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2zJonathan AF4 > Cash > Flashcards

Cash Flashcards

1
Q

Which banks are covered by fscs (4)

A

its where the branch is that matters.

Uk branches in EEA may be covered by EEA deposit guarantee scheme

not cover deposits with institutions outside of the EEA or in the
Channel Islands or the Isle of Man

Firms mus be authorised by FCA or PRA

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2
Q

What is temporary coverage of fscs

A

1 million

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3
Q

3 advantages of cash

A

liquidity

interest income

capital preservation

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4
Q

5 risks of cash

A

IR - CB and yield curve

inflation

Currency

Reinvestment

Default

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5
Q

3 roles of cash in portfolio

A

Reduce volatility

liquidity for opportunities

Tactical move against downside risk

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6
Q

3 risks of offshore currency savings

A

High rates of interest offered by high inflation
countries with potentially collapsing currencies.

accept a low IR in ‘strong’ currency as
that currency gains will make up for low return BUT do
not strengthen continuously

Some countries do not have the same level of supervisory structure as the UK, meaning
institutional collapse may be more likely.

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7
Q

6 factors to consider with offshore savings

A

Expected currency movement against sterling

Historical volatility of the currency

If details are scarce, consider the sterling outlook

anticipate potential interest rate changes.

Assess the deposit-taking body’s ability to repay the capital at maturity.

Availability and coverage of statutory or industry compensation schemes.

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8
Q

When can foreign currency savings be suitable (4)

A

people who want
income in a particular currency to meet liabilities denominated in that currency.

Speculation

Tax advantages

Privacy

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9
Q

3 features of instant access

A

Access immediately in branch

Variable and lower than deposit

Online lower

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10
Q

3 risk of teaser accounts

A

Short term bonuses

low limits

require parallel investments

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11
Q

instant access v restricted savings (5)

A

liquidity/accessibility

iR offered & Variability

Risk

Fees/penalties

Inflation

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12
Q

3 features of notice accounts

A

higher variable interest rates than instant but reduced access

notice period (30-120 days)

Early access may incur penalties, often equal to the interest for the notice period

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13
Q

5 features of deposit accounts

A

fixed interest rates for one to five years, with restricted access

higher interest rates to lock in funds for a fixed term.

from seven days to several years, substantial minimum deposits.

Smaller banks/building societies offer higher rates but fewer options.

rates depend on money market expectations.

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14
Q

3 comparison factors of notice v deposit

A

Accessibility

IR rise/decrease -variable v fixed

IR offered

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15
Q

5 features of structured deposits

A

full capital protection

typically 5 years or more

linked to underlying asset ie ftse 100

No income

Covered by fscs

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16
Q

5 risks of structured deposits

A

Market

Credit

Liquidity

complexity

inflation

17
Q

4 return issues for structured deposits

A

potential for higher

variable returns

No guarantee for returns

may have made more investing directly in the asset

18
Q

Comparison of SD with savings (4)

A

Variability of returns

level of returns

income

accessibility

19
Q

what are 2 features of foreign currency deposit

A

Held in foreign currency

IR reflects the prevailing market rate for the currency

High minimums

20
Q

5 risks of foreign currency deposit

A

exchange

interest rate

political/economic

inflation

credit

21
Q

5 Benefits of foreign currency deposits

A

higher return

variability (exchange rates)

speculation

hedging

interest and exchange rate

22
Q

Are offshore sterling deposits covered by FSCS?

A

NO

23
Q

5 features cash isas:

A

tax free interest

£20k limit including other ISAs

UK resident

withdraw anytime

flexible isas

24
Q

4 new ISA rules:

A

pay into more than one type of ISA

If you have an existing ISA that you haven’t paid into in the previous tax year, you’ll no longer need to make a declaration to pay money in again.

Transfer all or just part of your current ISA plus previous

cash isa age from 16 to 18

25
Q

5 eligible investment criteria for cash isa

A

Bank/building society accounts

money market oeics or UT

OEIC, UT, life assurance or UK UCITS that would return 95% in 5 years

ns and i direct isa

stakeholder cash deposit

26
Q

If a three-month Treasury bill is issued at a price of £99.876105, it means that a purchase
of £1 million of three-month Treasury bills would cost

A

£998,761.05.

redeemed by the Government for £1m and
the difference (£1,238.95) is interest earned.

27
Q

What are treasury bills? (3)

A

Issued by gov for short term needs

Via DMO min £500k

Highly liquid and deemed risk free

28
Q

What are CDs? (3)

A

Banks and building societies issue CDs to raise funds to finance their business activities

Yield less than normal as tradeable

Dependent on credit rating

29
Q

What are commercial bills? (2)

A

Commercial bills are short-term negotiable debt instruments issued by companies to fund
their day-to-day cash flows.

The yields are typically higher than the Treasury bill equivalent to reflect
the higher credit risks involved and their reduced liquidity

30
Q

Short-term money market funds?

A

weighted average maturity of no more than 60 days and a
weighted average life of no more than 120 days.

31
Q

Standard money market funds

A

aim to make slightly higher returns

invest
in assets with extended maturity periods of six and twelve months.

32
Q

5 areas of suitability for MM funds

A

Versus cash

charges and impact on returns

liquidity

underlying portfolio assets and risk

experience fund management

33
Q

Returns of of money market funds (3)

A

Underlying assets dependent

higher than cash

Impacted by charges

34
Q

Risks of money market funds v cash (2)

A

Is credit risk of assets higher than savings account?

More diversified

Name usual cash risks

2zJonathan AF4 (12 decks)

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