Liquidity - Money, Deposits, ISAs & Offshore Banks

Question 1

How is cash defined?

Answer 1

• Legal tender which can be exchanged for goods and services

Question 2

Where is cash less prevelant and where has it remained resilient?

Answer 2

Developed
vs
Emerging

Question 3

What is representative money?

Answer 3

Money which can be exchanged for a commodity

e.g. Bearer notes for Gold

Question 4

What is fiat money?

Answer 4

No intrinsic value - government backing / guarantee

Question 5

What are the 6 traits which make money attractive?

Answer 5

1) Durability
2) Divisibility
3) Limited
4) Standardised
5) Portable
6) Acceptability

Question 6

What is electronic money?

Answer 6

A store / record of money (e.g. Paypal)
Backed by value of a fiat currency

Question 7

What is virtual money

Answer 7

Not linked to fiat value

Crypto

Question 8

What are 3 reasons for holding cash deposits?

Answer 8

1) Security
2) Liquidity
3) Accessibility

Question 9

What are the risks of cash deposits?

Answer 9

1) Default Risk
2) Inflation Risk
3) Interest Risk
4) Operational Risk

Question 10

What is the FSCS?

Answer 10

The financial services compensation scheme

Question 11

5 Points about FSCS:

Answer 11

1) Covers £85k per person, per institution
2) £1m coverage for 6month temporary balance
3) Funded by levies on Financial services companies
4) Established by the FSA
5) By company reference (e.g. HSBC and First Direct count as 1 firm)

Question 12

What is a portfolio cash account?

Answer 12

Cash held in an account at a broker or investment manager.

• Not covered by FSCS
• FCA have rules to protect deposits (can fine companies)

Question 13

What is a principal deposit taker?

Answer 13

Responsible for accepting deposits and providing core banking services

Question 14

3 Points about Commercial banks

Answer 14

1) Publicly Listed
2) Have IB divisions
3) Provide Loans, Mortgages, take deposits and offer savings

Question 15

What is a challenger bank

Answer 15

A bank that provides the same (and some extra services) as the core 4.

Tend not to have actual branches - rise in popularity from increase in mobile banking (e.g. Monzo, Starling etc)

Question 16

What is a green bank

Answer 16

A state owned / quasi sovereign bank which loans out to finance green projects.

UK had green investment bank until Gov sold to Maquaire

Question 17

4 Types of UK Deposit accounts?

Answer 17

1) Easy access
2) Notice account
3) fixed term
4) money market

Question 18

Why do fixed term and notice accounts pay higher rates?

Answer 18

Compensate for the lack of flexibility / liquidity

Question 19

What are the 6 types of ISA?

Answer 19

1) LISA
2) S&S
3) JISA
4) Cash
5) Flexible
6) Innovative finance (peer-to-peer lending and crowdfunding)

Question 20

What is offshore banking?

Answer 20

Open a bank account at the branch of a UK bank, overseas

Question 21

How is income paid from offshore banks?

Answer 21

Often paid gross - up to citizen to report and pay tax

Question 22

What are the four types of domicile?

Answer 22

1) Origin
2) Choice
3) Dependancy
4) Deemed

Question 23

What is the remittance tax basis?

Answer 23

A charge can be paid to prevent the payment on taxable earnings outside the UK which are not remitted in.

By paying the charge you forfeit your personal allowances

Question 24

What are the risks of offshore banking?

Answer 24

1) Security (no insurance / compensation program)
2) Deposit Size (risk due to political instability, wars, coups)
3) Access - only really an issue in developing nations
4) Complexity (may require an advisor for tax)

Question 25

What are some pros of offshore banking?

Answer 25

1) Better FX rates
2) High quality service
3) Overseas investment opportunities
4) Save on Tax
5) Alternative credit
6) Higher return / lower fees

Question 26

What are some cons of offshore banking?

Answer 26

• Lack of security
• Association with criminals
• Lack of distinction between evasion / avoidance

Question 27

What are common reporting standards?

Answer 27

an information standard for the Automatic Exchange Of Information (AEOI) regarding financial accounts on a global level, between tax authorities

100+ countries use to help crackdown on tax evasion

Question 28

What did the FSCS have to do in 08-09?

Answer 28

The FSCS paid £21 billion in 2008-09 to cover 5 bank defaults, compensating 3.5 million accounts.

Question 29

What insurers get 100% protection under FSCS

What do all other insurers get?

Answer 29

compulsory insurance,
long-term insurance
professional indemnity insurance

for others: 90%

Question 30

How often is the FSCS limit set?

Answer 30

Reviewed once every 5 years

Fell to £75,000 in 2016

Question 31

What UK places are not covered by FSCS?

Answer 31

Channel Islands or the Isle of Man (they have their own schemes)

Jersey only get £50k

Question 32

What ages are LISAs open to?

(open an account)

Answer 32

18-39

Question 33

What age can you make LISA deposits up to?

Answer 33

50

Question 34

When can you access a LISA (without 25% penalty)

Answer 34

60

Question 35

What is domicile of origin

Answer 35

Where father is born

out of wedlock or dead dad = mothers domicile

Question 36

what is domicile of choice?

Answer 36

gained when moving to a country with intention of living permanently

Question 37

what is deemed domicile

Answer 37

lived in the uk for 15 of 20 years

Question 38

What is domicile of dependancy?

Answer 38

if a parent gains a new domicile - child 16 and under also gains domicile

Question 39

What are the remittance basis charges?

Answer 39

£30,000 for 7 of 9 years
£60,000 for 12 of 14 years

Question 40

What do you lose if you pay the remittance basis charge?

Answer 40

Personal allowance for income and CGT