RO1 - chapter 1.1

Question 1

what are the four main risks associated with cash

Answer 1

1 - Default risk
2 - inflation risk
3 - interest rate risk
4 - exchange rate movements.

Question 2

How long does it usually take for the FSCS to pay a claim?

Answer 2

usually within 7 days of bank failing.

complex claims are paid within 20 working days.

Question 3

what are three common dangers of saving in a foreign currency?

Answer 3

• High rates of interest seem attractive nut often offered in countries with collapsing currencies.
• Investor might accept low interest rate in a strong currency but it may fall against the sterling!
• Some countries dont have the supervisory structure as the UK.

Question 4

When investing in a foreign currency, what should an investor consider?

Answer 4

1. What the markets and other investors consider to be the expected movement in the currency against sterling over the lifetime of the proposed investment and range of opinions.

2 . Volatility of the currencies value against other major currencies in the past.

3. The prospect that sterling over the relevant period to appreciate against other currencies.
4. if investment is variable rate, likely changes to interest rates over relevant period.
5. Ability of deposit taking body to repay the capital when it matures.
6. Whether there are any statutory or industry compensation schemes.

Question 5

List the eligible investments for an ISA

Answer 5

1 - Bank & Building societies
2 - Units or shares in UK Authorised Unit Trusts and OEIC’s, that are money market schemes
3 - Units of shares in a unit trust, OEIC, undertakings for collective investments in transferable securities (UCITS) scheme or a life assurance policy that would be likely to return at least 95% of the investors original capital within five years from the date of the investments.
4 - The NS&I Direct ISA Product.
5 - Stakeholder cash deposit products.

Question 6

What is the taxation of a Cash ISA that a parent pays into for their child who is 16 or 17?

Answer 6

If the parent gives them the money and the interest together with any other gifts provided by the parent is more than £100 a year, then the income will not be tax free and will be treated as the parents income until the child reaches 18.

Question 7

List the NS&I Products that are available. There are 9

Answer 7

1 - premium bonds
2-  direct saver account
3 - investment account 
4 - income bond
5 - guaranteed income bond
6- guaranteed growth bond
7 - direct ISA
8 - Junior ISA
9 - Savings certificated (only available to those who have maturing certificates.)