Cash & Fixed Interest Flashcards

1
Q

Treasury Bills

A

Issued by government to
finance daily cash flow

Routinely issued at weekly
auctions

1, 3, and 6-month maturities
(also 12 months but so far, no
12-month bill tenders have
been held)

No interest paid - issued below
par and repaid at par on
maturity

Government backed and highly
liquid

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2
Q

Certificates of Deposit

A

Receipts from banks for
deposits placed with them

Fixed rates of interest and fixed
term (can trade prior to
maturity)

Interest paid at maturity

Interest rate depends on
market rates and bank’s credit
rating

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3
Q

Commercial Bills

A

Short-term negotiable debt
instruments issued by
companies

Issued at discount to maturity
value

Typical maturities of between
30 and 90 days

Unsecured

Reduced liquidity

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4
Q

Short term money market funds have a maximum weighted average maturity of?

A

60 days and a weighted average life of 120 days

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5
Q

Standard money market funds have a maximum weighted average maturity of ?

A

6 months and a weighted average life of 12 months

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6
Q

Cum dividend

A

Purchases receives full 6 months interest ( but pays accrued interest up to settlement date to seller )

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7
Q

Ex-dividend

A

Where seller receives 6 months interest (but price adjusted to reflect this)

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8
Q

Dirty price is?

A

Clean price +/- interest adjustment

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9
Q

Interest yield

A

Coupon/clean price x 100

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10
Q

Redemption yield

A

Interest yield +/- gain or loss at maturity / number of years to maturity

——————————————

Clean price x 100

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11
Q

Normal yield curve

A

Rising positive curve, higher

yields for longer terms

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12
Q

Flat yield curve

A

Income similar for long and
short term

If economic factors are stable
and no radical changes to
expected inflation or interest
rates

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13
Q

Inverted/Reverse Yield Curve

A
Yields on longer-term bonds
Caused by supply and demand
or when investors expect short-
term falls to interest rates and
lower long-term rates
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14
Q

Secured bonds

A

Charge on certain assets of the company

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15
Q

Unsecured bonds

A

Higher yield due to higher risk

Holders rank alongside other creditors in liquidation

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16
Q

Debentures

A

Written acknowledgement of debt
Established by trust deed
Fixed - charged over specific asset
Floating - general charge over company asset

17
Q

Convetible loan stock

A

Offers holders the option of converting to ordinary shares

Conversion dates and rates are specified.

In the event of conversion CGT is chargeable.

18
Q

Floating Rate Notes

A

Bonds which pay rate of interest linked to money market rate such as SONIA

Interest rate may be set as the average of SONIA over a 6-month period expressed as basis points
above SONIA, e.g., SONIA plus 50 basis points = extra 0.5%

Interest normally paid half yearly or quarterly

19
Q

Index linked gilts

A

Interest and capital repayment adjusted with inflation (using PI although you should note that
PI will be aligned with CPIH from 2030)

Lower yields than conventional stock

Profits on disposal are CGT exempt but interest is taxable

20
Q

Repo market

A

Sale and repurchase agreement

One party agrees to sell gilts to another party

With a formal agreement to repurchase equivalent securities at an agreed price on a specified
future date

Transfer of assets - but operates as form of short-term lending

Bank of England uses repo market to influence interest rates

21
Q

Strips Market

A

Separating conventional gilts into interest (coupon) and redemption payments

Which are then traded in their own right

A 5-year gilt can be stripped to make 11 separate securities (5x 2 coupon payments + 1 redemption payment = 11)

22
Q

Annual rate of interest formula

A

(1+r/n) to power of n - 1 x 100