1. Analyse the characteristics, features, behaviours and risks of securities and equities in the context of the market for these products (39) Flashcards
1.1 Analyse the characteristics, features, behaviours and risks of debt securities. 1.2 Analyse the characteristics, features, behaviours and risks of equities. 1.3 Explain the characteristics, features, behaviours and risks of the main competing asset classes and onshore/offshore investment products.
Types of physical replication
- full replication
- stratified sampling - sample
- optimisation - complex sampling
- synthetic - swaps
UK Gov bonds
- Treasury bills - short term funding (1 3 and 6 m)
- Gilts - fixed coupon and maturity date
- Index-linked Gilts - RPI (future maybe CPH)
Gilts terms
- Shorts - up to 7
- Mediums - 7 to 15
- Longs - 15 and more
US Gov bonds
- Treasury bills - short term funding. less than a year. 28 - 182 days
- Treasury notes - fixed coupon and maturity date. 2 to 10 years
- Treasury bonds - notes but, 10 to 30 years
Jap Gov bonds
- short - no interest. 6 and 1 year
- medium - fixed coupon and maturity. 2 and 5 years
- long - 10 years
- super long - 20, 30 and 40. 15 year w floating interest
- individual investor - conventional and floating. up to 10 years
- inflation indexed - CPI. principal is inflation adjusted. coupon paid on inflation adjusted amount
DR - roles
- Issuer - meets ongoing listing obligations
- Depositary bank - makes a market. Holds shares as trustee. Converts and pays dividends
- Custodian - holds shares on behalf of bank
Non current assets
- Tangible - held for production or supply of goods. i.e. property and plant
- Intangible - patents and trademarks
- Long term investments - available for sale
Current assets
- Inventories
- Trade receivables - debtors who owe the company for goods or services
- Cash
Calculating depreciation
original cost-expected residual value
/
expected useful life
Accounting for stock
- FIFO - first purchased and sold
- LIFO - most recent purchased first sold
- weighted average
Characteristics of unit trusts
- Legal structure - trust
- Management - manager and trustee (legal owner)
- Authorisation & supervision - FCA
- Pricing and valuation - Daily / NAV; Single or dual
- Charges - Initial; dual pricing may have AMC
- Units - Income or ACC
- Dealing and settlement - market provided by manager
Characteristics of OEICs
- Legal structure - company
- Management - ACD (management) and depository (legal owner)
- Authorisation and supervision - FCA
- Pricing and valuation - Daily / NAV; most uses single
- Charges - initial; dilution levy for buys over certain amounts
- Units - established under umbrella fund
- Dealing - ACD provides market
Dual pricing
- Bid - Price investor receives to sell
- Offer - Price investor pays to buy
Risks associated with equities
Price risk
* share prices may fall (capital loss)
* disclosure of bad news
* tech companies (more volatile)
Liquidity risk
* difficuilt to sell at a resoanble price
* price spread from falling value
* smaller companies
Issuer risk
* company collaspes rednering shares worthless
Non current liabilties
Non-current
* borrowing that are not repayable in the next 12 months
* additional source of capiatal over and above shareholer capital
* debentures and unsercured loan capital / loans from banks etc.
Current liabailties
Current liabailties
* payble within 12 months of statement date
* owed to suppliers, trade creditors, overdraft, dividends and tax
Types of share capital and reserves
Share capital
* No of shares in issue
Capital reserves
* Revaluation reserve
* Share prem reserve
* Capital redemption reserve
Retained earnings - revene reserve
Key busines terms
- Revenue - sales generated
- Cost of sales
- Gross profit - revenue, minus cost of sales
- Operating profit - gross profit, minus distrubition costs and admin expenses