Investment Markets

Question 1

Asset Characteristics (Basic)

Answer 1

SYSTEM T

Security (Risk)
Yield (real/nominal, income yield, comparison)
Spread (volatility of market values, diversification)
Term
Expenses and exchange rate (currency risk)
Marketability

Tax

Question 2

Asset Characteristics (Detailed)

Answer 2

TERM LIMIT PRICING

Term
Expenses
Return
Marketability

Liquidity
Inflation
Market Value
Insurance and Credit Risk
Tax

Political Risk
Running Yield
Income
Capital Gains
Exchange Rates
Needs Filled
Guarantees and Options

Question 3

Features of an Investor

Answer 3

TRAITOR
Tax Position
Regulation on Investor
Assets currently Held
Income Requirements
Tastes
Other (competitors, other assets, opportunities)
Risk Appetite

Question 4

Reasons for holding Money Market Instruments

Answer 4

POURS GRID

Protection of monetary value
Opportunity to invest in exploitable assets (as funds more easily available)
Unexpected liabilities can be met
Recently received cashflows
Short-term liabilities

General Economic Uncertainty
Recession
Interest Rates Rising
Depreciation of Domestic Currency

Question 5

Why Not Invest Heavily In Money Market

Answer 5

DRILLER

Diversification
Return expected is low
Inflation is in line with price
Limited Supply
Long term liabilities
Expected interest rates are low
Reinvestment risk

Question 6

Yield Curve Theories

Answer 6

LIME

Liquidity Preference
Inflation Risk Premium
Market Segmentation
Expectations

Question 7

Prime Property

Answer 7

CALL ST

Comparable properties for rend review / valuations
Age / condition / and flexibility of usage
Location
Lease structure

Size
Tenant quality

Question 8

Overseas Investment Problems

Answer 8

MTV CATERPILLAR

Mismatching Domestic Liability
Tax
Volatility of currency

Custodian needed
Additional admin required
Time delays
Expenses incurred and expertise needed
Regulation poorer
Political problems
Information harder to obtain and less of it
Language issues
Liquidity issues
Accounting Differences
Restrictions on ownership of assets / repatriation problems.

Question 9

Ways of Valuing Assets

Answer 9

SHAM FADS

Smoothed market value
Historic book value
Adjusted book value
Market value

Fair value
Arbitrage Value
Discounted cashflow
Stochastic Modelling