Framework 2 Flashcards
Chapter 9 - Bond and Money Markets
1 Types of cash on deposit
2 Providers of money markets instruments
3 Investment and risk characteristics of money market instruments
4 Reasons for holding money market instruments (POURS GRID)
5 Reasons for not holding a large proportion of funds in money market instruments
6 Types of bond market
7 Investment and risk characteristics of conventional government bonds
8 Cash Flows of a conventional government bond
9 Cash flows of an index-linked government bond
10 Nominal vs real yields
11 Inflation risk premium
12 Relative attractiveness of index-linked over conventional bonds
* Gross redemption yield
Chapter 10 - Equity and bond markets
1 Ordinary Shares*
2 Investment and risk characteristics of ordinary shares
3 Cash Flows of an ordinary share
4 Advantages of listed shares over unlisted shares
5 Practical reason for analysing shares by industry
6 Correlation of performance of shares within the same industry
7 Why market movements are the biggest influence on a share’s price
8 Investment and risk characteristics of direct property
9 Prime property (CALL ST)
10 Freehold property ownership
11 Leasehold property ownership
12 Indirect property investment
13 Advantages of direct property over property company shares
14 Advantages of property company shares over direct property
*Preference shares
Chapter 11 - Other investment classes
1 Purpose of collective investment schemes
2 Close-ended and open ended collective investment schemes
3 Net asset value per share for an ITC
4 Investment and risk characteristics of an investment trust company
5 Investment and risk characteristics of a unit trust
6 Advantages of collective investment schemes over direct investment
7 Disadvantages of collective investment schemes over direct investment schemes
8 Differences between open-ended and close-ended CISs
9 Futures and forwards
10 Long and short positions
11 Options
12 Warrant
13 Main uses of derivatives
14 Main reasons for investing overseas
15 Fundamental problems of investing overseas
16 Practical problem with investing overseas
17 Methods of indirect overseas investment
18 Advantages and disadvantages of investment in multinational companies
19 Factors to consider when investing in emerging markets
Chapter 12 - Behaviour of the markets
1 Key risks faced by investors in asset classes
2 General price level of an asset class in the market
3 Factors affecting the demand of any asset class
4 Effect of economic influences (government policy) on short term interest rates
5 Conventional bond yield curve theories (LIME)
6 Economic influences on short term government bond yields
7 Economic influences on long term government bond yields
8 Factors affecting the yield gap between government and corporate bonds
9 Economic influences on the equity market
10 Impact of inflation on equity prices
11 Economic influences and the property market
12 Economic influences on the occupational property market
13 Economic influences on demand in the investment property market
14 Factors affecting the supply of property
15 Additional considerations for residential property
16 Other factors causing a change in demand for an asset class
17 Factors affecting investors’ preferences
18 Changes in investors’ income
19 Price of alternative investments
Chapter 13 - Valuation of investments
1 Methods of valuing individual investments (SHAM FADS)
2 Advantages and disadvantages of market value
3 Advantage and disadvantages of discounted cashflow
4 Stochastic modelling method
5 Arbitrage value and fair value
6 Bond valuation methods
7 Equity valuation methods
8 Simplified discounted dividend model for valuing equities
9 Measurable key factor approach to valuing equities
10 Discount rate for property valuation
11 Swap valuation methods
12 Considerations when valuing a portfolio of assets
13 Methods of valuing assets and liabilities consistently
14 Volatility of asset values as a problem
Chapter 14 - Relationship between returns on asset classes
1 Formulae for required and expected return
2 Comparing the required and expected returns
3 Expected return on different asset classes
4 Expected growth on dividends
5 Situations where the real returns on conventional bonds will be poor
6 Expected return on cash
7 Expected wages growth
Chapter 15 - Choosing an appropriate investment strategy
1 Investment objective criteria
2 Investment objective examples
3 Investors definition of risk
4 Factors affecting the risk appetite of an institutional investor
5 Factors affecting the long term investment strategy (SOUNDER TRACTORS)
6 High-income vs low- income investments
7 Overseas market vs local market
8 Factors to consider when selecting individual assets
9 Reasons for wanting to maximise return
10 Characteristics of an individual’s liabilities
11 Characteristics of an individual’s assets
12 Assets matching to an individual’s uncertain liabilities
13 Factors affecting the long term investment strategy of an individual
14 Investment strategy of retired individuals
15 Generating sufficient income to live on in retirement
16 Avoiding a fall in asset values prior to retirement
Chapter 16 - Asset-liability management
1 Two key principles of investment
2 Features in describing cash flows
3 Immediate annuities cash flows
4 Term assurance cash flows
5 Endowment vs term assurance cash flows
6 Repayment loan cash flows
7 Interest-only loan vs repayment loan
8 Motor insurance contract cash flows
9 Net liability outgo for a provider formula
10 Liability types
11 Expenses and premiums/contributions as a type of liability
12 Asset matches for liabilities guaranteed in monetary terms
13 Asset matches for liabilities guaranteed in terms of an index
14 Asset matches for discretionary liabilities
15 Asset matches for investment-linked liabilities
16 Impact of free assets on investments strategy of an insurance company
17 Determining mismatching reserve
18 Limitations on investment imposed by the regulator (TECH SCAM)
19 Pure matching
20 Reasons why pure matching is not normally possible
21 Liability hedging
22 Unit-linked liability hedging
23 Asset-liability model
24 Monitoring the success of the output of an asset liability model
* Definition of immunisation
** Conditions for immunisation
*** Limitations of immunisation
Chapter 17 - Investment management
1 Active and passive investment management
2 Making a tactical asset switch
3 Define Risk budgeting
4 Define strategic risk, structural risk and active risk
5 Determining how much strategic and active risk to take
6 Conflicting objectives faced by investment funds
7 Reasons for monitoring an investment strategy
8 Setting investment performance objectives
9 Measuring active risk
10 Measuring other investment risk
11 Measuring fund manager performance against benchmark
12 Methods of measuring the rate of return on an investment portfolio
13 Disadvantage of each rate of return measurement method
14 Difficulty in assessing a CIS manager’s investment performance
