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AF4 March 2025 > Cash > Flashcards

Cash Flashcards

1
Q

Main Characteristics of cash deposits

A
  1. Receive regular interest
  2. No exposure to investment risk
  3. Real value eroded by inflation
  4. Easily accessible
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2
Q

Characteristics of interest on cash deposits

A
  1. Fixed or Variable
  2. Paid Gross
  3. Dependant on term/notice required
  4. May have penalties on early withdrawal
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3
Q

Risks of Cash Deposits

A
  1. Default risk
  2. Inflation risk
  3. Interest rate risk
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4
Q

Items to consider in relation to Default Risk

A
  1. Creditworthiness
  2. If covered by FSCS
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5
Q

What does FSCS cover?

A
  1. 100% of first £85,000 per authorised institution
  2. Based on parent company
  3. Per individual
  4. Only in UK (UK branches of EEA banks also included)
  5. Aims to pay out in 20 days
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6
Q

What is Inflation Risk

A

Risk of investment losing value due to rising prices

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7
Q

What is Interest Rate Risk

A

Risk of interest rates changing on variable deposits

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8
Q

What is Reinvestment Risk

A

Risk of interest rates changing on flexible deposits so you cant achieve the same rate again at the end of the term

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9
Q

Risk of Offshore Sterling Deposit Accounts

A

Not covered by FSCS

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10
Q

Risk of Foreign Currency Deposits

A
  1. Foreign currency risk
  2. Interest rate risk
  3. Default risk
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11
Q

Items to consider if investing in foreign currency

A
  1. Expected movement vs. sterling
  2. Volatility of currency
  3. Interest rate movements
  4. Ability of provider to repay
  5. Any compensation schemes
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12
Q

Role of cash in portfolios

A
  1. Reduce volatility
  2. Provide liquidity for opportunities
  3. Tactical move against downside risk
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13
Q

Characteristics of Notice Accounts

A
  1. Higher variable rate than instant access
  2. Notice period before money withdrawn (30-120 days)
  3. Penalties for early access (interest for the notice period)
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14
Q

Characteristics of Term Deposit Accounts

A
  1. Typically 1-5 years, but can be 7 days or many years
  2. Fixed rate of interest
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15
Q

Characteristics of Structured Deposits

A
  1. Pay interest based on underlying equity index
  2. Offer a return over a fixed term dependant on equity performance
  3. Original deposit guaranteed
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16
Q

Features of Cash ISA

A
  1. Wrapper not investment
  2. up to £20,000 per annum
  3. Only individual basis
  4. Must be UK resident
  5. Flexi-ISA available
  6. Withdraw any time
17
Q

Eligible investments in Cash ISA

A
  1. Bank or building society accounts
  2. units in UK authorised Unit trusts/OEICs that are Money Market schemes
  3. NS&I direct ISA
  4. Stakeholder cash deposit products
18
Q

What products are available with NS&I? (9)

A
  1. Premium Bonds
  2. Green Savings Bonds
  3. Direct Saver
  4. Investment Accounts
  5. Income Bonds
  6. Direct ISA
  7. Junior ISA
  8. Guaranteed Growth Bonds
  9. Guaranteed Income bonds
19
Q

Features of NS&I Direct ISA

A
  1. Easy Access
  2. Only Opened online or by phone
  3. Not Flexi-ISA
20
Q

Features of NS&I Income Bonds

A
  1. Must be over 16
  2. Instant Access
  3. Interest paid gross but is taxable
21
Q

Features of NS&I Investment Account

A
  1. Must be over 16 or opened on your behalf
  2. Interest taxable
  3. Instant access
  4. Minimum of £20 up to £1m per person (£2m Joint account)
  5. Low interest
22
Q

Features of Guaranteed Growth Bonds

A
  1. Guaranteed returns for 3 years fixed
  2. Must be over 16
  3. Minimum Inv. £500
  4. Interest paid gross but taxable
22
Q

Features of NS&I Direct Saver

A
  1. Higher interest than Investment account
  2. Interest Taxable
  3. Must be over 16
  4. Instant access
  5. Managed by phone or online
  6. Minimum £1 and max £2 per person
22
Q

Features of Guaranteed Income Bond

A
  1. Guaranteed monthly income for 3 years fixed
  2. Must be over 16
  3. Minimum Inv. £500
  4. Interest paid gross but taxable
23
Q

Features of Green Savings Bond

A
  1. Contributes towards green projects
  2. Must be over 16
  3. Fixed interest for 2.95% for issue 7
  4. 3 year fixed term
  5. invest up to £100,000 per person
  6. interest added each anniversary
  7. paid gross but taxable
24
Q

Characteristics of Money Market Investments

A
  1. Governments, banks and companies issue debt instruments to manage short-term cash needs.
  2. Investors are banks, companies, local authorities, money market funds and individuals.
  3. High liquidity, low risk
  4. Fixed period, fixed rate
  5. Tradeable on money market
25
Q

Name the types of money market instrument

A
  1. Treasury Bills
  2. Commercial Bills
  3. Certificates of deposit
26
Q

Characteristics of Treasury Bills

A
  1. Issued by governments
  2. Issue managed by Debt Management Office (DMO)
  3. Issued at weekly auctions
  4. Maturities of 1, 3, 6 or 12 months
  5. Ad-hoc issues for 1-354 day maturities
  6. Have to be purchased through Treasury Bill Primary Participants w/ min purchase of £500,000
  7. Issued below par + at maturity pay par value
  8. Backed by govt.
  9. High Liquidity
27
Q

Characteristics of Certificate Deposits

A
  1. Receipts from banks for money held with them
  2. Fixed rate of interest
  3. Fixed term to maturity (1-3 months)
  4. Issued below the ordinary deposit because of liquidity
28
Q

Characteristics of Commercial Bills

A
  1. Issued by companies
  2. Less liquid than treasury bills
  3. Issued at discount to maturity value
  4. 30 - 90 days
  5. Unsecured - default risk
  6. Higher yields than treasury bills
29
Q

Name the two types of Money Market Investment Vehicles

A
  1. Short-term Money Market Funds
  2. Standard money Market Funds
30
Q

Characteristics of Short-Term Money Market Funds

A
  1. Weighted average maturity of >60 days
  2. Weighted average life of > 120 Days
31
Q

Characteristics of Standard Money Market Funds

A
  1. Aim for higher returns than short-term
  2. periods of up to 6-12 months
32
Q

Considerations when choosing a money market fund

A

1.Returns - compared to other cash investments
2. Charges
3. How long to realise the asset
4. Type of assets included
5. Experience of fund mgmt.
6. Credit rating of companies assets held with

AF4 March 2025 (22 decks)

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