Cash Flashcards
Which banks are covered by fscs (4)
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
What is temporary coverage of fscs
1 million
3 advantages of cash
liquidity
interest income
capital preservation
5 risks of cash
IR - CB and yield curve
inflation
Currency
Reinvestment
Default
3 roles of cash in portfolio
Reduce volatility
liquidity for opportunities
Tactical move against downside risk
3 risks of offshore currency savings
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.
6 factors to consider with offshore savings
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.
When can foreign currency savings be suitable (4)
people who want
income in a particular currency to meet liabilities denominated in that currency.
Speculation
Tax advantages
Privacy
3 features of instant access
Access immediately in branch
Variable and lower than deposit
Online lower
3 risk of teaser accounts
Short term bonuses
low limits
require parallel investments
instant access v restricted savings (5)
liquidity/accessibility
iR offered & Variability
Risk
Fees/penalties
Inflation
3 features of notice accounts
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
5 features of deposit accounts
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.
3 comparison factors of notice v deposit
Accessibility
IR rise/decrease -variable v fixed
IR offered
5 features of structured deposits
full capital protection
typically 5 years or more
linked to underlying asset ie ftse 100
No income
Covered by fscs
5 risks of structured deposits
Market
Credit
Liquidity
complexity
inflation
4 return issues for structured deposits
potential for higher
variable returns
No guarantee for returns
may have made more investing directly in the asset
Comparison of SD with savings (4)
Variability of returns
level of returns
income
accessibility
what are 2 features of foreign currency deposit
Held in foreign currency
IR reflects the prevailing market rate for the currency
High minimums
5 risks of foreign currency deposit
exchange
interest rate
political/economic
inflation
credit
5 Benefits of foreign currency deposits
higher return
variability (exchange rates)
speculation
hedging
interest and exchange rate
Are offshore sterling deposits covered by FSCS?
NO
5 features cash isas:
tax free interest
£20k limit including other ISAs
UK resident
withdraw anytime
flexible isas
4 new ISA rules:
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
5 eligible investment criteria for cash isa
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
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
£998,761.05.
redeemed by the Government for £1m and
the difference (£1,238.95) is interest earned.
What are treasury bills? (3)
Issued by gov for short term needs
Via DMO min £500k
Highly liquid and deemed risk free
What are CDs? (3)
Banks and building societies issue CDs to raise funds to finance their business activities
Yield less than normal as tradeable
Dependent on credit rating
What are commercial bills? (2)
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
Short-term money market funds?
weighted average maturity of no more than 60 days and a
weighted average life of no more than 120 days.
Standard money market funds
aim to make slightly higher returns
invest
in assets with extended maturity periods of six and twelve months.
5 areas of suitability for MM funds
Versus cash
charges and impact on returns
liquidity
underlying portfolio assets and risk
experience fund management
Returns of of money market funds (3)
Underlying assets dependent
higher than cash
Impacted by charges
Risks of money market funds v cash (2)
Is credit risk of assets higher than savings account?
More diversified
Name usual cash risks
