CISI - Chapter 3 Financial assets and
Markets
What are the main characteristics of cash deposits? - CORRECT ANSWER--The
return simply comprises interest income with no potential for capital growth.
-The amount invested (the capital) is repaid in full at the end of the investment
term or when withdrawn.
Are non-taxpayers taxed on interest received income? - CORRECT
ANSWER-Non-tax payers, such as those with very low income, were able to
submit a form known as an "R85" to HMRC, and once approved, interest was
paid gross with no deduction of tax at source.
What are the advantages of investing in cash? - CORRECT ANSWER--Liquidity.
Most investors are likely to have a need for cash at short notice and should plan
to hold some cash on deposit to meet possible needs.
-It's a savings vehicle and for the interest return that can be earned by cash
deposits.
-It's relatively safe and is not exposed to market volatility.
What are the disadvantages of investing cash? - CORRECT
ANSWER--Deposit-taking institutions are of varying creditworthiness; the risk
that they may default needs to be assessed and taken into account.
-Inflation reduces the real return that is being earned on cash deposits and could
mean the real return after tax is negative.
-Interest rates vary and so the returns from cash-based deposits will also vary.
-There is a currency risk, and different regulatory regimes to take into account,
where funds are invested offshore or in a different currency.
Markets
What are the main characteristics of cash deposits? - CORRECT ANSWER--The
return simply comprises interest income with no potential for capital growth.
-The amount invested (the capital) is repaid in full at the end of the investment
term or when withdrawn.
Are non-taxpayers taxed on interest received income? - CORRECT
ANSWER-Non-tax payers, such as those with very low income, were able to
submit a form known as an "R85" to HMRC, and once approved, interest was
paid gross with no deduction of tax at source.
What are the advantages of investing in cash? - CORRECT ANSWER--Liquidity.
Most investors are likely to have a need for cash at short notice and should plan
to hold some cash on deposit to meet possible needs.
-It's a savings vehicle and for the interest return that can be earned by cash
deposits.
-It's relatively safe and is not exposed to market volatility.
What are the disadvantages of investing cash? - CORRECT
ANSWER--Deposit-taking institutions are of varying creditworthiness; the risk
that they may default needs to be assessed and taken into account.
-Inflation reduces the real return that is being earned on cash deposits and could
mean the real return after tax is negative.
-Interest rates vary and so the returns from cash-based deposits will also vary.
-There is a currency risk, and different regulatory regimes to take into account,
where funds are invested offshore or in a different currency.
