Chapter 1 - Cash Investments and Fixed-Interest Securities Flashcards
Types of tax-free savings accounts
- ISAs
- Premium Bonds
Types of income accounts
- Income Bonds
- Guaranteed Income Bonds
- Guaranteed Growth Bonds
- Green Savings Bonds
(monthly income with interest paid gross but taxable)
Types of Savings Accounts
- Investment Account
- Direct Saver
Money Market Investments
- Banks/building societies lend/borrow from each other
- Requires high liquidity
- Limited private investments
- Allows borrowers to obtain funds at a fixed price for a fixed period
- Allows lenders instant access to funds
Characteristics of a Treasury Bills
- Issued by the government to finance daily cash flow
- Routinely issued at weekly auctions
- 1/3/6 month maturities
- No interest paid (issued below par and reissued at par on maturity)
- Government backed and highly liquid
Characteristics of a Certificates of Deposit
- Receipts from banks for deposits placed with them
- Fixed rates of interest
- Interest paid at maturity
- Interest rate depends on market rates and banks credit rating
Characteristics of a Commercial Bill
- Short-term negotiable debt instruments issued by companies
- Issued at discounted maturity value
- Typical maturities of 30-90 days
- Unsecured
- Reduced liquidity
Short-term Money Markets
- Maturity of 60 days
- Average life of 120 days
Standard Money Markets
- Maturity of 6 months
- Average life of 12 months
Fixed redemption value
PAR
Coupon
Rate of interest payable
Interest Yield (running yield, flat yield, income yield or current yield)
Coupon (interest) / Clean Price X 100
Redemption Yield
Interest Yield + or - gain/loss at maturity / number of years to maturity / clean price X 100
Bond Yields
Measures returns in relation to market price
Yield Curves
A way of comparing yields on bonds of different maturities as well as an indication of market expectation
Normal Yield Curve
Rising positive curve, higher yields for longer terms
Flat Yield Curve
Income similar for long and short term
Inverted/reverse Yield Curve
Yields on longer-term bonds are less than short-term bonds
Short GILTS
Less than 7 years
Mediums GILTS
7-15 Years
Longs GILTS
15 Years +
Repo Market
Sale and repurchase agreement
Strips Market
Conventional GILTS are split into interest and redemption payments
Corporate Bonds
Allows companies to borrow money for long periods at a fixed rate of interest (greater risk)
Debentures
- Written acknowledgement of debt which is established by a trust deed
- Can have a fixed charge (charged over a specific asset) or a floating charge (general charge over company asset)
Convertible Bonds
Loan stock (bond) offering holders the option of converting to ordinary shares
