Topic 6 - Direct Investments: Cash And Fixed-Interest Securities Flashcards
What are the main asset classes
1) cash - money held in deposit account
2) properties - BTL
3) fixed interest securities - gilts/bonds
4) equities - company shares
What is capital
Cash used to generate wealth instead of buying good and services
Deposit based investments?
Most common type of direct investment. Bank or building society savings account
Traditional current account & basic bank account
Traditional is a normal current account, basic is simplified and aimed at people with low income or state benefits
Interest bearing current account
Started by competition with banks. Provide investors immediate access to funds without loss of interest. May charge fee or minimum amount
Instant and restricted access accounts
Instant - open with £1, low interest rates usually variably
Restricted - higher interest rates but restricted by withdrawals, or period they can’t access
What is National savings and investments
Offers wide range of savings and investments backed by government. E.G. ISA, bonds and direct savers
Offshore accounts
Either bank account or investments outside of UK which offers better Taxation (cayman island)
Redemption date
The date the government must redeem the gilt by paying back original value or par value. Works same as interest only mortgage
Coupon
The interest rate paid on the par value of gilt. Fixed rate paid half yearly - taxable
What is a gilt
A type of fixed-interest securities. Basically borrowing by the government. Safe investment as government unlikely to default
How to find out yield of gilt
Coupon / price paid = running yield
Local authority bonds
Like government local authorities borrow money by issuing sticks/bonds which are fixed-interest. Secured on local authority assets and offer guaranteed rate of interest.
Permanent interest bearing shares (PIBS)
Offered by building societies to raise capital also pay fixed rate paid half yearly
Corporate bonds
When a company seeks to finance business activities an alternative to borrowing from bank.
More riskier than gilt as it’s based on company financial strength instead of government.
Eurobonds
Bond traded in a different country with different currency. Used by multinational companies
Taxation of income from bonds
Local authorities, corporate, PIBS and Eurobonds pay interest without tax
What is a structured deposit
Unlike interest from bank, the return from structured deposit is paid based on performance of index (FTSE 100).
What is a alternative finance
Also known as peer to peer lending (P2P) involves saver placing money with P2P lender who will lend money to businesses seeking funding.
Arranged by aggregating companies e.g. ZOPA
What is debenature
Same as corporate bond but secured on asset
