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RO2 Investment Principles And Risk > Cash Investments > Flashcards

Cash Investments Flashcards

1
Q

How is interest on cash usually paid?

A

Gross (Tax then needs to be submitted)

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2
Q

How is compounding expressed?

A

As an effective rate of return

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3
Q

What are the four types of cash accounts?

A

Instant access
Restricted access
Structured deposits
Cash Individual Savings Accounts

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4
Q

Which instant access accounts offer the best rate of return?

A

Those online due to less overhead

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5
Q

What is a structured deposit?

A

Guaranteed investment account.

Pays interest on the performance of an index in the form of guaranteed capital or a percentage of the performance.

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6
Q

What is the difference between structured deposits and structured products?

A

Structured products offer capital protection by a third party but add a couterparty risk.

Also, offer higher risk derivatives.

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7
Q

What is a flexible ISA

A

One that can have cash taken out then put back in without effecting the £20000 limit.

Child, LISAs, and help to buy are not flexible.

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8
Q

What are the rules regarding ISA transfers?

A

Can be transferred between ISAs

Previous years can be in full or part transfers

Current years must be in full, and the ISA is voided and replaced.

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9
Q

Describe NS&I direct ISA

A

Tax-free variable interest cash ISA with minimum £1

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10
Q

Describe NS&I junior ISA

A

Up to £9000 tax-free ISA

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11
Q

Describe fixed interest NS&I certificates

A

Lump sum tax-free investment that pays a fixed interest.

Penalty of 90 days interest for early withdrawal.

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12
Q

Describe index linked NS&I certificates

A

Rate of return linked to inflation
RPI for those renewed before 1/5/19
CPI for those renewed after.
90-day penalty for early withdrawal

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13
Q

Describe NS&I guaranteed growth bonds

A

Offer guaranteed fixed return
£500-£10000 per person
Interest paid gross but taxable
No withdrawal till the end of term
Available to anyone over 16 singles or jointly.

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14
Q

Describe NS&I income bonds

A

Regular variable monthly interest paid gross, but taxable
Available to anyone over 16
Can be held in trust
£500-£1m sole £2m joint
Easy access

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15
Q

Describe green savings bonds

A

Online savings bonds for aged 16 over
Fixed interest over 3 years. Gross but taxable

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16
Q

Describe NS&I investment accounts

A

£20-£1m sole £2m joint
There is no notice for withdrawals
Postal only
Interest paid gross, but taxable

17
Q

Describe how NS&I direct saver account can be accessed? How much can be invested? How is interest paid and taxed?

A

Online or phone only
£1-£2m sole £4m joint
Interest paid gross but taxable

18
Q

What tax-free NS&I products are there?

A

Primium bonds
ISA
Certificates
Kids ISA

19
Q

What are the 3 instruments used in the money market?

A

Treasury bills
Certificates of deposit
Commercial bills

20
Q

What are treasury bills?

A

Short-term money market instruments. 1-12 months
Managed by debt management office for government purposes.
Offered at bellow face value.
Redeemed at face value (par) (no interest)
Risk free investment

21
Q

What are the certificates of deposit?

A

Ways for banks/building societies to raise money against deposits they hold.

Fixed interest
Fixed term (usually 1-3 months)
Paid on maturity
No withdrawals
Can be traded, which adds liquidity
Interest linked to SONIA
Yields depend on issuers’ credit rating and market interest.

22
Q

What are commercial bills

A

Similar to treasury bills but for companies and not backed by government.
Less liquid
Not as safe
Higher yields

23
Q

What are the rules for short-term money market funds?

A

Weighted average maturity no more than 60 days

Weighted average life no more than 120 days

24
Q

What are the rules for standard money market funds

A

Weighted average maturity No more than 6 months

Weighted average life no more than 12 months.

25
Q

What charge is usually associated with money market funds?

A

0.15% annually

26
Q

How can an average investor access the money market?

A

This is impossible directly, but it can be done through certain investment products

27
Q

What are the risks associated with cash

A

Inflation
Default
Interest and reinvestment risk
Currency and country risk

RO2 Investment Principles And Risk (18 decks)

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