked Gilts over fixed Gilts?
The capital value of an Index-linked gilt is not affected by inflation
37
Can a gilt be redeemed early?
No but they can be sold to other investors
38
- The level of market interest - Time left until redemption - Supply and Demand Are what?
Factors that may influence the the sale of Gilts
39
What does "Cum Dividend" mean?
Means the new buyer of a Gilt is entitled to the next interest payment
40
What does "Ex Dividend" mean?
The next interest payment is due to the seller of the gilt
41
Does capital gains tax need to be paid on the redemption or sale of a Gilt?
No CGT is not due
42
How much is the par value of a Gilt?
£100
43
What is a running yield
The value of the coupon rate divided by what it is currently trading at?
44
Example of running yield Coupon rate value of 5.50 / Current market value £120
Running yield of 4.58%
45
What is a Local Authority Bond?
A way local authorities can borrow money by issuing stocks or shares
46
How are local authority bonds secured?
They are secured on local authority assets
47
When is interest paid on local authority bonds?
They are paid half yearly
48
What was a Permanent Interest-bearing Shares (PIBS)?
A share issued by a Building Society
49
When was interest paid on a PIBS?
Half yearly
50
Who would have priority if building society failed? A depositor or a shareholder?
A depositor because a PIB has less priority
51
What happens to a PIB if a bank demutalises be become a bank?
It is converted to a Perpetual Subordinated Bond (PSB)
52
What are the 2 ways companies raise funds?
1. Borrowing 2. Issuing Shares
53
How are Corporate Bonds and Gilts similar?
Pay a fixed rate rate of interest until redemption.
54
If a company issues Corporate bonds it generally helps its long term financing needs? True or False
True
55
What is a "Debenture"?
A corporate loan secured against a company's assets
56
What is "Loan Stock"?
A corporate bond that is not secured
57
Can corporate bond holder change their bond to ordinary shares in the company?
Yes but they don't have to if they don't want to
58
If a company doesn't make sufficient profits do they need to make the interest payment to the corporate bond holder?
They are obliged
59
If a company is wound up who has priority over assets the corporate bond holders or shareholders?
Corporate Bond holders
60
What is a Eurobond?
A bond issued in a country that uses a currency difference to it's country of issue. E.g a GBP issued in Japan
61
Why would a company issue a Eurobond?
The bond is outside the jurisdiction of the country that issue it's registered currency
62
What do these all have in common? - Local Authority Bonds - Corporate Bonds - PIBS - Eurobonds
All pay interest gross
63
Bond income is classed as what for tax purposes?
Savings income
64
What is a Structured Deposit?
A deposit that is linked to an index that measures the performance of shares
65
Are Structured Deposits fixed or variable investments
Fixed
66
Are returns from a fixed deposit set each year?
No the returns are variable
67
What is an advantage of a Structured Deposit?
The depositor is guaranteed to get their initial investment back
68
What is an disadvantage of a Structured Deposit?
Less risk investors may not receive a dividend payment
69
What is Alternative Finance?
A form of lending that does not involve a bank
70
What is Crowd Funding?
A way that individuals, charities & business raise money from the public
71
1. Donation based 2. Reward based Are examples of what?
How a crowdfunded activity receives money
72
Is crowdfunding regulated?
No it is not regulated by the FCA
73
What is (Peer to Peer Lending (P2P) / Loan Based Crowdfunding?
A P2P lender who lends out to businesses who require crowdfunding
74
How is Peer to Peer Lending different?
It is not deposit based
75
How can investment returns for Peer to Peer be paid?
- Easy Access - Fixed Term
76
Why is Peer to Peer Lending riskier?
As Loan repayments can be missed
77
Are P2P lending or investments regulated?
Yes regulated by the FCA but not covered by the FSCS
78
Who is P2P Investments aimed at?
Experienced Investors
79
If a normal investor does get involved in Peer to Peer Lending what is the limit of investments they are encouraged to stay to?
10% of the net assets
80
What is investment-based Crowdfunding?
Where investors funds are exchanged for a share of a company
81
All NS&I bonds with the exception of Green Saver Bonds pay tax gross. True or False
True
82
What rate of return do Local Authority Bonds offer?
offer a non-negotiable fixed rate of interest
83
Is gilt interest paid net or gross of tax?
It is paid gross as savings income
84
Why has the government issued Green Gilts?
As part of its Green Financing Framework

CeMAP Unit 1 (18 decks)

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