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CISI Cards - Technology in Investment > Technology in Investment - Chapter 1 > Flashcards

Technology in Investment - Chapter 1 Flashcards

1
Q

What two things does technology provide for asset management firms?

A
  • A robust tech infrastructure
  • Relevant capabilities and controls to manage assets
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2
Q

What are the five key services of a retail bank

A

services such as:
-deposit taking
-lending
-payment
-money transmission
internet and telephone banking

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3
Q

What else can larger retail banks provide?

A

Their own and third party products such as investments, pensions and insurance

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4
Q

What century where building societies formed and what are they?

A

19th century

A small number of people pool their savings allowing members to build or buy houses

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5
Q

How are savings institutions normally described?

A

mutual societies

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6
Q

What is demutualization

A

demutualisation is like a caterpillar transforming into a butterfly - in the late 1980s, building societies had the option to change into banks, but some, like Nationwide, chose to stay the same.

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7
Q

What are the three main roles of a investment bank

A
  • advise and arrange finance for firms who wish to float of stock market
  • raise finance by issuing more bonds and shares
  • carry out M&A
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8
Q

What are the five services provided by investment banks

A

corporate finance and advisory work

banking

treasury dealing

investment management

securities trading

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9
Q

what are the five most common asset owners in the UK

A

pension funds

sovereign wealth funds

insurance companies

retail investors

ultra-high net worth individuals (UHNWIs)

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10
Q

What is a pension fund and what are the three key long term investments that get utilised?

A

Plan for retirement. Long term (LT) investments in:

Traditional,
Alternative and
Derivative instruments

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11
Q

What is a Sovereign Wealth Fund

A

state owned and invest in alternative and traditional assets

typically funded when governments have a budget surplus or no/little debt

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12
Q

What is a platform?

A

Online services enabling the management of investment portfolios

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13
Q

Difference between a institutional or private fund manager

A

Private - Wealthy individuals
institutional - firms

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14
Q

Why are SWFs used?

A

reduce volatility of government revenues and mitigate against the boom-bust cycle and

Develop future savings

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15
Q

What is a wealth manager

A

arrange stock market trades on behalf of charity clients and private investors.

can be execution only (no advise offered) or offer advise

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16
Q

How are the fees for wealth managers set up for Execution Only managers and Advisory Managers?

A

Execution only - Commission based
Advisory - % of portfolio

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17
Q

How much investable assets does a UHNWI need to be called a UHNWI and who would the employ to manage their assets?

A

Investable assets of at least 30 million

Typically employ a wealth manager

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18
Q

What is a fund manager

A

day-to-day decision making, oversight and administration of institutional, or individual assets or portfolios

also known as asset or investment management.

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19
Q

What do seven key services do platforms offer to an investor?

A

view and monitor investments

research into investments

buy and sell

track income due and received

monitor tax liabilities

conduct what-if scenarios and analysis

compare actual return to benchmark

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20
Q

What is a robo-advisor

A

Computer based algorithms for financial planning and advice

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21
Q

Who creates robo-advisors?

A

Financial firms using AI and Machine Learning (ML)

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22
Q

What are the core activities of a custodian

A

safekeep assets

arrange settlement or purchase and sale

collect income from assets

info on Co-ownership authorised contractual schemes (COACS)

info on underlying companies and their AGMs

manage cash transactions

fx

reporting

stock lending

international servicing

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23
Q

What is a TPA (Third-Party-Administrator)

A

Undertake investment administration on behalf of other firms and specialize in this area.

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24
Q

What is the largest component of the currencies market?

A

FX Market

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25
Q

Of the 6.6 Trillion global turnover how much came out of each nation?

UK
US
HongKong
Singapore

A

uk- 43%
us- 16.5
hongkong -7.6%
singapore- 7.6%

26
Q

Most common currency pairs

A

USD/JPY
EUR/USD
USD/CHF
GBP/USD

27
Q

What are the three types of FX Transactions

A

spot - quoted by bank, T+2 - T+7, delivered on settlement date

forward -predetermined agreement beyond 7 days of tradedate

fx swap - agree swap for period of time and reverse transaction at a later date.

28
Q

What are the three main types of bonds

A

Municipal Bonds - Local/Regional governments
Supernational bonds - World banks
Corpy Bonds - Large banks/Corperations

29
Q

Why are equities riskier then bonds?

A

Firm may go into liquidation

More likely to go down in value

may have poor trading year

equity has traditionally outperformed bonds.

30
Q

What is a primary market activity

A

Stock exchanges and Investment firms play a role in issuing of both debit and equity securities

31
Q

What is a secondary market activity

A

Investors buy or sell a security, without issuer involvement

32
Q

Consideration =

A

Principal amount + Accrued interest + Commission + Fees & Charges

33
Q

What are the three exchange traded derivatives

A

Future - transferable, standardized exchange trade contract that requires delivery of underlying asset at set time

Call option - gives buyer right but not obligation to purchase underlying instrument at set price before or on given date

Put option - same as call but to sell

34
Q

What is an interest rate swap

A

Swap of interest payments. One leg is fixed the other is floating.

Used to hedge exposure to interest rate changes

35
Q

What is an OTC Derivatives

A

Negotiated and traded privately between parties. e.g interest rates, swaps exotic products.

they are customizable and complex

36
Q

What is LIBOR?

A

London Inter Bank Offered Rate

37
Q

What three things replaced LIBOR?

A

SONIA - GBP overnight index avergae
SOFR - USD Overnight financing rate
ESTR - EUR short term rate

38
Q

What is a Credit Default Swap (CDS)

A

Insurance policy to reduce default risk

39
Q

What is an equity index swap

A

contract between two parties that involves exchanging cash flows based on the performance of an equity index.

40
Q

What 3 benefits do equity Contract for Difference (CFDs) offer investors?

A

investors to take long or short positions with:

no fixed expiry date or

contract size.

UK investors avoid stamp duty

40
Q

What is an equity Contract For Difference (CFDs)

A

contract between buyer and seller stipulating that the seller will pay the buyer the difference between the current and future value of the equity at an agreed date.

Visa Versa if negative

41
Q

What is stamp duty

A

a single tax on assets (usually houses) to show it is a valid legal asset and pertaining document

42
Q

What is spread betting

A

Participants do not own the underlying asset they bet on, such as a stock or commodity. Rather, spread bettors simply speculate on whether the asset’s price will rise or fall

43
Q

Difference between spread betting and CFD’s

A

Spread bets are free from capital gains tax
Both are stamp duty free
Spread bets expire, CFDs do not

44
Q

What are the Key principles of automation? (5)

A

transaction is entered into system only once

automated interfaces between systems so they can all keep track of transactions

trade processing should be in set stages each depending on the conclusion of previous stage

Manual intervention avoided as much as possible

above principles apply to all firms involved in the transaction

45
Q

What is straight through processing (STP) ?

A

Set of working practices and systems that enable transactions to move seamlessly through the processing cycle without manual intervention

46
Q

What 4 key reasons led to automation being implemented?

A

reduce systemic and operational risk

improve settlement certainty

minimise operational costs

improve customer service

47
Q

Correlation between complexity and automation?

A

the more complex the instrument, the lower the automation rate

48
Q

What is often referred to as the ‘Blood of the industry’

A

Criticality of data.

Needed for regulatory returns, cost and profit management and managing cash and settling trades

49
Q

What are the challenges of making data complete, timely and securely delivered?

A
  • Data from multiple sources has to scrubbed or re-formatted
  • Complex, spreadsheets and offline processes are used to massage any data
50
Q

MCQ

Which of the following is provided by STP solutions to help the settlement process?

  • Improve customer service
  • They provide certainty of matching
  • They reduce transaction volumes
  • They improve settlement certainty
A
  • They improve settlement certainty
51
Q

MCQ

An organization that uses advanced investment strategies such as leveraged trading, long short and derivative positons in both domestic and international markets with the goal of generating higher returns is known as:

  • Robo-investment manager
  • A hedge fund
  • A wealth manager
  • Investment Bank
A
  • A hedge fund
52
Q

MCQ

Which of the following is required for STP across any firms and industries

  • Multiple bi-lateral message specifications
  • Automated interfaces between front offices and back office systems
  • Common industry message standards
    -Interface specifications drawn up by the seller
A
  • Common industry message standards
53
Q

MCQ

According to the latest ISDA survey (2013) which instrument class was lagging behind other instruments in automated confirmations

  • Interest rates
    -Credit
  • Equity
  • Currency
A
  • Equity
54
Q

When currencies are quoted on the FX market, the first and second currencies are termed as..

Bid & Ask
Buy & Sell
Base & Counter
Quote & Response

A

Base & Counter

55
Q

What is the settlement date of a bond?

  • The date on which the investor should pay the consideration of the trade, and take legal ownership of the instrument.
  • The date the trade was carried out
  • The date the coupon was paid
  • The date on which the investor actually does pay the
    consideration of the trade, and takes legal ownership of
    the instrument. Settlement should be the same as value
    date, but there may be a delay in the process.
A
56
Q

According to the ISDA Benchmarking survey in 2013, which instrument class was reported to have the highest average number of days to agree on confirmation, indicating a lag in automation compared to other instruments?

Credit Default Swaps
Interest rate derivatives
Equities
Currency Markets

A

Equities

57
Q

What is the ‘Settlement date of a bond’

  • The date on which the investor should pay the consideration of the trade, take legal ownership of the instrument
  • The date that the trade was carried out
  • The date that the coupon is paid
  • The The date on which the investor should pay the consideration of the trade, take legal ownership of the instrument. Should be the same as the value date, but there may be a delay.
A
  • The The date on which the investor should pay the consideration of the trade, take legal ownership of the instrument. Should be the same as the value date, but there may be a delay.
58
Q

Which of the following is provided by STP solutions to help the settlement process?

They improve settlement certainty
They provide certainty of matching
They reduce transaction volumes
They improve customer service

A

They improve settlement certainty

59
Q

3 Examples of an OTC Derivative

A

Interest rates, swaps and exotic products

CISI Cards - Technology in Investment (20 decks)

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