Mnemonics Flashcards
Futures contract specification
• The units of trading
• The delivery date
• How the settlement price will be determined
• Exact details of the underlying asset
(TTHE)
Uses of futures include HASSP
• Hedging
• Arbitrage
• Speculation
• Synthesizing an index
• Portfolio management
(HASSP)
Three basic ways for investors to access the money markets (HVD)
• Hire a professional investment management firm
• Via a money market fund
• Directly on their own account
(HVD)
Main features of commercial paper
• The terms of the issue can vary from a few days to a few months
• Rating agencies such as moody and standard and poor provide ratings
• It is a bearer document
• It is a single-name instrument
• Companies wishing to raise money using commercial paper need to meet minimum standards
• Effective rate of interest paid will be slightly higher than the risk free rate of return
(TRIICE)
Main features of CDs
• Domestic and international CDs exist in many currencies
• A secondary market exists but it is less liquid than the market for treasury bills
• Typical maturity ranges from 1 to 3 months
• They are bearer documents
(DATT)
Money market instruments – borrowing
• Bridging loans
• Evergreen credit
• Revolving credit
• Term loans
(BERT)
Issues that differentiate between different types of loan
• Security
• Interest rate
• Commitment
• Maturity
(SICM)
Oil and gas companies are usually
• Large companies
• Commodity price dependent
• Global
• Higher risk
(LCGM)
Distinctive features of industrials
• Company profits tend to move ahead of trade cycle
• Cyclical in nature
• High profit margins when conditions are good
• Investment spending is very important
• Low gearing because of volatile profits
• Dependency on government spending
• Possibility of exposure to overseas markets and competition
• Volatility of profits
(CCHILDPV)
Consumer goods features
• Moderate to high gearing
• Increasingly capital intensive
• Low profit margins
(MIL)
Consumer services features
• Labour intensive
• The more defensive companies in the group may have high gearing
• The domestic market is the most important
(LTT)
Utilities key features
• Generally have low growth prospects leading to a high gross dividend yield
• Usually require an extensive physical infrastructure making them capital intensive
• Utility companies are natural monopolies
• They are dependent on the domestic market
• They are subject to tight government regulation of prices and vulnerable to other forms of political risk
• Financial gearing is low
(GUUTTF)
Financials key features
• Life insurers have stable profits and low gearing
• General insurers have volatile profits and virtually no borrowings
• Banks are highly-geared and have volatile profits
• The domestic market is most important but there is increasing internationalism
• Labour costs are important for many companies in the group
(LGBTL)
10 industries
• Financials
• Industrials
• Telecommunications
• Consumer goods
• Consumer services
• Healthcare
• Energy
• Technology
• Utilities
• Basic materials
(Fitcchetub)
Uses of derivatives
• Reduce market risk
• Increase risk to enhance returns
• Switch asset allocations
• Control credit risk
(RISC)
Role of the clearing house
• Facilitator of marking to market process
• Guarantor of all deals
• Counterparty to all trades
• Holder of deposited margin
• Registrar of deals
(FGCHR)
Choices for an investor that wants to invest in private equity
• Directly by purchasing shares in private companies
• Invest in a private equity collective vehicle
• Invest in a fund-of-funds which invests in a range of private equity funds
• Pay a private equity firm to invest the funds for you
(DIIP)
Typical features of a hedge fund
• The manager has a great deal of investment freedom
• A high level of borrowing given the limited size of capital
• The placing of many aggressive positions on different assets
• Hedge fund fees typically include a performance related component in addition to an annual management charge
• A mix of investments for which price movements are expected to cancel each other out
• The minimum investment amount is often high
• There may be lock up periods
• A higher risk tolerance than other funds
• A willingness to trade in derivatives, commodities and non-income bearing securities
(TATHATTAA)
Classes of hedge funds
• Global macro funds
• Event driven funds
• Market-neutral funds
• Multi-strategy funds
(GEMM)
Commodities futures contract specification
• Method of packaging
• Method of resolving disputes over quality
• Delivery date
• Delivery site
• Contract size
• Package size
• Quality of product
(MMDDCPQ)
Advantages of structured products
• Favourable expected return/risk profile
• Legal
• Accounting
• Tax
• Practical
(FLATP)
Advantages of index funds
(SLLP)
• Simplicity
• Low dealing costs
• Low expertise
• Passively managed funds need not be concerned with the drift in investment style
Disadvantages of index funds
(TNR)
• Tracking error
• No outperformance
• Reduced return due to index changes
A central bank will be interested in
(PIPMBTI)
• Performance and integrity of financial markets
• Intervention in currency markets
• Printing and minting of notes and coins
• Monetary, interest rate, and inflation policy
• Banking regulation
• Taxation
• Implementation of government borrowing
Households investment decision factors
(SLLLUTAI)
• Stability of asset values
• Liabilities
• Liquidity
• Level of investment expertise
• Uncertainty over future income and outgo
• Tax
• Attitude to risk
• Investment and risk characteristics of available assets
When securities are issued, the role of the investment bank is
(HUIA)
• Handle the marketing of the security issue to the public
• Uphold their reputation for honesty by checking and certifying the quality of information
• Innovate security design and packaging to stimulate demand
• Advise the issuing firms on the prices they can charge
Main forms of government policy
(CLEFTPNM)
• Competition policy
• Labour policy
• Exchange rate policy
• Fiscal policy
• Taxation
• Prices and income policy
• National debt management policy
• Monetary policy
Factors considered by investors with regards to tax
(SSTRAT)
• Split
• Source
• Total
• Reclaimed
• Aggregated
• Timing
The tax factors for investment are affected by
(PTSDOP)
• Particular
• Tax-efficiency
• Status
• Domestically
• Overall
• Position
Corporate tax systems
(CIS)
• Classical
• Imputation
• Split rate
Motives for conglomerate mergers include
(FUSEDP)
• Financing
• Utilisation
• Surplus
• EPS
• Diversification
• Protection
Other approaches (Heuristics) and behaviors
(AADSSOORBFH)
• Anchoring
• Availability
• Dislike of negative events
• Status quo bias
• Self-serving bias
• Optimism
• Overconfidence
• Representative bias
• Belief preservation
• Familiarity
• Herd behavior
Effect of options
(PARR)
• Primary effect
• Ambiguity aversion
• Recency effect
• Regret aversion
Mood based anomalies
(SSAC)
• Sunshine
• Sports results
• Aviation
• Calendar effects
The principal aims of regulation are
(CPRM)
• Correct
• Protect
• Reduce
• Maintain
Possible regulatory regimes
(POUVFSS)
• Prescriptive
• Outcome based
• Unregulated
• Voluntary codes of conduct
• Freedom of action
• Statutory regulation
• Self-regulation
Possible situations trusts could exist in
(CPUT)
• Charitable bodies
• Pensions
• Unit trusts
• Trust funds for children
Information in the public domain of share offer
(CACTIF)
• Current (and historical share price)
• Audited (company accounts)
• Comments (analysts’ comments)
• Takeover (Interest by potential takeover parties)
• Interim (reports)
• Forecasts (and profit warnings)
Factors affecting the share price
(SHRIMPCQ)
• Sustainability and environmental impact of the business
• History
• Retained profits
• Input costs
• Management ability
• Prospects for market growth
• Competition
• Quality of products
Fundamental analysts investigate
(FABLEDV)
• Financial accounts
• Asset
• Borrowing
• Liquidity
• Environmental
• Dividend
• Variability
• Comparative
Fundamental principles underlying legislation for financial service providers
(FIIIIRMSCC)
• Financial resources
• Integrity
• Information about customers
• Information for customers
• Internal organization
• Relations with regulators
• Market practice
• Skill, care, and diligence
• Conflicts of interest
• Consumer assets
Nature of principles underlying the legislation and regulation of institutional investment practices
(AAPEEERFECT)
• Activism
• Appropriate benchmarks
• Performance measurement
• Expert advice
• Effective decision making
• Effective operations
• Regular reporting
• Focus on asset allocation
• Explicit mandates
• Clear objectives
• Transparency
Advantages of index tracking
(LASTDRI)
Lower costs
Applicability to virtually any market
Stability and transparency
Tax efficiency
Diversification within a market segment
Risk control
Index construction
