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
