Cash & MM Flashcards
Define default risk
deposit-holding body collapses and is unable to repay account holders.
4 distortions of cash returns
- Advertised rates may not represent the true rate actually earned.
- only on the
first £1,000. - Penalty charges can reduce returns.
- High-quoted returns (teaser rates) may only last for a limited period
AER formula
AER = (1 + r/n)n –1
Define starting rate of tax
taxpayer’s nonsavings
taxable income is less than the £5,000
What Tier one capital ration should big banks have
8% under Basel III rules
What are three ways a banks credit can be assessed?
Tier One capital ratio
Credit rating (Moody, S&P, Fitch)
CDS rates
Definition of authorised for FSCS purposes
PRA
3 risks of offshore cash
High interest accompanied by high inflation/currency collapse
low interest rate in strong currency doesn’t always work
Regulation not as good, institutional collapse more likely
Maturities of: T bills, certificates of deposits, commercial papers
1, 3, 6 months
1-3 months
30-90 days
Who issues treasury bills, CDs and CPs?
DMO - min £500k
Banks
Companies
What rates are treasury bills, CDs and CPs based on?
return based on difference between price and face value at maturity
Sonia
?
Define short term money market funds
60-120 days
Define standard money market funds
6-12 months
5 factors that assess MM suitability
Returns compared to cash
Charges - 0.15%
Liquidity
Underlying assets and therefore risk (eg cash or CP?
Experience of fund manager
3 uses of MM funds
Short term home for cash in volatility
Alternative to savings account
Home for cash in portfolio AA
4 ways to assess MM funds
- the types of security
- its duration and maturity
- diversification
- the procedures to establish and monitor the credit quality of underlying instruments.
How do structured deposits work?
a return over a fixed term, which is the greater of:
* their original investment; or
* a percentage (e.g. 110%) of the change in the FTSE 100.
What length of time is a structured deposit?
five years or more, over which time inflation
can take its toll and the only guarantee is the original investment.
How do structured deposits differ from structured products?
No counterparty risk
What are foreign currency deposits (3)
denominated in a currency other than
sterling, e.g. a US dollar or euro deposit
High limits
IR reflects the market rate for the currency
What are Offshore sterling deposit accounts
in tax havens but no fscs
Where can help to buy isa be transferred to?
Lifetime ISA
Eligible investment in cash ISA
95% of capital returned in 5 years
What are the tax rules on children saving their parents money
Under 18 and unmarried and income is £100 pa then parents income (till 18)
NS&I direct ISA access?
phone/online (junior online only)
NS & I direct ISA flexibility?
not flexible
3 features NS& I income bond
Instant access
£500-£1 mill
variable interest monthly
2 NS & I bank accounts (3)
- an Investment Account managed by post only; and
- a Direct Saver that can be opened online or over the phone.
Max £2 million
NS&I Savings Certificates features (4)
Index linked and fixed
Fixed term
Completely tax free
After 2019 its CPI not RPI
Guaranteed Income Bonds (3)
Fixed term
£500-£1 mill
Paid monthly
Guaranteed Growth Bonds (3)
Fixed term
£500-£1 mill
Interest on maturity
Green savings bond (3)
Fixed term
£100 - £100k
Interest on each anniversary
