Chapter 11 - Other Investment Classes Flashcards

1
Q

Collective investment schemes (CISs)

A

Open or closed ended

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2
Q

Collective investment schemes (CISs)

Regulation

A

Categories of assets that can be held
Unsuited assets held?
Max level of gearing
Any tax relief available

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3
Q

Investment trusts

A

Stated investment objective
Key parties: board, investment managers, shareholders
Investors buy shares
Share prices at discounted NAV per share
Closed ended
Public companies
Gearing allowed

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4
Q

Unit trusts

A
Stated investment objective
Key parties: trustees, management company, unit holders
Investors buy units at NAV per unit
Open ended
Trusts
Limited power to use gearing
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5
Q

Differences between closed ended and open ended funds

A

Closed ended less marketable
Closed ended can gear implies volatility
Assets at less than NAV per share in closed ended
Closed ended higher return
Sgares in Closed ended more volatile tan underlying assets
Uncertainty true NAV per share in closed ended
Closed ended can invest in wider range
Different tax treatment

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6
Q

CISs vs direct investment

Advantages

A
Expertise 
Diversification
Direct costs avoided
Holdings divisible
Tax advantages
Better marketability
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7
Q

CISs vs direct investment

Disadvantages

A

Loss of control
Management charges
Tax disadvantages

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8
Q

Futures and options

Derivative

A

Financial instrument with value dependent on underlying asset

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9
Q

Futures and options

Forward

A

Non standardized OTC contract set future date

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10
Q

Futures and options

Future

A

Standardized exchange tradeable set future date

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11
Q

Futures and options

Long position

A

Positive economic exposure

Delivery of asset in future

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12
Q

Futures and options

Short position

A

Negative economic exposure

Deliver asset in future

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13
Q

Futures and options

Options

A

Call - right to buy
Put - right to sell

American - exercised before expiry
European - exercised at expiry

Warrant - option over own shares

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14
Q

Overseas market

Reasons

A

Match liabilities
Increase expected returns
Increase diversification

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15
Q

Overseas market

Drawbacks

A
Different market performance, mismatching risk
Currency fluctuation risk
Cost of obtaining expertise
Additional admin: custodian, dividend track and collection
Tax disadvantages 
Different accounting practices
Lack of good quality info
Language problems
Possible time delays
Poorly regulated markets
Political risks
Lack of liquidity
Restriction on ownership
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16
Q

Indirect overseas investment

A

Multinational companies
CIS specializing in overseas investment
Derivatives based on overseas assets

17
Q

Emerging markets

A
Current market valuation
Possibility of high economic growth rate
Currency stability and strength
Level of marketability
Degree of political stability
Market regulation
Restrictions on foreign investments
Range of companies available
Communication problems
Availability and quality of information