Mnemonics Flashcards by Eugine Mataramvura

Futures contract specification

• The units of trading
• The delivery date
• How the settlement price will be determined
• Exact details of the underlying asset
(TTHE)

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Uses of futures include HASSP

• Hedging
• Arbitrage
• Speculation
• Synthesizing an index
• Portfolio management
(HASSP)

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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)

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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)

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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)

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Money market instruments – borrowing

• Bridging loans
• Evergreen credit
• Revolving credit
• Term loans
(BERT)

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Issues that differentiate between different types of loan

• Security
• Interest rate
• Commitment
• Maturity
(SICM)

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Oil and gas companies are usually

• Large companies
• Commodity price dependent
• Global
• Higher risk
(LCGM)

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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)

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Consumer goods features

• Moderate to high gearing
• Increasingly capital intensive
• Low profit margins
(MIL)

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Consumer services features

• Labour intensive
• The more defensive companies in the group may have high gearing
• The domestic market is the most important
(LTT)

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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)

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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)

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10 industries

• Financials
• Industrials
• Telecommunications
• Consumer goods
• Consumer services
• Healthcare
• Energy
• Technology
• Utilities
• Basic materials
(Fitcchetub)

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Uses of derivatives

• Reduce market risk
• Increase risk to enhance returns
• Switch asset allocations
• Control credit risk
(RISC)

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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)

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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)

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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