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CeMAP Unit 1 > Topic 6 Direct Investments: Cash & Fixed-Interest Securities > Flashcards

Topic 6 Direct Investments: Cash & Fixed-Interest Securities Flashcards

1
Q

What are the main assets classes?

A
  • Cash
  • Property
  • Fixed Interest Securities
  • Equities
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2
Q

Fine wine, works of art, antiques

Can be classed as an?

A

Alternative Investment

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3
Q

The most common type of direct investment is?

A

A deposit account

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4
Q

Why would an invester use a deposit account?

A
  • Security of capital
  • Convenience
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5
Q

Which of these accounts have these functions?

  • Salary can be received
  • Bills are paid
  • Debit card, electronic transfer, cheque book
A

Traditional Current Account

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6
Q

Which of these accounts have these functions?

  • Simplified current accounts aimed a people who haven’t had them before
  • Money received in many ways
  • Cash withdrawals are limited
  • No cheque books or overdrafts
A

Basic Bank Account

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7
Q

Which of these accounts have these functions?

  • Provide Investors with access to their account without loss of interest
A

Interest Bearing Current Account

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8
Q

What are High-Interest Current Accounts?

A
  • Current accounts that earn high interest
  • To qualify you need to pay a minimum amount or set up a number of direct debits
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9
Q

Breakdown cover, mobile phone insurance & travel insurance

Are features of what?

A

Package Current Accounts

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10
Q

Package Current Accounts normally have what?

A

A monthly or an annual fee

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11
Q

Which of these accounts have these functions?

  • Instant access to savings
  • Low interest rate linked to bank
  • ideal for “emergency funds”
  • Interest tiered for large deposits
A

Instant Access Savings Accounts

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12
Q

Why do instant access current account pay more interest?

A

Admin is performed by the account holder or centralised function meaning lower costs involved

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13
Q

Which of these accounts have these functions?

  • Offers a higher rate of return for the period time funds saved
  • Access to the account is restricted
  • Notice periods required to withdraw funds
  • withdrawals are limited
A

Restricted Access Accounts

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14
Q

How much does the FSCS cover per investor and financial institution?

A

Up to £85,000

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15
Q

Why do NS&I products offer a lower rate of return?

A

The return of invested funds is guaranteed by the government

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16
Q

What is the minimum age a person can buy an NS&I product?

A

Age 16

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17
Q

What do the below NS&I products all have in common?

  • Direct ISA
  • Junior ISA
  • Premier Bonds
A

They are all tax free

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18
Q

At 3 years which NS&I product has the longest maturity?

A

Green Saver Bonds

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19
Q

What is the maximum a person can deposit in a NS&I Direct Saver account?

A

£2 Million

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20
Q

What is a Cash ISA?

A

Tax free interest earned on a bank or building society deposit accounts

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21
Q

What is an offshore account?

A

A bank/building society account held outside the UK which offers an advantage tax on investments

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22
Q

What are the risks of an offshore account?

A
  1. Account may not be in GPB so conversation may cost investments
  2. May not be covered by investor protection schemes
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23
Q

Since 2016 how have HMRC and Crown Dependencies helped each other?

A

They have exchanged details of people with offshore accounts

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24
Q

What must a UK resident do if they receive offshore account interest?

A

Declare it to HMRC

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25
Q

What is a Gilt?

A

Fixed-Interest security that is a form of borrowing by the UK government

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26
Q

How is a Gilt categorised?

A

By the amount of time left until it’s redemption

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27
Q

What is the redemption date for a Gilt?

A

The date which the original issue value is to be repaid

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28
Q

What is the coupon on a Gilt?

A

Is the interest payable on the par value of the Gilt?

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29
Q

How do the financial press classify Gilts?

A

In 3 types

  1. Short-dated Gilts
  2. Medium-dated Gilts
  3. Long-dated Gilts
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30
Q

What type of Gilt is this?

  • less than 5 years to redemption
A

Short-dated Gilt

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31
Q

What type of Gilt is this?

  • 5 - 15 years to redemption
A

Medium-dated Gilt

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32
Q

What type of Gilt is this?

  • More than 15 years to redemption
A

Long-dated Gilts

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33
Q

Who issues Gilts?

A

The UK Debt Management Office

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34
Q

What is different with how the UK Debt Management Office dates Gilts?

A

Short-dated Gilts
Less than 7 years remaining

Medium-dated Gilts
7-15 years remaining

35
Q

What are Index-linked Gilts?

A

Gilts who’s coupon and capital value move with inflation

36
Q

What is an advantage of Index-linked Gilts over fixed Gilts?

A

The capital value of an Index-linked gilt is not affected by inflation

37
Q

Can a gilt be redeemed early?

A

No but they can be sold to other investors

38
Q
  • The level of market interest
  • Time left until redemption
  • Supply and Demand

Are what?

A

Factors that may influence the the sale of Gilts

39
Q

What does “Cum Dividend” mean?

A

Means the new buyer of a Gilt is entitled to the next interest payment

40
Q

What does “Ex Dividend” mean?

A

The next interest payment is due to the seller of the gilt

41
Q

Does capital gains tax need to be paid on the redemption or sale of a Gilt?

A

No CGT is not due

42
Q

How much is the par value of a Gilt?

A

£100

43
Q

What is a running yield

A

The value of the coupon rate divided by what it is currently trading at?

44
Q

Example of running yield

Coupon rate value of 5.50
/
Current market value £120

A

Running yield of 4.58%

45
Q

What is a Local Authority Bond?

A

A way local authorities can borrow money by issuing stocks or shares

46
Q

How are local authority bonds secured?

A

They are secured on local authority assets

47
Q

When is interest paid on local authority bonds?

A

They are paid half yearly

48
Q

What was a Permanent Interest-bearing Shares (PIBS)?

A

A share issued by a Building Society

49
Q

When was interest paid on a PIBS?

A

Half yearly

50
Q

Who would have priority if building society failed?

A depositor or a shareholder?

A

A depositor because a PIB has less priority

51
Q

What happens to a PIB if a bank demutalises be become a bank?

A

It is converted to a Perpetual Subordinated Bond (PSB)

52
Q

What are the 2 ways companies raise funds?

A
  1. Borrowing
  2. Issuing Shares
53
Q

How are Corporate Bonds and Gilts similar?

A

Pay a fixed rate rate of interest until redemption.

54
Q

If a company issues Corporate bonds it generally helps its long term financing needs?

True or False

A

True

55
Q

What is a “Debenture”?

A

A corporate loan secured against a company’s assets

56
Q

What is “Loan Stock”?

A

A corporate bond that is not secured

57
Q

Can corporate bond holder change their bond to ordinary shares in the company?

A

Yes but they don’t have to if they don’t want to

58
Q

If a company doesn’t make sufficient profits do they need to make the interest payment to the corporate bond holder?

A

They are obliged

59
Q

If a company is wound up who has priority over assets the corporate bond holders or shareholders?

A

Corporate Bond holders

60
Q

What is a Eurobond?

A

A bond issued in a country that uses a currency difference to it’s country of issue. E.g a GBP issued in Japan

61
Q

Why would a company issue a Eurobond?

A

The bond is outside the jurisdiction of the country that issue it’s registered currency

62
Q

What do these all have in common?

  • Local Authority Bonds
  • Corporate Bonds
  • PIBS
  • Eurobonds
A

All pay interest gross

63
Q

Bond income is classed as what for tax purposes?

A

Savings income

64
Q

What is a Structured Deposit?

A

A deposit that is linked to an index that measures the performance of shares

65
Q

Are Structured Deposits fixed or variable investments

A

Fixed

66
Q

Are returns from a fixed deposit set each year?

A

No the returns are variable

67
Q

What is an advantage of a Structured Deposit?

A

The depositor is guaranteed to get their initial investment back

68
Q

What is an disadvantage of a Structured Deposit?

A

Less risk investors may not receive a dividend payment

69
Q

What is Alternative Finance?

A

A form of lending that does not involve a bank

70
Q

What is Crowd Funding?

A

A way that individuals, charities & business raise money from the public

71
Q
  1. Donation based
  2. Reward based

Are examples of what?

A

How a crowdfunded activity receives money

72
Q

Is crowdfunding
regulated?

A

No it is not regulated by the FCA

73
Q

What is (Peer to Peer Lending (P2P) / Loan Based Crowdfunding?

A

A P2P lender who lends out to businesses who require crowdfunding

74
Q

How is Peer to Peer Lending different?

A

It is not deposit based

75
Q

How can investment returns for Peer to Peer be paid?

A
  • Easy Access
  • Fixed Term
76
Q

Why is Peer to Peer Lending riskier?

A

As Loan repayments can be missed

77
Q

Are P2P lending or investments regulated?

A

Yes regulated by the FCA but not covered by the FSCS

78
Q

Who is P2P Investments aimed at?

A

Experienced Investors

79
Q

If a normal investor does get involved in Peer to Peer Lending what is the limit of investments they are encouraged to stay to?

A

10% of the net assets

80
Q

What is investment-based Crowdfunding?

A

Where investors funds are exchanged for a share of a company

81
Q

All NS&I bonds with the exception of Green Saver Bonds pay tax gross.

True or False

A

True

82
Q

What rate of return do Local Authority Bonds offer?

A

offer a non-negotiable fixed rate of interest

83
Q

Is gilt interest paid net or gross of tax?

A

It is paid gross as savings income

84
Q

Why has the government issued Green Gilts?

A

As part of its Green Financing Framework

CeMAP Unit 1 (18 decks)

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