1. Cash Deposits & Money Markets

Question 0

What are the characteristics of the interest rate paid on deposits?

Answer 0

1. Flat rate or an effective rate (also known as annual equivalent rate (AER))
2. Fixed or variable
3. Paid net or gross of tax
4. Dependent on its term and/or notice required by the depositor. Fixed term deposits are usually subject to penalties in an early withdrawal is made

Question 1

What are the main characteristics of cash deposits?

Answer 1

1. The return simply comprises interest income, with no potential for capital growth.
2. The amount invested is repaid in full at the end of the investment term

Question 2

What is a CD?

Answer 2

Certificate of deposit

Question 3

What are two characteristics of treasury bills?

Answer 3

1. Highly liquid

2. Act as the benchmark risk-free interest rate when assessing the returns potentially available on other asset types.

Question 4

What is ESMA?

Answer 4

European Securities & Markets Authority

Question 5

Name 4 of the roles fulfilled by investing in money markets.

Answer 5

1. Short term home for cash balances
2. An alternative to bonds and equities
3. Part of the asset allocation strategy
4. Safe haven for money if market falls