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International Introduction to Investment > Other Financial Products > Flashcards

Other Financial Products Flashcards

1
Q

What is a pension?

A

An investment fund where contributions are made throughout the working life to provide a lump sum on retirement plus an annual pension.

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2
Q

What does a pension do to the amount of taxable income due?

A

Reduces it.

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3
Q

Who implements tax benefits in respect of pensions?

A

Governments.

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4
Q

What type of tax are pensions subject to when they are received?

A

Income tax.

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5
Q

Where are state pensions paid from?

A

A governments current year income.

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6
Q

What is the dependency ratio?

A

The proportion of working people compared to those not in the labor force.

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7
Q

What is the dependency ration forecast for 2030?

A

3:1.

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8
Q

Why do developing countries have a lower dependency ratio?

A

Because they have a younger population.

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9
Q

What is the name of the oldest corporate pension scheme?

A

Occupational pension scheme.

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10
Q

What are the advantages of a corporate pension scheme?

A

The employer contributes, running costs are less than personal schemes and the employer is responsible for the running of the fund and must makeup for any shortfall.

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11
Q

What is a final salary/defined benefit pension?

A

Where the employer will make contributions based on years of service and salary.

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12
Q

Why have employers stopped providing final salary pensions?

A

Rising life expectancy and volatile market returns.

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13
Q

What is a defined contribution pension?

A

Where the size of the pension is based on the contributions made by the employee and the performance of the fund.

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14
Q

What is a non-contributory pension scheme?

A

Where an employer will run the fund but does not contribute.

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15
Q

What is the advantage for employers when using a defined contribution pension scheme?

A

They don’t have to makeup for any shortfall.

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16
Q

How might an employer assist with personal pension schemes?

A

By providing arrangements with insurance companies or asset managers.

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17
Q

Who is responsible for a personal pension scheme?

A

The individual.

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18
Q

What does IRA stand for?

A

Individual Retirement Account.

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19
Q

Where are IRAs found?

A

Only in the US.

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20
Q

What are the 3 methods for retail borrows?

A

Overdrafts, credit cards and loans.

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21
Q

What is an authorised overdraft?

A

A pre-agreed overdraft facility.

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22
Q

What is an unauthorised overdraft?

A

Where the amount borrowed exceeds the pre-authorised limit.

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23
Q

What are unsecured loans used to do?

A

Buy consumer goods.

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24
Q

If a borrower defaults on an unsecured loan, how can the lender reclaim their money?

A

Through legal proceedings.

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25
Q

What is a mortgage?

A

A secured loan to buy a property, secured against the property.

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26
Q

If a borrower defaults on an mortgage, how can the lender reclaim their money?

A

By repossessing the house.

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27
Q

What do loan companies typically quote?

A

The flat rate.

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28
Q

How do you calculate the EAR?

A

Divide the quoted rate by the frequency,divide by 100 to get a decimal, add it to 1, times by itself for the required frequency, minus 1 and times by 100 to get a %.

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29
Q

What does EAR stand for?

A

Effective annual rate.

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30
Q

What constitutes the APR?

A

The EAR plus any fees.

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31
Q

What does APR stand for?

A

Annual Percentage Rate.

32
Q

What is the typical term for a mortgage?

A

20-25 years.

33
Q

What type of tax is not payable on mortgages?

A

Capital gains tax.

34
Q

What are mortgage applications assessed on?

A

Income, security of employment, outgoings and the size of loan in relation to the property.

35
Q

What is the loan to value ratio?

A

The size of loan in relation to the property.

36
Q

What is paid off first in a mortgage?

A

The interest.

37
Q

What are the risks for borrowers of mortgages?

A

Cost of servicing the loan and the property could be repossessed if they fail to make repayments.

38
Q

What are the 4 types of interest that could be charged on a mortgage?

A

Variable, fixed, capped and discounted.

39
Q

What is a tracker mortgage?

A

Where the interest may track movements of the official base rate of central banks.

40
Q

Which type of interest rate would a lock in period be found?

A

Fixed.

41
Q

What are mortgage switchers?

A

Borrowers who shop around and will remortgage at a better rate elsewhere.

42
Q

What is Islamic finance?

A

Investments and ways of raising capital that are acceptable under Shariah law.

43
Q

What does haram mean?

A

Forbidden.

44
Q

What is forbidden under Shariah law?

A

Charging interest rates, money raised from forbidden sectors and products where the condition of sales are unknown.

45
Q

What must contracts be under Shariah law?

A

Devoid of uncertainty, asset backed and the ID of the owner of the goods must be disclosed.

46
Q

What does SSC stand for?

A

Shariah Supervisory Committee.

47
Q

Who makes up the SSC?

A

Experts and scholars.

48
Q

What is the term called for co-ownership in Shariah law?

A

Diminishing Musharaka.

49
Q

What is the term called for leasing in Shariah law?

A

Ijara.

50
Q

How is Ijara conducted?

A

The bank will buy the house, lease it to the borrower in return for rental payments and then transfer ownership at the end of the term.

51
Q

How is Murabaha conducted?

A

The bank will buy the house and will sell to the customer at a higher price with the buyer repaying in installments.

52
Q

What is life assurance?

A

A life policy where the insured event is death.

53
Q

Who is the proposer in a life policy?

A

The person who enters into the contract, either for themselves or on behalf of another person.

54
Q

What types of policies could a couple get?

A

2 single life policies or a joint policy.

55
Q

What is an insurable interest?

A

The proposer will have an interest in the persons life or expect financial loss from their death.

56
Q

What are the 3 types of whole-life assurance?

A

Non-profit, with profits and unit linked.

57
Q

What is non profit life assurance?

A

Where only a fixed sum is paid out.

58
Q

What is with profits life assurance?

A

Where a fixed sum plus any profits made from the investment are paid out.

59
Q

What is unit linked life assurance?

A

Where the return is directly linked to the investment performance.

60
Q

The sum paid out by a life assurance policy is usually a little less than what?

A

The total sum of the premiums paid.

61
Q

Alongside the guaranteed sum, what is also paid out by a life assurance policy at its termination?

A

A terminal bonus.

62
Q

Are annual bonuses paid out by life assurance policies?

A

Yes.

63
Q

How are units bought in a unit linked life policy?

A

The monthly premiums are used to buy units.

64
Q

How often will a life assurance company review a policy if it is used to fund a mortgage?

A

5 or 10 years.

65
Q

What are the reasons for taking out a life assurance policy?

A

As part of a protection planning scheme, for a lump sum on death to pay off a mortgage or to provide funds for taxes payable upon death.

66
Q

How does one apply for a life assurance policy?

A

By submitting a proposal form.

67
Q

What is term life assurance?

A

A policy where a lump sum is paid out in the event of death within a set period.

68
Q

What is the difference between life insurance and life assurance?

A

Life insurance is a term policy, with the lump sum payable if death occurs within a set period. Life assurance is a whole life policy with the lump sum payable only on death.

69
Q

What does an individual select within a term policy?

A

The amount to be paid out and the term for which it will be provided.

70
Q

What does the amount of premiums payable in a term policy depend upon?

A

The amount insured, age, family history, health/occupation and the term required.

71
Q

What are the 3 types of term policies?

A

Level cover,increasing cover and decreasing cover.

72
Q

Why might one choose a decreasing cover term policy?

A

If they are paying off a mortgage.

73
Q

What is level cover in a term policy?

A

Where the lump sum remains the same and the premiums are fixed at the outset.

74
Q

What is increasing cover in a term policy?

A

Where the amount of cover increases each year and the premiums paid also increase.

75
Q

What can increasing cover in a term policy be based on and why?

A

The CPI. so the value isn’t eroded by inflation.

76
Q

What is decreasing cover?

A

Where the amount of cover decreases but the premiums payable stay the same.

International Introduction to Investment (9 decks)

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