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CA1 - Professionalism and Environment > Financial Securities > Flashcards

Financial Securities Flashcards

1
Q

What should you think about on characteristics of assets/investments?

A

SYSTEM-T

Security (risk)
Yield (nom or real, running yield, exp ret, compared to other assets)
Spread (diversification and vol)
Term
Exchange rate/expenses/econ conditions/expertise required
Marketability
Tax

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2
Q

General reasons for being in money market (holding cash)

A

POURS

Protect monetary value
Opportunities to take advantage of
Uncertain outgo
Recent inflow of cash
Short term commitments
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3
Q

Economic situations where cash (money markets) are attractive

A

GRID

Greneral economic uncertainty
Recession
Interest rates rising
Depreciation of domestic currency

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4
Q

Theories of yield curve

A

LIME

Liquidity pref
Infln risk prem
Market segmentation
Expectations

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5
Q

Characterisitics of Prime property

A

CALL ST

Comparables
Age/condition/use/flexibility
Location
Lease
Size
Tenant
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6
Q

3 main difficulties of overseas (emerging markets too) investment

A

MTV

Mis-match of domestic liabilities
Tax
Volatility of currency

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7
Q

Lots of overseas investment problems..

A

CATERPILLAR

Custodians needed
Additional admin
Time delays
Expenses incurred/expertise required
Regulation poorer
Political problems
Information poorer
Language difficulties
Liquidity poorer
Accounting differences
Restrictions on ownership of assets/repatriation problems
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8
Q

Reasons for O/S investment and why risk and diversification is higher?

A

CHILIS DRIED

Correlation is less so reduced risk
High growth in emerging market
Inefficiencies in emerging market
Liability matching
Inefficiencies taken advantage of
Sentiment changes, so foreign investors repatriate a lot of funds at once, volatile!
Diversification increase
Risk higher
Industrialisation in emerging economy
Expected returns increase
Different industries to domestic
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9
Q

Ways of getting exposure to overseas markets

A

Difficult Miles Entice Chickens

Direct
Multinationals based in home market (indirect)
Exporters
Collective investment schemes
derivatives on overseas assets
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10
Q

What are the characteristics of freehold

A

ChIROP

Capital gains recieved
Income from leaseholder for ground rent
Refurbishment and development rights
Occupation possible or leasing
Perpetual ownership of property and site
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11
Q

Characteristics of leasehold

A

Rhythmic zebras terminate sticky sheep

Rents proprty for fixed period, no ownership
Zero capital value at end of lease
Terms of lease (rent, rent reviews)
Sub lease possible
Sale of leaseholder less marketable than freehold

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12
Q

What ways can you get property exposure?

A

Direct investment
Pooled investments (OEIC and inv trusts)
Shares of property company

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13
Q

Advantages of direct property investments?

A

Dreary Vitamins Change Every Singer

Diversification
Volatility decrease due to less valuations
Control of your investment
Exposure to less risk than undeveloped land
Sales not forced

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14
Q

Advantages of shares in developer or indirect property investments

A

MDMDMS

Management expertise
Divisibility 
Marketability
Diversification is instant
Market values readily available
Size is larger than possible in direct investments
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15
Q

What is a warrant?

A

An option on the issuers shares, with an expiration date

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16
Q

What other factors influence the choice of property investment type?

A

Tax treament
Gearing, due to secure income stream from commercial property
NAV discount on property shares (cheap exposure)

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17
Q

Which collective investment vehicle is closed ended, which are open ended?

A 
Closed = Investment trust (like shares)
Open = Unit trust, OEIC
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18
Q

How do you invest in closed ended scheme?

A

Invest at the start

Buy shares from willing seller

19
Q

How do you invest in open ended scheme?

A

Manager creates/cancels units for you

20
Q

Which trust is a public company?

A

Investment trust (like shares)

21
Q

Which trust uses trust law?

A

Unit trust

22
Q

Which investment vehicle can raise capital through loans and issuing equity?

A

Investment trust (like company)

23
Q

Which CInvVehicle(s) has trustees, who can they be?

A

Unit trust/OEIC, banks or insurance companies

24
Q

Which CIV’s are governed by company law?

A

Investment trusts, OEIC’s

25
Disadvantages of CIV's?
CMT Control loss, no control of individual investments chosen by managers Management charges incurred Tax disadvantages such as withholding tax can't be reclaimed
26
Advantages of CIV's
SCHEMeD TiT Small investors, has more advantages than big Costs of direct investment avoided Holdings divisible Expertise aquired instantly Marketability can be increased, may be less than underlying assets though e Diversification Tax advantages Tracks return on specific index
27
Differences between Inv trusts and Unit trusts
VaN ReCTUM VeG TNRCUVVGM Volatility more in closed ended, so higher expected return NAV discount in Closed ended Range of assets larger in Closed ended Charges from management higher in Open ended Taxed differently Uncertain try level of NAV per shares in closed ended, esp if unquoted stocks invested in Marketability more in open ended, closed ended less marketable than underlying Volatile shares in closed ended dure to size of discount to NAV changing Gearing in closed ended makes more volatile, not open ended
28
Why invest in LISTED stocks?
Security Market value has meaning Limitations to your investments (pens scheme)
29
Which 3 ways would you categorize shares?
Size of company (market cap) Expected profit growth Industry (sector)
30
Why have industry analysts, why not specialise in everything?
CPC Concentrate on specific companies Practicality Correlated investment performance
31
Why have industry analysts, in terms of practicality
Former Stars Gulp Sharks Factors effecting 1 company effect others in industry Specialisation appropriate, can't specialise to all areas Grouping equities gives structure to decision making Source of information for companies in same sector will be the same if in same sector
32
In terms of correlation, why have industry analysts?
Correlation Railroads Meet Shits! Correlation within secotr higher than non-sector Resources - Sectors use same resources like labour, land, raw materials Markets - supply same markets Structure - Financial structure same, so similar effect of interest rates
33
Do System T on Property, add other things
Security - depends on quality of tenants, risk of void periods too Yield - running yield is rental yield, varies with type of building, will be between conv bond yields and equities Spread - diversified from other markets, less volatile in some ways than market due to less valuation periods Expected return higher than IL bonds as less marketable/secure Marketability is very low Tax is various including stamp duty, CGT, income tax Other things are Hedged against inflation, upward only rents, uniqueness, obsolescence if old
34
What does Money market instrument mean?
Short term cash deposits
35
Describe money markets and market makers
RIP LO Repos and treasury bills are used for CB operations Iinterest rates, central banks can set them using operations Physical, it's not a phyiscal market Liquidity, central bank can provide it Other financial/non-financial institutions lend/borrow on this market when excess or shortage of short term cash
36
What effects the yield margin between govt bonds and corporate?
Security Marketability Compare bonds that are equivalent!
37
What is the nominal yield formula?
n=rfry+exp inflan+ inflan rp
38
What is inflation risk premium?
Premium for investors with real liabilities for future inflation uncertainty
39
When would investors prefer conventional bonds than IL bonds?
If expected inflation is lower than ny-rfry then: Buy conventional now Inflation decreases, so Conv bond price increases, IL bond price decreases, yields get closer Sell my conventional bond at a higher price
40
Explain Liq Pref theory in 3 points
Liquid assets prefered to illiquid Long dated are less liquid, need higher return So upward sloped yield curve
41
Explain inflation risk premium theory
Future inflation unknown Higher yield required for unknown future inflation at longer durations Upward sloping yield curve
42
Market segmentation theory explanation
Yields effected by supply and demand of investors with liabilties of those terms Banks are short term and compare yields to s.t.interest rates Insurance are long term, compare to possible inflation, so move independantly of banks
43
Explain expectations theory
yield curve shape determined by economic factors factors drive expected future short term interest rates expectations change required yields

CA1 - Professionalism and Environment (5 decks)

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