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CISI: Securities > Chapter 2: Asset Classes > Flashcards

Chapter 2: Asset Classes Flashcards

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SIE Exam flashcards
1
Q

What two categories can Equities be divided into?

A

Ordinary and Preference shares

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1
Q

What are ordinary and preference shares known as in the US?

A

Common stock, and preferred stock.

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2
Q

What are redeemable shares?

A

Offered to shareholders, company can purchase them back at any time.

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3
Q

What are preference shares?

A

Less risk than ordinary, rank above in bankruptcy
Generally do not have voting rights
Receive fixed dividend

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4
Q

What are preference shares sometimes known as?

A

Hybrid securities, as they can have characteristics similar to bonds

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5
Q

What order is preference, ordinary and debtholders paid out in during bankruptcy?

A

Debt
Pref
Ord

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6
Q

How are dividends decided?

A

Proposed by directors
Ratified by shareholders during AGM

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7
Q

What can a proxy do?

A

Vote on behalf of shareholders

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8
Q

What is the nominal value of ordinary shares?

A

Represents the minimum amount that a company must receive from subscribers upon issue of the shares.

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9
Q

What are the types of preference shares? (5)

A

Cumulative
Participating
Redeemable
Convertible
Zero Coupon
shares can have any combination of these

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10
Q

What is a cumulative preference share?

A

Paid dividend and any unpaid dividends from previous years
(how can dividends be unpaid??)

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11
Q

What is a participating preference share?

A

Preference shares have fixed dividend, participating gives them the opportunity to participate in higher distributions and other liquidation events.

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12
Q

What are redeemable preference shares?

A

Company can buy back the shares at agreed price in future.
Liability for the company, counts as debt.

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13
Q

What is a convertible preference share?

A

Shareholder has right, not obligation to convert to ordinary shares
Can provide exposure to upside

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14
Q

What is a zero coupon preference share?

A

Pay no dividend, but they can redeem at a price above what they are issued

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15
Q

What does SOFR stand for?

A

Secured Overnight Financing Rate

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16
Q

What are bonds that are linked to interest rates called?

A

Floating-rate notes (FRNs)

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17
Q

What are bonds that are linked to inflation called?

A

“Index-linked”

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18
Q

What is a yield?

A

The measure of the percentage return that an investment provides.

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19
Q

What are the 3 ways to calculate a bond yield?

A

Flat yield
Gross redemption yield (GRY)
Net redemption yield (NRY)

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20
Q

What is flat yield also known as?

A

Interest or running yield

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21
Q

How do you calculate the flat yield?

A

annual coupon / price

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22
Q

How can flat yield be used to see the relationship between interest rates and prices?

A

As interest rates increase, investors want an equivalent yield on bonds.
As they have an inverse relationship, and the coupon is fixed - the price must fall and vice versa

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23
Q

What is Gross Redemption Yield sometimes known as?

A

Yield to Maturity (YTM)

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24
Q

What does Gross Redemption Yield not take into consideration?

A

Taxation

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25
Q

How is the GRY calculated?

A

Takes into account yield including redemption amount.

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26
Q

What is the NRY?

A

Net Redemption Yield

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27
Q

What does NRY take into account that GRY does not?

A

Taxation

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28
Q

What does modified duration measure?

A

Volatility

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29
Q

What is modified duration?

A

Expected change in price, given a change in interest rates.
Usually measured percent change per 1% change in the interest rate

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30
Q

What is the formula for modified duration?

A

(modified duration / 100) * price * percentage change
don’t forget it is inversely proportional

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31
Q

What is a convertible bond?

A

Give the holder the right to covert bond into ordinary shares

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32
Q

When would the investor choose to convert bonds into ordinary shares?

A

If the value of the shares exceeds the redemption value of the bond

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33
Q

Why would convertible bonds trade at a premium to their share value?

A

They provide downside protection in the form of redemption value if shares do not perform well, and interest payments
Similar to an option

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34
Q

How is conversion premium percentage calculated?

A

Premium / share conversion value

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35
Q

What is the conversion ratio calculation?

A

nominal value / conversion price of shares
E.g. £100 nominal convert to shares at £5 each = 20 shares

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36
Q

What are the 3 downsides of flat yield?

A

Ignores redemption flow, incomplete picture of returns
Ignores timing of cash flow, time value of money overlooked
If it is a FRN, the return will vary

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37
Q

What is the flat price sometimes known as?

A

Clean price

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38
Q

How often do most bonds pay out?

A

Semi-annually

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39
Q

When is the bond price equal to the flat price?

A

On settlement dates where the interest is paid

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40
Q

What do you use to calculate the bond price between payment dates?

A

Using accrued interest

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41
Q

What is the formula for accrued interest?

A

Coupon payment * (number of days since last payment / number of days between payments)

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42
Q

What is the dirty price?

A

Clean price + accrued interest

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43
Q

What is the flat price?

A

What is listed in bond tables for prices

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44
Q

How are months treated with ACT/360 or ACT/365 calculation?

A

Each month treated normally, regardless of leap year (Feb is 28 not 29)

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45
Q

In which calculation method are leap years taken into account?

A

ACT/ACT

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46
Q

What is a spread in bond markets?

A

The difference between two yields

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47
Q

How many basis points in 1%?

A

100

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48
Q

What are the 3 main bonds benchmarks?

A

Gov bond yields
Swap rates (exchanging FRN for fixed market)
Published reference rates e.g. LIBOR, now SOFR

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49
Q

How does the risk of a bond usually affect the spread over benchmark?

A

Higher risk is higher spread

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50
Q

How is the yield curve plotted?

A

Government bonds of different maturities
Yield on y axis, time to maturity on x axis
Yield curve is the line of best fit

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51
Q

What does a conventional yield curve look like?

A

Increasing, lower risk in short dated so will be a lower yield
Short dated have more liquidity

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52
Q

When would a yield curve invert?

A

When investors expect significant interest rate reductions in future
Often interpreted as a sign of economic slowdown as reducing rates means there is a low demand for credit

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53
Q

Which countries (4) and Central Banks (1) have attempted negative yields?

A

Denmark, Sweden, Switzerland, Japan
European Central Bank (ECB)

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54
Q

What is the intention behind negative yields?

A

Discourage saving, to encourage lending and spending to boost the economy

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55
Q

Why haven’t negative interest rates been widely adopted?

A

Bank depositors would switch to cash, which affects central bank profitability and control
Impact long term investments
Encourages “yield-chasing”, investment in riskier bonds / other speculative investments

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56
Q

How can you compare nominal yields and real yields?

A

Compare yields on inflation linked instruments to normal
E.g. index-linked GILTs. US Treasury Inflation Protected Securities (TIPS)

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57
Q

How would central bank concern about inflation affect medium and long dated govvy bonds?

A

Cause a fall, as they would increase short-term rates to counteract inflationary pressures

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58
Q

How can the time value of money be illustrated?

A

Taking account the prevailing rate if interest
$100 received in 1 year in 5% rate environment is worth 100/1.05
95.24
This is called the present value

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59
Q

What is the calculation for present value of a future payment?
receivable after n years, interest rate = r

A

1/(1+r)^n = discount rate

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60
Q

What nominal are governments bonds usually quoted on?

A

100 units of the currency’s nominal value e.g. $100

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61
Q

What is the ex-dividend period?

A

A period where a bond is dealt without entitlement to the impending coupon payment

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62
Q

What is the ex-dividend period for most gilts?

A

7 days

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63
Q

What is the cum-dividend period?

A

Period where bonds are dealt with coupon entitlement

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64
Q

What are ILGs?

A

Index-Linked Gilts

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65
Q

What examples of indexes do linked bonds follow? (2)

A

RPI - Retail Price Index
CPI - Consumer Price Index

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66
Q

Is the principal repayment affected in index-linked bonds?

A

Yes

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67
Q

How do US TIPS achieve index linking?

A

Adjusting the principal outstanding on the bond using CPI
Coupon is based on the fixed coupon set at issue multiplied by the adjusted principal
At maturity investor is paid the greater of the adjusted principal and the original principal

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68
Q

What index is being used for ILGs?

A

RPI
Industry convention, in prospectus for older gilts

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69
Q

What is a deflation floor?

A

Some government bonds guarantee that the redemption payment will not be less than the original value
US, France

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70
Q

Does the UK government offer a deflation floor?

A

No

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71
Q

When was the eight month trailing RPI changed to 3 months for Index linked gilts?

A

2005

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72
Q

How do you calculate the real interest rate?

A

[(1 + nominal interest rate) / (1 + inflation rate)] - 1

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73
Q

What was the short-term interest rate at the start of the 80’s in response to high inflation in the 70’s in the US/UK?

A

20%

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74
Q

When was the RPI changed to the CPI?

A

2003

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75
Q

What is the CPI-based inflation target?

A

2%

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76
Q

What does the PPI measure?

A

Inflationary pressures at an earlier stage in the production process
e.g. raw materials and other inputs

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77
Q

What does PPI stand for?

A

Producer prices indices

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78
Q

What is the main UK measures of inflation?

A

CPI - 2%

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79
Q

Who sets the CPI-based inflation target?

A

BoE Monetary Policy Committee MPC

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80
Q

What are ZCBs?

A

Zero Coupon Bonds

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81
Q

What does STRIPs stand for?

A

Separate Trading of Registered Interest and Principal of Securities

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82
Q

What does a STRIP involve?

A

Trading the interest and principal of a GILT separately

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83
Q

How many separate securities can a 2 year GILT be stripped into?

A

5
4 x coupon
1 x redemption

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84
Q

Who can strip eligible gilts in the UK?

A

GEMMs - gilt-edged market makers
BoE

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85
Q

What does GEMMs stand for

A

Gilt-edged market makers

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86
Q

What is the purpose of STRIPs?

A

Allows investors to precisely match liabilities
E.g. coupon comes in when they need to pay something

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87
Q

What is reconstitution?

A

Exchanging STRIPS for a conventional GILT, with the DMO as counterparty

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88
Q

What is the maturity of;
T-bonds
T-notes
T-bills

A

T-bonds >10 years
T-notes 2-10 years
T-bills <1 year

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89
Q

What is the different maturity names of Gilts?

A

0-7 years - “short-dated”
1-15 years - “medium-dated”
>15 years - “long dated”

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90
Q

What is BRICS?

A

Main emerging markets
Brazil, Russia, India, China and South Africa

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91
Q

How can corporate debt be divided? 2 sections

A

Money borrowed from banks
Money borrowed from investors (bonds)

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92
Q

What is less risky, debt finance or equity finance?

A

Debt finance, has to be paid before dividends/buy-backs

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93
Q

What are the two ways of securing debt?

A

Fixed charge - Debt carries charge over a single company asset
Floating charge - Debt secured against a group of company assets

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94
Q

What are asset-backed securities?

A

Bonds that are backed by a particular pool of assets

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95
Q

What does ABSs stand for?

A

Asset-backed securities

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96
Q

What are some examples of ABSs?

A

Mortgage loans, credit card receivables, car loans

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97
Q

What does securitisation stand for?

A

Packaging financial instruments together to create a security

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98
Q

What does MBSs stand for?

A

Mortgage backed securities

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99
Q

How do firms such as Fannie Mae and Freddie Mac operate?

A

Government firms that buy qualifying mortgage loans and securitise them and issue bonds to investors

100
Q

How can ABSs and MBSs be subdivided?

A

Into tranches, with each tranche having a specific priority in relation to interest and principal payments.

101
Q

Why do payment dates differ across ABSs?

A

Different products in each one, e.g. credit card, mortgage

102
Q

What does SPV stand for?

A

Special Purpose Vehicle

103
Q

How is a SPV structured?

A

It is a trust, and the originator of the assets (e.g. bank granting loans) sells the loans to the SPV and the SPV issues the asset-backed bonds

104
Q

What is the purpose of an SPV? (2)

A

Separate entity to the originator of the assets, assets leave the originators financial statements and replaced by cash.
As SPV is stand-alone entity, it remains intact even if originator goes bankrupt - increases creditworthiness of the ABSs.

105
Q

What is the process of assets being exchanged for cash in an originators balance sheet?

A

Off-balance-sheet arangement

106
Q

What is the bankruptcy protection of an SPV sometimes known as?

A

“bankruptcy-remote”

107
Q

What is a covered bond?

A

Asset-backed bond where no SPV is created, the originators assets “cover” the bondholder

108
Q

What can an originator do in times of crisis? E.g. 08

A

Transfer the troubled assets back to its balance sheet to become covered bonds

109
Q

How do European covered bonds differ?

A

Usually kept on balance sheet of the originator rather than transferred to an SPV.

110
Q

What is a secured debt transaction known as in the UK?

A

Debenture

111
Q

What is a secured loan known as in the US?

A

ABS

112
Q

What does a debenture refer to in the US?

A

Loan agreement with no security

113
Q

What happens when a corporation issues secured debt to a large number of people?

A

A trustee is appointed

114
Q

What are the 4 main UK trustee roles?

A

Note trustee
Security trustee
Share trustee
Successor trustee

115
Q

What is a Note trustee?

A

Appointed to represent the interests of holders of the securities
Provide guidance to the issuer

116
Q

What is a Security trustee?

A

For issues secured by securities, the trustee is charged in favour of the trustee for the benefit of the secured parties.
Documents will dictate how it is paid out

117
Q

What is a Share trustee?

A

Holds the shares in an issuing SPV in order to ensure off-balance-sheet treatment for the originator
Sometimes SPVs are domiciled off-shore

118
Q

What is a Successor trustee?

A

Provided for banks who need to resign due to conflicts of interest or capacity issues

119
Q

What is the benefit of a trustee?

A

Single entity that acts on behalf of shareholders, rather than a many individual actions. Organised action.
Reduction in costs

120
Q

What is a representation of the interests of the bondholders?

A

Trustee assigned to represent the interests of bondholders, makes security more marketable
paid for by issuer

121
Q

What will a corporate trustee do?

A

Make sure that the issuer is sticking to all its covenants from it’s issuance documents
e.g. debt ratios, bonds issued

122
Q

What are the 3 tiers of debt?

A

Senior
Sub-ordinated
Mezzanine

123
Q

What is senior debt?

A

Paid first, usually has strict covenants
Can be secured, has the lowest interest rate

124
Q

What is subordinated debt?

A

2nd in line, higher interest rate
less stringent requirements

125
Q

What is mezzanine debt?

A

High risk subordinated debt, ranks behind unsecured debt.
High interest rate
Interest can be skipped and added to the principal outstanding
Can include warrants/options so lender can get equity returns

126
Q

What is payment in kind, a.k.a PIK?

A

Interest that is deferred until principal repayment

127
Q

Who is paid first between unsecured debtholders and shareholders?

A

Unsecured debtholders, lenders always paid firsty

128
Q

What is guaranteed debt?

A

Guarantee provided by someone other than the issuer.
Usually parent company

129
Q

What is the benefit of convertible bonds to the issuer?

A

Lower cost of debt and possibility of avoiding repayment if lender converts

130
Q

What did the LIBOR represent?

A

The average rate at which banks offer loans to other banks

131
Q

Why was the LIBOR administration changed to the FCA?

A

Banks were manipulating the rate

132
Q

What are the two new rates in the UK and US?

A

SONIA - Sterling Overnight Index Average
SOFR - Secured Overnight Financing Rate

133
Q

What to FRNs usually add to benchmark rates?

A

A fixed margin, e.g. 175 bps - 1.75%

134
Q

What are the 3 prominent rating agencies?

A

Standard and Poor’s
Moody’s
Fitch Ratings

135
Q

Why has regulatory oversight of credit rating agencies increased?

A

Rated junk bonds highly during the 2008 GFC

136
Q

What are the two categories of bond rating?

A

Investment grade
Non-investment grade/speculative

137
Q

How can issues be credit-enhanced to gain a higher credit rating?

A

Insurance scheme that pays out if issuer not able to

138
Q

What is gross vs net interest

A

Gross - pre-tax
Net - post-tax

139
Q

What are the two prime examples of money market instruments?

A

T-bills, Commercial paper (CP)

140
Q

What are the risks in investing in cash?

A

Credit risk
Inflation risk

141
Q

How to T-bills produce return?

A

No coupon, discount to repayment

142
Q

Why do issuers take care to not miss CP payments?

A

Even delay by one day can lead to bankruptcy proceedings

143
Q

What is the most common CP term?

A

3 months

144
Q

What are the two methods of issuing CP?

A

Direct to buy-and-hold investors, e.g. money market funds
Sell paper to a dealer who sells the paper in the market

145
Q

What is it called when companies issue paper direct to investors?

A

Direct paper

146
Q

How much would issuers save issuing direct paper?

A

5 bps (0.05%)

147
Q

What does rolling form of debt mean?

A

New issues fund the retirement of old issues

148
Q

What is the main risk for CP?

A

Refinancing/rollover risk
Companies are not able to reissue CP

149
Q

What is a repo?

A

Sale and repurchase agreement
It involves an initial sale of a financial instrument and, at the same time, a contractual agreement that the seller will subsequently buy back the same financial instrument for a specified price at a set future date.

150
Q

Why would a participant enter into a repo transaction?

A

Lower the cost of borrowing by offering government securities as collateral

151
Q

Why would a participant enter a reverse-repo transaction?

A

Loaning out excess cash with bonds as collateral

152
Q

When may a market-making firm enter a reverse repo?

A

When it has sold bonds short, and needs to locate bonds in order to fulfill its settlement obligations

153
Q

How does the DMO assist in the smooth running of GILT markets?

A

Standing order repo facility.
Allows GEMMs to enter into reverse repo transactions to cover short positions created by market making

154
Q

How do GEMMs access the standing repo facility and what is the minimum amount?

A

Sign documentation, request any amount above £5m nominal

155
Q

What is a repo equivalent to?

A

Short-term secured loan

156
Q

What is a Eurobond?

A

Bonds that are issued and sold outside of their home country
currency does not need to be the euro

157
Q

What currency does a Eurobond need to be?

A

Any, just different to the home currency from the place where they are issued
e.g. UK Eurobond cannot be pound sterling

158
Q

What do Eurobonds allow corporations to do?

A

Issue debt without being restricted to their own domestic market
Provide investors access to invest in markets/currencies outside their home countries

159
Q

What are the 3 steps to issuing a Eurobond?

A
  1. Issuer appoints lead manager (investment bank), underwrites and establishes details
  2. Lead manager establishes a syndicate
  3. Syndicate distributes bonds to its client base
160
Q

In what form are Eurobonds issued?

A

Bearer form

161
Q

How often are Eurobond coupons paid?

A

1x / year

162
Q

What is it called when a bearer bond is deposited in a CSD?

A

Immobilised

163
Q

What CSDs are Eurobonds settled through? (2)

A

Euroclear & Clearstream

164
Q

What is a GDR?

A

Global Depository Receipt

165
Q

How do depository banks assist in DRs?

A

Issuer will supply the ords to the depository bank
Depository bank will then sell DRs to external investors
Cash proceeds are then provided to the issuer

166
Q

What is grey market trading in terms of DRs?

A

When DR is created, Depository Bank receives confirmation that they will receive the shares in future
Even if they don’t have the shares yet they can create and sell DRs
This can be done for 3 months before the purchase of the ORDs

167
Q

How are DRs registered?

A

The ORDs are in the name of the depository bank
DRs are transferable as bearer securities

168
Q

How do dividends work with DRs?

A

Depository Bank acts as an intermediary
Will receive proceeds as registered owner of the ORDs
Distribute to DR holders

169
Q

What are NVDRs?

A

Non-voting DRs
e.g. Thailand
Form of capital control

170
Q

How can an investor sell their DRs?

A

To another investor as DRs, or as underlying shares in home market
Latter involves cancelling the DR with Depository Bank. ORDs are then re-issued. Can be done due to lack of liquidity.

171
Q

What do warrants allow investors to do?

A

Purchase shares in a company at a fixed price over a period

172
Q

Why would a company issue warrants?

A

Receive income from selling warrant
Receive income if investor purchases shares with the warrant

173
Q

What is a covered warrant?

A

Issued by firms, rather than the companies
Call warrants and put warrants
Traded on the LSE

174
Q

What is the conversion premium of warrants?

A

(warrant price + exercise price) - share price

175
Q

What is it called when the conversion premium is negative?

A

Conversion discount

176
Q

What are the two types of real estate?

A

Residential and Commercial

177
Q

Who is responsible for repairs in commercial tenancies

A

Tenant

178
Q

What is the diversification benefit of property?

A

Usually low correlation with traditional and alternative asset classes

179
Q

What is the liquidity downside of real estate mutual funds?

A

Property funds can bring in measures to limit outflows in times of crisis
E.g. 12-month moratoria on redemptions

180
Q

What is the main tax feature of REITs?

A

Prevents double taxation

181
Q

What is double taxation?

A

If investor held company shares, company pays corporation tax and the investor would be liable to any tax on dividends

182
Q

How do REITs prevent double taxation?

A

REITs do not pay corporation tax

183
Q

What are the (2) tax-exempt conditions for REITs?

A

Must contain at least 3 single rental properties, with none being >40% of value
REIT must distribute at least 90% of rental profits by dividend

184
Q

Why might an investor be able to invest in through a REIT but not individually?

A

Commercial property

185
Q

What risks do REITs alleviate?

A

Lack of diversification
Liquidity risk

186
Q

How is a REIT fund structured?

A

Closed-ended fund
Shares traded similar to company shares

187
Q

What is an open ended fund?

A

Collective funds utilising investors money to buy portfolios of investments
Investors are given units in the fund

188
Q

What are the two types of FX transaction?

A

Spot
Forward

189
Q

What is a spot and when is it settled?

A

Immediate conversion of currency at agreed price
Within 2 working days

190
Q

How do FX dealers profit?

A

Between the bid and the ask, spread

191
Q

What is a forward transaction?

A

Deal agreed for a future date at a set exchange rate

192
Q

What two camps do FX users fall into?

A

International trade
Planning for future cash flows with forwards to hedge currency movements
Speculation
Investors making predictions on future moves

193
Q

How are FX pairs quoted?

A

base currency / counter currency
E.g. USD/GBP
Base is always quoted in one unit

194
Q

What is the counter currency sometimes known as?

A

Quote currency

195
Q

How do market markets / dealers quote currencies?

A

Using a bid.ask
E.g. EUR/USD, the quote might be 0.9937 / 39. So if you want to buy
€100,000, then you will need to pay the higher of the two prices and deliver $99,390; if you want to sell €100,000, then you get the lower of the two prices and receive $99,370.

196
Q

What is a cross rate?

A

A currency rate that does not include the USD
E.g. GBP/JPY

197
Q

What is the exception to the cross rate terminology?

A

GBP/EUR

198
Q

Why would the cross rate be of interest to companies?

A

If they do a lot of trade with another country and receive payment in that currency

199
Q

What is a stepped bond

A

A bond that has a coupon that increases over time

200
Q

How would a GBP USD spot quote bid ask be quoted?

A

GBP/USD spot rate 1.555 - 1.1645

201
Q

How would a forward be quoted?

A

three-month forward 1.00-0.97c pm

202
Q

What does the pm stand for in a forward?

A

Premium

203
Q

What is the premium quoted in?

A

cents/pennies

204
Q

What does dis stand for in a forward?

A

Discount

205
Q

What is rational pricing?

A

Asset prices will reflect the arbitrage-free price of asset, as any deviation is arbitraged away

206
Q

What does interest rate parity say should be true for future and spot markets?

A

Spot and future prices incorporate any interest rate differentials between the two. If not then there will be opportunity for risk-free arbitrage return.

207
Q

How would you calculate the forward rate for GBP/USD?

A

spot rate * [(1+US$ short-term interest rate) / (1 + UK£ short-term interest rate)]

208
Q

What do you need to remember when doing forward rate calculations?

A

The interest rate is calculated on an annual basis, e.g. for 3 month forward, need to divide by 4.

209
Q

As per what agreement were exchange rates fixed?

A

1944 Bretton Woods

210
Q

When did fixed exchange rates end?

A

1970’s
Abandonment of convertibility into Gold, Aug 1971

211
Q

What does PPP stand for?

A

Purchasing Power Parity

212
Q

What does PPP refer to?

A

Purchasing Power Parity is the theory that currencies should have equal purchasing power.

213
Q

What is the most widely traded currency pair, per BIS?

A

USD/EUR

214
Q

What is a carry trade in FX?

A

Borrowing of funds where interest is low, and purchasing relatively high yield government bonds.

215
Q

What is the definition of a CIS? (3)

A
  • invests in transferable securities
  • is publicly marketed, and
  • is open-ended.
216
Q

What are some examples of unregulated CISs?

A

Golf courses in Mexico, Wine in France etc…

217
Q

What is an open-ended fund?

A

One that can issue and redeem shares in the scheme at any time

218
Q

What are some examples of open ended funds around the world? (3)

A

US Mutual Funds
UK’s open-ended investment companies (OEICs)
Europe’s sociétés d’investissement à capital variable (SICAVs)

219
Q

What is a closed-ended fund?

A

Set number of shares are issued, and then it is traded on the secondary market
Investment trusts/companies

220
Q

What are the two major forms of open ended funds?

A

Unit trusts
OEICs

221
Q

What is a unit trust?

A

Professionally managed collective investment fund
Investors buy units, which represent a specified fraction

222
Q

What is an AUT?

A

Authorised unit trust, allowed to be marketed to the investing public.

223
Q

What is the role of a trustee in an OEIC?

A

Protect the interests of the unitholders
Essentially beneficiaries

224
Q

What is the role of a manager in an OEIC?

A

Marketing the trust
Managing the assets
Maintaining record of units

225
Q

How it the NAV calculated? (3 parts)

A
  • the value of the trust’s listed investments at mid-market prices
  • the value of its unlisted investments at the directors’ valuation, and
  • cash and other net current assets
226
Q

What can closed ended funds do that OEICs can’t? (3)

A

Invest in private companies
Provide venture capital
Borrow money

227
Q

What is tracking impact?

A

The effect that these index funds have on the market, e.g. when a new company is added to SP500

228
Q

What are ETNs, Exchange Traded Notes?

A

Senior debt noes issued by banks

229
Q

How can retail investors access Private Equity?

A

Through closed ended funds

230
Q

What are structured products?

A

Investments which provide a return based on the performance of an underlying asset, usually index

231
Q

What is the structured product time range?

A

18 months - 7 years

232
Q

Do structured deposits and investments benefit from FSCS?

A

No, only deposits do - investments do now

233
Q

What are the two types of structured investment?

A

Capital at risk (SCaRPs, Structured Capital at Risk Products)
Principal-protected investments

234
Q

What is the soft floor?

A

Where an investor in a SCaRP will get most/all of their money back if an index does not fall by a certain amount

235
Q

What is a precipice bond?

A

Pay a set level of income over a set period
Precipice is that if a reference index falls by more than a certain level the capital will suffer an equivalent loss

236
Q

How are structured products made up?

A

Will be different asset classes. E.g. a bond (protects investor principal) and a derivative (higher returns)

237
Q

What does a callable structured product mean?

A

The product can mature early if it reaches a certain level

238
Q

What is it called when structured products pay-off the underlying stays within a certain range?

A

range accruals pay-off

239
Q

What is an averaging value structured product?

A

Return is based on the average value of the underlying over a time period
Can help protect against last short term dips when selling

240
Q

What is a lookback feature in structured products?

A

Can realise the returns based on the highest percentage rise of the underlying

241
Q

What are cash or nothing pay-offs?

A

The return is either paid or not based on in a particular event occurs, e.g. above x price

242
Q

What is quantity adjusting (Quantos) structured prodducts?

A

Protect against currency risk

243
Q

What is the yield curve a visual representation of?

A

Term structure of interest rates, rates from the same issuer across different maturities

244
Q

Why would a investors be willing to get a lower yield for longer term bonds? (Inverted yield curve)

A

They believe interest rates will be lower then

245
Q

Which countries pay annual coupons?

A

France / Germany

246
Q

Which countries have T+2 settlement on bonds?

A

France / Germany

247
Q

What are the the names for German bond maturity?

A

Bund - >10 year
Bobl - 5 years
Schatz - Up to 2 years

CISI: Securities (10 decks)

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