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Investment And Portfolio Management > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

Characteristics of the principal asset classes

A

Cash instruments
Equities
Property

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2
Q

Cash investments or instruments take two main form

A

Cash deposits
money market instruments

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3
Q

Comprise accounts held with banks or other savings institution.

A

Cash deposits

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4
Q

they are held by a wide variety of depositors from retail investors through to companies, governments and financial institutions

A

cash deposits

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5
Q

are more economical for a bank to process and will earn a better rate

A

large deposits

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6
Q

involve the investor tying up their money for a fixed period of time such as one, two or three years, or which a fixed period of notice has to be given

A

Fixed-term deposits

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7
Q

typically earn the lowest rates of interest of the various deposit accounts available

A

instant access deposit accounts

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8
Q

this will generate an even lower rate and sometimes pay no interest at all

A

Current or checking account

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9
Q

interest received by an individual is subject to

A

income tax or final tax

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10
Q

the headline rate of interest quoted by deposit takers before deduction of tax

A

gross interest

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11
Q

the rate of interest after tax is deducted

A

net interest

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12
Q

Advantages of investing cash

A

liquidity
savings vehicle and for the interest return that can be earned on them
relative safety that cash investments have and that they are not exposed to a market volatility

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13
Q

it is usually protected by a government sponsored compensation scheme

A

deposits

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14
Q

this will repay any deposited money lost at a maximum deposits of

A

500k per depositer per account

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15
Q

when cash is deposited overseas, depositors should also consider the ff

A

the cost of currency conversion
the creditworthiness of the banking system
the tax treatment of interest applied to the deposit

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16
Q

are the wholesale or institutional markets for cash and are characterized by the issue, trading and redemption of short dated negotiable securities

A

money markets

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17
Q

these can have a maturity of up to one year, through three months or less is more typical

A

money markets

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18
Q

are long term providers of finance for companies, either through investment in bonds or shares

A

capital markets

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19
Q

often subject to a relatively high minimum subcription and therefore tends to be more suitable for institutional investors

A

direct investment in money market instruments

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20
Q

examples of main types of money market instruments are

A

treasury bills
certificate of deposits
commercial paper

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21
Q

these are usually issued weekly by or on behalf of governments, and the money is issued to meet the governments short term borrowing needs

A

treasury bills

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22
Q

are non-interest bearing instruments

A

treasury bills

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23
Q

sometimes referred to as zero coupon instruments

A

treasury bills

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24
Q

these are issued by banks in return for deposited money

A

certificates of deposits

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25
Q

it is a short term marketable instruments with a maturity of up to 5 years, although the vast majority are issued for periods of less than 6 months

A

certificates of deposits

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26
Q

this is the corporate equivalent of a treasury bills

A

commercial paper

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27
Q

is issued by large companies to meet their short term borrowing needs

A

commercial paper

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28
Q

is simply evidenced by holding the instruments although, in practice, these are immobilized centrally in vaults by central securities depositories or similar agencies

A

Ownership

29
Q

is a highly professional market that is used by banks and companies to manage their liquidity needs

A

money market

30
Q

it is essentially a savings account that typically requires a substantial minimum balance and notice period

A

money market account or money market deposit account

31
Q

is actually a money market mutual fund

A

money market fund

32
Q

a collective investment scheme which pools investors money to invest in short term debt instruments such as treasury bills and commercial paper

A

money market fund

33
Q

can be used as a temporary home for idle cash balances rather than using a standard retail deposit account

A

money market deposit accounts

34
Q

for this investor, these accounts can at times offer higher returns that can be achieved on standard deposits, and are offered by most retail banks

A

retail investor

35
Q

can be the vehicle for holding such asset allocations and are in competition with other short term deposit accounts

A

money market investments

36
Q

are essentially IOUs

A

bonds

37
Q

types of bonds

A

government bonds
supranational bonds
corporate bonds

38
Q

generally less risky than shares, providing that their issuers remain solvent

A

bonds

39
Q

issued by national governmemts

A

government bonds

40
Q

are issued by agencies such as the european investment bank and the world bank

A

supranational bonds

41
Q

are issued by companies such as large banks and other large listed companies

A

corporate bonds

42
Q

investments such these have been regarded as being of particularly low risk as it has been regarded as unlikely that a government will default

A

government bonds

43
Q

can face more real default risks, namley that the company could go bust

A

corporate bonds

44
Q

the major reason an investor would prefer equities over bonds is the potentially greater benefits that can arise from owning shares

A

dividends

45
Q

each individual property is unique in terms of

A

location
structure
design

46
Q

is subjective, as property is not traded in a centralized market, and continuous and reliable price data is not available

A

valuation

47
Q

is subject to complex legal considerations and high transaction costs upon transfer

A

property

48
Q

refers to the trading of one currency for another, it is by far the largest market in the world

A

forex market

49
Q

aimed to prevent speculation in currency markets by fixing all currencies to gold at a fixed rate of 35 dollar per ounce

A

bretton woods agreement

50
Q

trading in currencies became 24 hour as it could take place in the various time zones

A

asia
europe
america

51
Q

it is located between the asian and american time zomes

A

london

52
Q

other large centres includes

A

us
singapore. hongkong
japan

53
Q

the most commonly quoted currency pairs are

A

us dollar and the japanese yen
euro and us dollar
us dollar and swiss franc
british pound and us dollar

54
Q

when currencies are quoted the first currency is the and the second is the

A

base currency
counter or quote currency

55
Q

is always equal to one unit of that currency, in other words, one pound, one dollar or one euro

A

base currency

56
Q

when the exchange rate is going up, it means that the value of the base currency is rising relative to the other currency and is referred to

A

currency strengthening

57
Q

and when the opposite isbthe case the currency is said to be

A

weakening

58
Q

when currency pairs are quoted, a… will quote a bid and ask price

A

market maker or forex trader

59
Q

is an otc market where one brokers or dealers negotiate directly with one another

A

forex market

60
Q

types of transactions undertaken in forex market

A

spot transactions
forward transactions
futures
swaps

61
Q

is the rate quoted by a bank for the exchange of one currency for another with immediate effect

A

spot rate

62
Q

in this type of transactions, money does not actually change hands until some agreed future date

A

forward transactions

63
Q

standardized versions of forward transations that are traded on derivatives exchange

A

futures

64
Q

in this, two parties exchange currencies for a certain length of time and agree to reverse the transactions at a later date

A

swaps

65
Q

is an agreement between two parties to either buy or sell foreign currency at a fixed exchange rate for settlement at a future date

A

forward exchange contract

66
Q

is typically achieved through the same settlement systen that is used for equities and bonds, and is commonly settled on the day of the trade or the ff business days

A

settlement of stock market trades

67
Q

2 major advantages of money market funds than money market accounts

A

pooling of funds with other investors
returns on money market fund is greater than money market accounts

68
Q

is the exchange rate set today, even though the transaction will not settle until some agreed point in the future

A

forward exchange rate

Investment And Portfolio Management (6 decks)

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