Investing in Cash and Bonds Flashcards
What are the FOUR main asset classes for investment?
- Cash
- Bonds
- Property
- Equities
What is an example of an asset class that is considered a safe investment with low risk and low returns?
Cash.
What is the name of the government back organisation that provides products with the aim of raising additional funding and reducing the cost of government borrowing for the taxpayer?
National Savings and Investments (NS&I)
What type of asset class would NS&I be an investment in?
Cash.
What is the name of the asset class where interest is received but there is no potential for capital growth?
Cash.
Are cash interest rates fixed or variable?
Variable.
With what type of asset class can allow access to liquid investments often easily and without restriction?
Cash.
With cash assets, how much can investors expect to be paid back at the end of the term?
100% - They are exposed to no risk and will be repaid the full amount.
Who do deposit taking institutions usually require formal authorisation from?
Prudential Regulation Authority (PRA).
The prohibition contained in the Banking Act 1987 and Financial Services and Markets Act 2000 prevents unauthorised what?
Deposit taking.
What are the TWO types of interest rates on cash deposits?
Fixed and variable.
What is the name for the type of interest rate that offers higher rates of interest for larger sums invested?
Tiered rates.
What can cause cash returns to decrease significantly?
If an investor withdraws early without giving notice where notice is required.
What TWO things will the rate of interest on cash assets be dependant upon?
- The amount invested.
2. The term the investor is prepared to tie up their money for.
How are cash investments taxed?
As income.
What is the 2020/21 savings allowance for basic-rate taxpayers?
£1,000
What is the 2020/21 savings allowance for higher rate taxpayers?
£500
At what percentage would additional rate tax payers be taxed at for savings income?
45%
What is the main risk that comes with cash investments?
Inflation.
What are the FOUR main types of bank accounts that are common for cash investments?
- Current accounts.
- Instant access accounts.
- Notice accounts.
- Term or fixed rate accounts.
What type of bank account allows savers to access their money when they want but may limit the number of withdrawals within a given period?
Instant access accounts.
What type of bank account would usually pay a higher rate of interest than an instant access account in exchange for investors having less access to their money?
Notice accounts.
Which type of bank accounts offer no or very limited access to capital before maturity?
Term or fixed rate accounts.
How do cash ISAs benefit from preferential tax treatment?
Income is received free of income tax.
What is the maximum amount that can be invested across all ISAs in 2020/21?
£20,000
What is the name of savings accounts that are denominated in a different currency than sterling?
Foreign currency accounts.
What is the money market?
An environment in which governments and large institutions/companies can borrow and lend money to meet their sort-term cash needs.
What is the name for short-term investments which provide individuals with a low-risk investment route with good returns, that is traded on the money market?
Money market instruments.
Who are money market instruments available to?
High-net worth individuals or investment managers.
What are the THREE main types of money market instruments that are issued and traded in the UK?
- Treasury bill.
- Commercial paper.
- Certificate of deposit (CD).
What is the name of the 0.5% tax that is applied to any shares bought electronically?
Stamp Duty Reserve Tax (SDRT).
At what percentage is SDRT charged at?
0.5%
What is sometimes classed as ‘the invisible risk’?
Inflation.
What is the main advantage of holding cash assets?
Being able to access funds to meet unexpected expenditure without incurring a fee.
Which of the following asset classes is riskier, and why? - Equities or bonds.
Equities are riskier because if a company goes bankrupt, they are unlikely to be repaid whereas holders of company bonds are one of the first to be repaid.
Who are treasury bills issued by?
The Government.
What is the term of a treasury bill?
Three months to a year.
What is returned to the investor in a treasury bill, upon the maturity of investment?
The face value.
What money market instrument is the corporate equivalent of a treasury bill?
Commercial paper.
Why is commercial paper higher risk than a treasury bill?
Due to their unsecured nature.
