Liquidity - Money, Deposits, ISAs & Offshore Banks Flashcards
How is cash defined?
- Legal tender which can be exchanged for goods and services
Where is cash less prevelant and where has it remained resilient?
Developed
vs
Emerging
What is representative money?
Money which can be exchanged for a commodity
e.g. Bearer notes for Gold
What is fiat money?
No intrinsic value - government backing / guarantee
What are the 6 traits which make money attractive?
1) Durability
2) Divisibility
3) Limited
4) Standardised
5) Portable
6) Acceptability
What is electronic money?
A store / record of money (e.g. Paypal)
Backed by value of a fiat currency
What is virtual money
Not linked to fiat value
Crypto
What are 3 reasons for holding cash deposits?
1) Security
2) Liquidity
3) Accessibility
What are the risks of cash deposits?
1) Default Risk
2) Inflation Risk
3) Interest Risk
4) Operational Risk
What is the FSCS?
The financial services compensation scheme
5 Points about FSCS:
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)
What is a portfolio cash account?
Cash held in an account at a broker or investment manager.
- Not covered by FSCS
- FCA have rules to protect deposits (can fine companies)
What is a principal deposit taker?
Responsible for accepting deposits and providing core banking services
3 Points about Commercial banks
1) Publicly Listed
2) Have IB divisions
3) Provide Loans, Mortgages, take deposits and offer savings
What is a challenger bank
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)
What is a green bank
A state owned / quasi sovereign bank which loans out to finance green projects.
UK had green investment bank until Gov sold to Maquaire
4 Types of UK Deposit accounts?
1) Easy access
2) Notice account
3) fixed term
4) money market
Why do fixed term and notice accounts pay higher rates?
Compensate for the lack of flexibility / liquidity
What are the 6 types of ISA?
1) LISA
2) S&S
3) JISA
4) Cash
5) Flexible
6) Innovative finance (peer-to-peer lending and crowdfunding)
What is offshore banking?
Open a bank account at the branch of a UK bank, overseas
How is income paid from offshore banks?
Often paid gross - up to citizen to report and pay tax
What are the four types of domicile?
1) Origin
2) Choice
3) Dependancy
4) Deemed
What is the remittance tax basis?
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
What are the risks of offshore banking?
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)
What are some pros of offshore banking?
1) Better FX rates
2) High quality service
3) Overseas investment opportunities
4) Save on Tax
5) Alternative credit
6) Higher return / lower fees
What are some cons of offshore banking?
- Lack of security
- Association with criminals
- Lack of distinction between evasion / avoidance
What are common reporting standards?
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
What did the FSCS have to do in 08-09?
The FSCS paid £21 billion in 2008-09 to cover 5 bank defaults, compensating 3.5 million accounts.
What insurers get 100% protection under FSCS
What do all other insurers get?
compulsory insurance,
long-term insurance
professional indemnity insurance
for others: 90%
How often is the FSCS limit set?
Reviewed once every 5 years
Fell to £75,000 in 2016
What UK places are not covered by FSCS?
Channel Islands or the Isle of Man (they have their own schemes)
Jersey only get £50k
What ages are LISAs open to?
(open an account)
18-39
What age can you make LISA deposits up to?
50
When can you access a LISA (without 25% penalty)
60
What is domicile of origin
Where father is born
out of wedlock or dead dad = mothers domicile
what is domicile of choice?
gained when moving to a country with intention of living permanently
what is deemed domicile
lived in the uk for 15 of 20 years
What is domicile of dependancy?
if a parent gains a new domicile - child 16 and under also gains domicile
What are the remittance basis charges?
£30,000 for 7 of 9 years
£60,000 for 12 of 14 years
What do you lose if you pay the remittance basis charge?
Personal allowance for income and CGT
