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International Introduction to Investment > Financial Assets > Flashcards

Financial Assets Flashcards

1
Q

Where can lots of financial data be found?

A

Company websites.

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2
Q

What is the advice of a financial adviser based on?

A

A clients needs, objectives and risks.

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3
Q

What is a full explanatory brochure also known as?

A

A key features documents.

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4
Q

Where is cash deposited?

A

In banks or savings institutions.

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5
Q

What 2 forms does cash take?

A

Cash deposits and money market instruments.

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6
Q

Who makes cash deposits?

A

Retail customers, governments and financial institutions.

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7
Q

What is the return on cash deposits?

A

Interest income with no capital growth.

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8
Q

How is the interest on cash deposits calculated?

A

On the amount deposited and the term of the investment.

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9
Q

Which cash deposit account has the lowest interest rates?

A

Instant access.

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10
Q

Which cash deposit account does not generate any interest?

A

Current.

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11
Q

What type of tax is interest subject to?

A

Income tax.

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12
Q

What does tax deducted at source mean?

A

When income tax is deducted by the deposit-taker before the interest is paid out.

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13
Q

What is gross interest?

A

Rate of interest before tax is deducted.

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14
Q

What is net interest?

A

Rate of interest after tax is deducted.

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15
Q

How is net interest calculated?

A

Gross interest minus tax deductible.

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16
Q

What are the advantages of cash deposits?

A

Liquidity, interest return and no exposure to market volatility.

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17
Q

What are the disadvantages of cash deposits?

A

Risk of banks and savings institutions defaulting, Inflation can reduce real value, interest rates can vary and if global interest rates are low the admin costs may outweigh the interest.

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18
Q

What are depositors protected by?

A

Compensation schemes.

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19
Q

How do cash deposit compensation schemes work?

A

Governments will pay out, up to a maximum, if money is lost by a bank going bust.

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20
Q

What other considerations should one have when using overseas cash deposits?

A

Currency conversion rates, creditworthiness of bank/savings institution and the tax treatment.

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21
Q

What are money markets?

A

The wholesale or institutional markets for cash.

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22
Q

What is the longest maturity time an instrument would be on the money market?

A

Up to 1 year.

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23
Q

Why are money market instruments issued at a discount to par value?

A

To save on admin costs.

24
Q

What are the 3 types of Money Market Instrument?

A

Treasury bills, certificates of deposit and commercial papers.

25
Q

What are the characteristics of a treasury bill?

A

Issued weekly by or on behalf of governments, non interest bearing (zero coupon) and issued at a discount to par value.

26
Q

What are the characteristics of certificates of deposit?

A

Issued by banks in return for deposited money, maturity of up to 5 years, fixed or variable rate of interest and can be issued at a discount.

27
Q

What are the characteristics of commercial papers?

A

The corporate equivalent of treasury bills, issued by large companies, zero coupon and issued at discount.

28
Q

What is the implication of bearer instruments?

A

There is no register of ownership.

29
Q

What is the purpose of a money market instrument?

A

The manage the liquidity needs of banks, companies and governments.

30
Q

What is a money market fund?

A

A mutual fund which pools investors money into a short term debt instrument.

31
Q

What are the advantages of a money market fund?

A

Gives smaller investors more opportunities, greater returns as there is greater risk since the depositors are not covered by protection schemes.

32
Q

What are the advantages of cash deposits?

A

Low risk way to achieve capital return and the nominal value is preserved, good short term home for cash and a good alternative to bonds and equities in uncertain times.

33
Q

What are is the main disadvantage of cash deposits?

A

Higher rates can only be acheived through large deposits.

34
Q

What are the 3 types of bonds?

A

Government, supranational and corporate.

35
Q

Why are government bonds low risk?

A

Governments are unlikely to default.

36
Q

How is income generated from equities?

A

Dividends and capital gain.

37
Q

Why are equities considered risky?

A

The value of the investment is wholly dependent on the performance of a company.

38
Q

What are the characteristics of property assets?

A

Each property is unique, valuation is subjective, complex legal considerations, illiquid, diversification is difficult, subject to local legislation and local planning regulations.

39
Q

What are the 2 types of property?

A

Residential and commercial.

40
Q

What type of property will large investors typically buy?

A

Commercial property.

41
Q

How does property provide long term returns?

A

Low volatility and reliable stream of income.

42
Q

How could one indirectly invest in property?

A

Mutual funds, property bonds or shares in property companies.

43
Q

What are the negatives of property assets?

A

Lack of liquidity, maintenance costs and risk of no tenants.

44
Q

What type of investor is best suited to property assets?

A

Long term investors such as pension funds.

45
Q

Which agreement was used to regulate currencies until the 1970s?

A

The Bretton Woods Agreement.

46
Q

When does trading take place in an FX market?

A

24 hours a day.

47
Q

What is the first quoted currency called?

A

The base currency.

48
Q

What is the second quoted currency called?

A

The quoted or counter currency.

49
Q

What is the base currency always equal to?

A

1 unit.

50
Q

When the base currency is rising against the quote currency this is called….

A

Strengthening.

51
Q

When the base currency is decreasing against the quote currency this is called….

A

Weakening.

52
Q

Who quotes a bid and an ask price for an FX transaction?

A

A market maker or broker.

53
Q

What is the spot rate?

A

The rate quoted by a bank with immediate effect.

54
Q

What is a forward rate?

A

The rate quoted by a bank to be traded at an agreed future date.

55
Q

What is an FX future?

A

A standardized version of a forward rate that is traded on a derivatives market.

56
Q

What is an FX swap?

A

Where two parties agree to exchange currencies for an agreed period of time and reverse the exchange at a later date. Traded on the OTC derivatives market.

57
Q

How are FX trades settled?

A

Through CLS or Worldwide International Banking System.

International Introduction to Investment (9 decks)

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