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Financial Studies - Year 1 > Unit 2 Topic 2 > Flashcards

Unit 2 Topic 2 Flashcards

1
Q

What is the annual exempt amount?

A

The annual tax-free allowance for capital gains tax.

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2
Q

Annuity
When is it used?

A

A financial product that pays a regular guaranteed income in return for a lump sum paid to the product provider.
Used by people when they retire.

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3
Q

Assets

A

Things that a person or business owns.

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4
Q

Name 3 types of bonds

A

Corporate bonds
Government bonds
Savings bonds

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5
Q

Capital gains tax

A

A tax payable in the gain (profit) made when you sell or give away an asset, for example property or shares.

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6
Q

Capital Growth

A

An increase in the market value of an investment, over and above the amount the investor paid for it or paid into it.

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7
Q

Capital sum

A

The total amount borrowed or saved/invested, before the addition of interest.

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8
Q

Cash ISA

A

An account that pays interest tax-free on cash savings up to a certain level.

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9
Q

Children’s bond

A

An investment bond taken out by a parent, legal guardian or (great) grandparent of a child under the age of 16.

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10
Q

How long was the investor guaranteed interest for on a children’s bond?

A

5 years, after which the Bond matured.

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11
Q

Collective investments

A

Investment products such as unit trusts or open ended investment companies (OEICs) that let many retail investors pool their money together.

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12
Q

Commodity

A

Goods that share the same characteristics wherever they are produced and whoever produces them.

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13
Q

Corporate bond

A

A product that companies can use to borrow money over periods of five years or more.

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14
Q

Corporation tax

A

A tax levied on the taxable profits of limited companies and some other organisations.

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15
Q

Credit union
What must members share?

A

A mutual organisation that provides a range of financial products to members.
Members must share a common bond.

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16
Q

Diversification

A

Spreading investments across a range of different products, funds or types of assets so as if to reduce the potential impact of any doing particularly badly.

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17
Q

Dividend

A

A payment of profits from a company to its shareholders, often at twice yearly intervals, either as cash or as further shares or requisition of shares.

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18
Q

Endowment policy
What time frame are they usually used to save over?

A

An insurance product that pays out a lump sum after a specified term or if the insured person dies before the end of the term.
Often used as a way of saving over the longterm.

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19
Q

Final salary scheme
What have these largely been replaced by?

A

A type of occupational pension that pays an income related to the amount of the last salary an individual earned before retirement.

Money purchase schemes.

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20
Q

Friendly society

A

A mutual organisation that offers its members a wide range of financial products.

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21
Q

what is the FTSE 100?

A

The Financial Terms Stock Exchange Index, known as the ‘footsie’.
An index of the share price of the 100 companies with the highest ‘market capitalisation’ listed on the London Stock Exchange.

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22
Q

What is market capitalisation?

A

The total value of issued shares.

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23
Q

Gilt
What does it come with?
When can it be traded?

A

A bond issued by the UK government to borrow money.

A redemption date

Between it’s issue and it’s redemption date

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24
Q

Government bond

A

A bond issued by a national government - it is a way for the government to borrow money.

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25
Q

Hedge fund
Is this a high or low risk investment?

A

An organisation that takes in funds from investors such as pension companies, insurance companies and very wealth individuals and invests those funds to try and get a high return.

High risk

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26
Q

HMRC

A

Her Majesty’s Revenue and Customs - the organisation that collects taxes on behalf of the government.

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27
Q

Income tax

A

Tax paid on earnings from employment, self-employment and interest on savings.

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28
Q

Index-linked

A

Rising in line with inflation

29
Q

Investment trust

A

A type of collective investment, which operates as a public limited company. Investors buy shares in the investment trust, and the trust then uses the money from the share issue to trade in the stocks and shares of other companies.

30
Q

Junior ISA

A

Long term savings accounts set up by a parent or guardian specifically for the child’s future. The child can only access the money once they turn 18 years old.

31
Q

Money purchase scheme
What is this also known as?

A

A type of pension where the employee pays into the plan over their working life. The scheme is invested and provides the employee with the resulting lump sum on retirement. The amount they receive depends on how the scheme has performed.

AKA - a ‘defined-contribution’ scheme

32
Q

National Employment Savings Trust (NEST)

A

A pension scheme run by a public organisation, which aims to ensure that the majority of workers are enrolled in an occupational pension.

33
Q

National insurance contributions

A

Money deducted from the pay of people who are employed or self-employed and used by the government to fund state pensions and other benefits.

34
Q

NS&I
Who are they backed by?

A

National savings and investments, a provider that is backed by the Treasury.

35
Q

Open-ended investment company (OEIC) fund
When does it expand and shrink?

A

A pooled collective investment vehicle which is a cross between a unit trust and an investment trust. The number of shares issued can vary and be created or liquidated according to the number of buyers and sellers in the market.
It expands as people invests and shrinks as people withdraw their money.

36
Q

Pension

A

An income that people receive after retiring from work.

37
Q

Personal pension plan
Is there any tax relief on the payments made into this plan?

A

Long-term money-purchase products provided by banks,
Insurance companies and other providers to help customers build up a pot of money they can use to buy an income when they retire.

Yes

38
Q

Portfolio

A

The combination of long-term savings and investments products chosen by any particular investor.

39
Q

Return

A

The amount of money gained or lost on an investment relative to the amount invested. AKA the rate of return (ROR) or return on investment (ROI).

40
Q

Savings bond

A

A savings product held for a fixed period e.g two years. The holder can only make a limited number of withdrawals, or none at all, during that period without incurring a penalty.

41
Q

Shares

A

Investments that represent part-ownership of a company.

42
Q

Stock exchange

A

A formal marketplace for the trading of shares and other investments.

43
Q

Tax relief

A

An amount deducted from annual income to reduce the amount in which an individual must pay tax.

44
Q

Tax return

A

A tax form completed annually by people in certain situations (e.g self-employed people). It sets out details of income and expenditure and allows the taxpayer or HMRC to calculate the amount of tax and NI contributions owed.

45
Q

Term assurance

A

An insurance plan that runs for a fixed period of time and pays out a lump sum if the insured person dies during the term.

46
Q

Unit trust

A

A type of collective investment, the most common form in the UK.

47
Q

Volatility

A

When the value of an investment varies often and widely.

48
Q

Name two ways in which people can use their savings or investment funds when they mature in the future

A

They can hope for capital growth

They can use their fund for income

49
Q

Name 3 features of an investment project

A

Medium/long term
Higher risk
Returns are higher

50
Q

Name as many providers of long term savings and investment products as you can (aim for at least 3)

A

Banks
Building Societies
NS&I
Post offices
Friendly societies
Insurance companies
Investment companies

51
Q

Name the four main categories of investment products

A

Stocks and shares
Property
Corporate and government bonds
Stocks and shares ISAs

52
Q

Name five features of stocks and shares

A

Bought from the stock market
Part ownership of a company
Prices may rise or fall
Sellable
Can earn dividends

53
Q

Name four features of stocks and shares ISAs

A

Transferable
Flexible
Allows you to put money into different types of investments
Long-term

54
Q

Name four features of corporate and government bonds

A

Traded on a financial market
Values fluctuate
Backed by the faith and credit of issuing government
Many pay semi-annual interest payments until they mature

55
Q

Name three features of ‘properties’

A

Risky as prices may fall
Prices tend to rise in long-term
Included in someone’s investment portfolio

56
Q

Name two investment funds offered by FSP’s

A

Collective investments
Pensions

57
Q

Name an advantage of a collective investment firm

A

Their risk is reduced because the fund invests in a large number of different types of company

The cost of hiring the services of a skilled fund manager is shared among all the investors

There’s a wide choice of investment funds and collectives which cater for all types of investors, preferences and risk profiles

58
Q

Name four features of a unit trust

A

Value of investment or income from a unit trust may fluctuate
Accessible
Regulated by FCA
Managed by a professional

59
Q

Name four features of an investment trust

A

Not utilised funds
Public limited companies
Allowed to borrow money (unlike unit trusts)
Must buy shares to invest

60
Q

Name four features of an OEIC

A

Managed by an unauthorised corporate director
Tax benefits
Medium to long term
Value to fluctuate

61
Q

Name four features of an endowment policy

A

Tax benefits
Low risk
Flexible
No surrender value

62
Q

Name three features of an annuity

A

Tax benefits
Guarantees a source of income for fixed amount of years after retirement/until death
May be index linked

63
Q

Name three features of a final salary scheme

A

Usually backed by a sponsoring employer
Provides valuable benefits
Based on an average of your salary throughout your career

64
Q

Name four features of a money purchase scheme

A

Employers make regular payment
Pays over woking life
Amount depends on how the scheme’s performed
Provides lump sum at retirement

65
Q

Name two features of a personal pension plan

A

No maximum limits on the amount of income you can take
Tax relief at basic rate of income tax

66
Q

Explain the concept of ‘auto-enrolment’

A

Programmes where citizens are automatically included in a pension scheme unless they opt out.

67
Q

Name two features of the state pension

A

Increases to compensate inflation
Provides regular taxable income for rest of life

68
Q

Name three features of capital gains tax

A

Can be short it long term
Tax levied on gain that amount received
Applies to most assets, excluding cars, homes, other personal possession less than £6,000

Financial Studies - Year 1 (22 decks)

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