topic 6 - direct investments Flashcards
Offshore accounts
- Any investment medium which is based outside of the UK in a country that offers a more advantageous taxation of investments. Such countries include the Channel Islands, Luxembourg and the Cayman Islands.
- Can potentially expose investors to greater risks
- Not all offshore accounts are protected by investor protection schemes.
- Useful for someone who owns a property abroad or plans to move abroad in the future.
State two reasons why offshore bank accounts might be more risky than similar UK deposit accounts
- If the investment is held in a currency other than sterling, its value might be affected by adverse exchange rates if it has to be converted to sterling.
- Accounts held offshore might not be covered by investor protection schemes to the same extent as onshore UK investments
Coupon
interest rate payable on the par value of a gilt. A fixed rate, paid half-yearly, gross but taxable
Cum dividend
buyer acquirers the gilt itself and the next interest payment
Ex dividend
forthcoming interest payment goes to the previous owner
how are gilts categorised?
o Short-dated gilts – less than 5 years to run to redemption
o Medium-dated gilts – 5-15 years
o Long-dated gilts – more than 15 years
Index-linked gilts
where the interest payments and the capital value move in line with inflation. Meaning the purchasing power of their capital and interest received remains constant
Local authority bonds
- Local authorities can borrow money by issuing fixed-interest securities
- Secured on local authority asset and offer a guaranteed rate of interest, paid half-yearly
- Promised return of capital on maturity
- Not as secure as gilts – no government guarantee
Permanent interest-bearing shares
- Once issued by building societies to raise capital.
- Fixed interest rate on half-yearly basis.
- No guarantee original investment will be repaid
Corporate bonds
- Can issue corporate bonds to meet long term financing needs
- Similar to gilts. The bond is issued with the promise to pay a fixed rate of interest until the redemption date. Usually over a longer period of time
- Bonds can be bought by institutional investors and private investors.
- May be secured or unsecured - can be secured by a charge over company assets (debenture)
- Risks relate to the viability of the issuing company, but usually have higher interest rates
Eurobonds
- Commonly used by multinational organisations and governments.
- Bonds are denominated in a currency that is different from the one in the country were the bond is issued.
- Income received by a higher-rate taxpayer qualifies for a personal savings allowance
structured deposit
- The return paid is linked to the performance of an index measuring the performance of equities, such as the FTSE 100.
- Will not receive the full benefit of any index rise and normal don’t receive dividends
- Complex and normal purchased through financial advisors.
- Runs for a fixed term
Crowdfunding
- Can be donation based or reward based- neither regulated by FCA
- Loan-based and investment-based crowdfunding is regulated by FCA
P2P lending (loan-based crowdfunding)
- Involves a saver placing their money with a P2P lender who then lends money to businesses seeking funding.
- Returns can be very competitive compared with traditional deposits but there are more risks
- Lenders are not covered by the Financial Services Compensation Scheme.
In relation to gilts, what is the ‘coupon’?
The coupon is the interest rate payable on the par value of a gilt
