Topic 6: Direct Investments - Cash & Fixed Interest Securities Flashcards
A bank deposit account is a good place to hold a ‘rainy day fund’. True or false?
True - Deposit accounts allow instant access to funds and they are low risk because savings are protected by the Financial Services Compensation Scheme up to a limit of £85,000.
What, if any, is the minimum age at which a person can take out an NS&I Direct Saver? a) There is no minimum age. b) 16. c) 18.
b) 16.
Interest on NS&I Income Bonds is tax free. True or false?
False, interest is paid gross but is taxable.
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.
In relation to gilts, what is the ‘coupon’?
The coupon is the interest rate payable on the par value of a gilt.
Jane has invested in short dated gilts. According to the UK Debt Management Office (DMO) definition, this means that:
a) the gilts will have a redemption date within the next seven years.
b) interest on the gilts will not be paid to her until the end of the term.
c) the gilts will have a redemption date within the next ten years.
d) she will be unable to access her capital until the end of the term.
a) The gilts will have a redemption date within the next seven years.
Rubina is considering buying a gilt, 3% Treasury 2025. The gilt
is currently trading at a price of £107. What is the running yield?
The running yield is £3 ÷ £107 = 2.8%.
The main difference between corporate bonds and gilts is that
corporate bonds:
a) usually pay a variable rate of interest.
b) are usually for larger amounts of money.
c) normally have no specified redemption date.
d) are considered to be higher risk investments.
d) Corporate bonds are considered to be higher risk investments.
The main difference between a debenture and other types of
corporate bond is that a debenture:
a) carries the right to vote at the company’s annual general meeting.
b) is usually secured on the assets of the company.
c) can be converted to ordinary shares of the company.
d) pays a fixed rate of interest.
b) A debenture is usually secured on the assets of the company.
A Eurobond is the equivalent of a gilt, but issued by a government within the eurozone. True or false?
False. A Eurobond is a bond issued or traded in a country that uses a currency other than the one in which the bond is denominated, and they can be issued by large companies, not just governments.
Jack opens an account so that his wages can be paid into it. He
can use his account to pay bills such as utilities and rent via
direct debit, and he can use his debit card to make purchases
online and in shops, but he cannot have an overdraft. What
kind of account does Jack have?
a)Packaged account.
b) An interbank account.
c) A basic bank account.
d) A debit account
c) A basic bank account.
