This document provides an overview of the CeMAP Module 1 which introduces the UK financial services industry and its products. It discusses the functions of money and financial intermediation. It also describes the roles of various financial institutions like the Bank of England, retail and wholesale banks, and the influence of government regulations. Key concepts covered include risk management, types of financial organizations, money transmission processes, and taxation.
The document analyzes India's corporate bond market and suggests reforms. It notes that the corporate bond market is underdeveloped compared to the government bond market. Some key points:
- Corporate bonds make up a very small portion of India's domestic financial assets compared to other countries.
- Most corporate bond issuances are private placements rather than public issues. Trading is also over-the-counter rather than exchange-based.
- Reforms like removing taxes on corporate bonds, giving more flexibility to investors, and allowing corporate bonds to be used as collateral could help develop the market. Expanding securitization could also encourage retail investment.
The document provides an overview of securities financing transactions (SFT) regulation (SFTR) including:
1) It defines shadow banking and SFT instruments such as repos, securities lending, buy-sell backs, and margin lending.
2) It describes the Securities Financing Transaction Regulation (SFTR) which increases transparency of SFT markets in response to shadow banking risks.
3) It outlines SFTR reporting requirements, data flows, and timelines for financial and non-financial counterparties to start reporting SFTs to trade repositories.
The document discusses the Indian debt market, including government securities market and bond market. It describes the major participants which include central/state governments, banks, financial institutions, companies, and individual investors. It also covers the primary and secondary market structures, issuance and trading processes, clearing and settlement procedures, and debt instruments like STRIPS. The debt market plays a key role in India by facilitating resource mobilization and supporting government/corporate financing needs.
The document provides an overview of investment banking. It discusses the various divisions within an investment bank like corporate finance, fixed income, currencies and commodities (FICC), equities, and support functions. It explains that a typical investment banking deal can involve multiple divisions from structuring and pricing to selling the asset. The document also covers topics like the difference between commercial/investment banks and traditional investment banks, the impact of regulations like the Volcker Rule and Basel 3, and the current challenges in the investment banking industry due to the economic environment.
The document presents an exposure at default model for contingent credit lines. It discusses:
1. The importance of modeling EAD for regulatory capital requirements under Basel II.
2. A review of past literature on modeling EAD and partial drawdowns of credit lines.
3. A theoretical model that uses a portfolio of put options to model individual obligor usage, and then aggregates to higher levels using Fourier transforms and Poisson processes.
4. A numerical experiment applying the model to Moody's data on credit lines that highlights computational precision challenges at large portfolio sizes.
Tier 1, 2 and 3 Capital based on the Basel II accordNahid Anjum
The document discusses the three tiers of capital requirements under the Basel II accord:
Tier 1 capital consists of core equity and reserves, and must comprise at least 50% of a bank's total capital base. Tier 2, or supplementary capital, includes undisclosed reserves, revaluation reserves, general provisions, and various subordinated debt instruments. Tier 3 capital is short-term subordinated debt limited to 250% of Tier 1 capital required to support market risks, with a minimum of 281⁄2% of market risks supported by Tier 1 capital.
Counterparty Credit Risk and CVA under Basel IIIHäner Consulting
Financial institutions which apply for an IMM waiver under Basel III need to fullfill a broad set of requirements. We present the quantitative, organizational and operational implications and provide some hand-on guidance how to fulfill the regulatory requirements.
The document analyzes India's corporate bond market and suggests reforms. It notes that the corporate bond market is underdeveloped compared to the government bond market. Some key points:
- Corporate bonds make up a very small portion of India's domestic financial assets compared to other countries.
- Most corporate bond issuances are private placements rather than public issues. Trading is also over-the-counter rather than exchange-based.
- Reforms like removing taxes on corporate bonds, giving more flexibility to investors, and allowing corporate bonds to be used as collateral could help develop the market. Expanding securitization could also encourage retail investment.
The document provides an overview of securities financing transactions (SFT) regulation (SFTR) including:
1) It defines shadow banking and SFT instruments such as repos, securities lending, buy-sell backs, and margin lending.
2) It describes the Securities Financing Transaction Regulation (SFTR) which increases transparency of SFT markets in response to shadow banking risks.
3) It outlines SFTR reporting requirements, data flows, and timelines for financial and non-financial counterparties to start reporting SFTs to trade repositories.
The document discusses the Indian debt market, including government securities market and bond market. It describes the major participants which include central/state governments, banks, financial institutions, companies, and individual investors. It also covers the primary and secondary market structures, issuance and trading processes, clearing and settlement procedures, and debt instruments like STRIPS. The debt market plays a key role in India by facilitating resource mobilization and supporting government/corporate financing needs.
The document provides an overview of investment banking. It discusses the various divisions within an investment bank like corporate finance, fixed income, currencies and commodities (FICC), equities, and support functions. It explains that a typical investment banking deal can involve multiple divisions from structuring and pricing to selling the asset. The document also covers topics like the difference between commercial/investment banks and traditional investment banks, the impact of regulations like the Volcker Rule and Basel 3, and the current challenges in the investment banking industry due to the economic environment.
The document presents an exposure at default model for contingent credit lines. It discusses:
1. The importance of modeling EAD for regulatory capital requirements under Basel II.
2. A review of past literature on modeling EAD and partial drawdowns of credit lines.
3. A theoretical model that uses a portfolio of put options to model individual obligor usage, and then aggregates to higher levels using Fourier transforms and Poisson processes.
4. A numerical experiment applying the model to Moody's data on credit lines that highlights computational precision challenges at large portfolio sizes.
Tier 1, 2 and 3 Capital based on the Basel II accordNahid Anjum
The document discusses the three tiers of capital requirements under the Basel II accord:
Tier 1 capital consists of core equity and reserves, and must comprise at least 50% of a bank's total capital base. Tier 2, or supplementary capital, includes undisclosed reserves, revaluation reserves, general provisions, and various subordinated debt instruments. Tier 3 capital is short-term subordinated debt limited to 250% of Tier 1 capital required to support market risks, with a minimum of 281⁄2% of market risks supported by Tier 1 capital.
Counterparty Credit Risk and CVA under Basel IIIHäner Consulting
Financial institutions which apply for an IMM waiver under Basel III need to fullfill a broad set of requirements. We present the quantitative, organizational and operational implications and provide some hand-on guidance how to fulfill the regulatory requirements.
Money Market and its objectives, importance its Instruments, Zain Ali
The money market is where short-term financial assets are traded, with maturities of one year or less. It involves the buying and selling of debt instruments between banks, corporations, governments and other financial institutions. Key instruments of the money market include treasury bills, commercial paper, certificates of deposit and floating rate notes. The money market operates through various submarkets and provides short-term funding for participants to meet liquidity needs and manage surplus funds.
Basel III aims to strengthen bank capital requirements by increasing both the quality and quantity of capital held by banks. It introduces new regulations like the capital conservation buffer, countercyclical capital buffer, and leverage ratio. Basel III also focuses on improving short-term liquidity coverage through measures like the Liquidity Coverage Ratio and long-term funding stability with the Net Stable Funding Ratio. While Basel II guidelines still apply, Basel III supplements them with stricter capital standards and additional requirements around liquidity and leverage to help address the deficiencies revealed by the 2008 financial crisis.
This report analyzes the audience sentiments towards the Silicon Valley Bank collapse. The listening period was from Feb’15 – Mar’13 2023, and the analysis was conducted in the United States and in English. Twitter and news sources were analyzed.
Positive sentiments were attributed before the collapse, while neutral sentiment was dominant at 53%. Negative sentiment was at 45%, with mentions attesting to the bank's lack of attention to shareholders' returns. Discussion about SVB support towards the #science2startup symposium that was supposed to happen on 3rd May 2023 was also observed.
The report lists companies that were mentioned in relation to the Silicon Valley Bank collapse. It also provides an overview of how the collapse impacted the financial industry, with possible implications for other banks and financial institutions discussed.
In conclusion, this report summarizes key findings on audience sentiments towards Silicon Valley Bank collapse. A list of sources used in this report is included as references.
The document outlines the key principles that banks follow when developing their credit policies. It discusses the importance of safety, liquidity, profitability, and risk diversification. It also describes the components that are typically included in a bank's credit policy such as lending guidelines, targeted portfolio mixes, risk ratings, loan pricing, and collateral requirements. The credit policy is developed by the bank's Credit Policy Committee and must comply with regulatory requirements set by the Reserve Bank of India.
Liquidity risk arises from a bank's inability to meet its obligations. This document discusses various methods for measuring liquidity risk that were used before and after the 2008 global financial crisis. Before the crisis, models focused on bid-ask spreads, transaction volumes, and liquidity balances. Following the crisis, Basel III introduced two new ratios - the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) - to improve banks' short-term and long-term liquidity management. The LCR requires sufficient high-quality liquid assets to cover net cash outflows over 30 days, while the NSFR aims to ensure long-term assets are funded by stable sources over one year.
This document provides an overview and analysis of Betterment, a robo-advisor startup. It discusses the wealth management industry landscape and how robo-advisors are targeting the underserved middle-income market segment. Betterment offers automated, low-cost investment management through an easy-to-use platform. The document analyzes Betterment's value proposition, performance and funding history. It also examines Betterment's future plans to expand into institutional and retirement services, and estimates the large total addressable market for robo-advisors. Competition in the robo-advisor space is also discussed.
Treasury bills are short-term debt instruments issued by the Bangladesh government with maturities of up to one year. They are sold at a discount to their face value at maturity, with the difference representing the interest earned. Treasury bills carry essentially no default risk since they are guaranteed by the government. Major banks and non-bank financial institutions in Bangladesh participate as primary dealers in the treasury bill auction process managed by the central bank.
Basel III is an international regulatory framework that introduced reforms to improve banking sector regulation and risk management. It consists of 3 pillars - minimum capital requirements, supervisory review, and market discipline. The first pillar sets minimum capital requirements for credit, market and operational risk. It introduced capital buffers and distinguishes between Common Equity Tier 1, Additional Tier 1 and Tier 2 capital. The second pillar aims to ensure banks effectively monitor institution-wide risks. The third pillar promotes market discipline through financial disclosures.
CVA and DVA adjustments are applied to uncollateralized over-the-counter derivatives to account for expected counterparty credit losses (CVA) and the bank's own credit risk (DVA). The CVA calculation considers exposure at default, probability of default based on credit default swap spreads or internal ratings, and loss given default estimated from recovery rates. The adjustments are sensitive to changes in credit spreads and market volatility that impact uncollateralized exposure amounts over time.
The document discusses the LIBOR scandal where it was discovered that several major banks had manipulated the London Interbank Offered Rate (LIBOR) for financial gain between 2005-2009. LIBOR is a benchmark interest rate used globally in contracts worth trillions of dollars. The scandal arose when it was found that banks had falsely inflated or deflated their LIBOR submissions to profit off trades or give the impression they were more creditworthy. This manipulation impacted homeowners, municipalities, and other entities. Several banks including Barclays were fined billions and lawsuits were filed against many of the banks involved totaling over $40 billion. The scandal led to calls for reforming how LIBOR is set and regulated.
This document provides an overview of key concepts related to the financial system including:
- 8 basic facts about the global financial system such as the predominant role of banks and importance of debt over equity.
- How transaction costs, asymmetric information, adverse selection, and moral hazard shape the structure and functioning of the financial system.
- Tools used to address problems of adverse selection and moral hazard like monitoring, regulation, intermediation, collateral, and contract design.
- Examples of how conflicts of interest and crises emerge from these issues and their economic impacts.
Causes of Non-Performing Loan: A Study on State Owned Commercial Bank of Bang...Dhaka university
Research Objectives and Possible Research Questions, Classified Loan, Theories: Ethical theory, Moral Hazard, Political Power, Transaction Cost, Stakeholder, Conceptual framework, Research Position, References and Reviewed Literature
The Basel II accord establishes three pillars for regulating banks' capital requirements:
1. Pillar I sets minimum capital standards to cover credit, market, and operational risks using standardized or advanced approaches.
2. Pillar II involves supervisory review of banks' risk management strategies and capital adequacy plans. Supervisors ensure banks hold capital above minimum levels.
3. Pillar III promotes market discipline through disclosure requirements for banks to publish details of their risk exposures and capital adequacy.
The objectives of Basel II are to promote banking system safety and soundness, enhance competitive equality, and make capital requirements more risk sensitive through a more comprehensive approach to risk management.
This document discusses treasury products in India, including money market instruments like treasury bills, repo/reverse repo, certificates of deposit, and commercial paper. It also discusses capital market instruments like equity shares, preference shares, and various types of debt securities. The primary market for equity shares involves either a fixed price offer or book building process. Various entities are involved in the money market as players, including the central government, public sector undertakings, insurance companies, and banks. Pure borrowers and lenders as well as entities that are both borrowers and lenders participate in the capital market.
Counterparty Risk in the Over-The-Counter Derivatives MarketNikhil Gangadhar
This paper discusses counterparty risk that may stem from the over-the-counter (OTC) derivatives market in the wake of the 2008 financial crisis. The paper aims to assess potential losses to the financial system if one or more major banks or brokers default on their OTC derivative contracts. To estimate counterparty risk, the paper calculates potential losses under different scenarios, taking into account the exposure of the financial system to institutions and the probability that other institutions may also default if a major counterparty fails. The results are discussed in the context of ensuring banking system stability.
The document discusses the yield curve and term structure of interest rates. It defines the yield curve as the graphical depiction of the relationship between the interest rate of bonds of the same credit quality but different maturities. The yield curve is based on the term structure, which refers to how interest rates vary depending on the time period to maturity of the debt instrument. The document outlines several theories that attempt to explain the typical upward sloping nature of the yield curve, including expectations theory, liquidity premium theory, and preferred habitat theory.
Passing CeMAP exam is never an easy task. It is quite complicated and daunting as the syllabus for the exam is quite expansive and humongous. You will have to dedicate a lot of quality time and patience in order become a certified mortgage broker
Money Market and its objectives, importance its Instruments, Zain Ali
The money market is where short-term financial assets are traded, with maturities of one year or less. It involves the buying and selling of debt instruments between banks, corporations, governments and other financial institutions. Key instruments of the money market include treasury bills, commercial paper, certificates of deposit and floating rate notes. The money market operates through various submarkets and provides short-term funding for participants to meet liquidity needs and manage surplus funds.
Basel III aims to strengthen bank capital requirements by increasing both the quality and quantity of capital held by banks. It introduces new regulations like the capital conservation buffer, countercyclical capital buffer, and leverage ratio. Basel III also focuses on improving short-term liquidity coverage through measures like the Liquidity Coverage Ratio and long-term funding stability with the Net Stable Funding Ratio. While Basel II guidelines still apply, Basel III supplements them with stricter capital standards and additional requirements around liquidity and leverage to help address the deficiencies revealed by the 2008 financial crisis.
This report analyzes the audience sentiments towards the Silicon Valley Bank collapse. The listening period was from Feb’15 – Mar’13 2023, and the analysis was conducted in the United States and in English. Twitter and news sources were analyzed.
Positive sentiments were attributed before the collapse, while neutral sentiment was dominant at 53%. Negative sentiment was at 45%, with mentions attesting to the bank's lack of attention to shareholders' returns. Discussion about SVB support towards the #science2startup symposium that was supposed to happen on 3rd May 2023 was also observed.
The report lists companies that were mentioned in relation to the Silicon Valley Bank collapse. It also provides an overview of how the collapse impacted the financial industry, with possible implications for other banks and financial institutions discussed.
In conclusion, this report summarizes key findings on audience sentiments towards Silicon Valley Bank collapse. A list of sources used in this report is included as references.
The document outlines the key principles that banks follow when developing their credit policies. It discusses the importance of safety, liquidity, profitability, and risk diversification. It also describes the components that are typically included in a bank's credit policy such as lending guidelines, targeted portfolio mixes, risk ratings, loan pricing, and collateral requirements. The credit policy is developed by the bank's Credit Policy Committee and must comply with regulatory requirements set by the Reserve Bank of India.
Liquidity risk arises from a bank's inability to meet its obligations. This document discusses various methods for measuring liquidity risk that were used before and after the 2008 global financial crisis. Before the crisis, models focused on bid-ask spreads, transaction volumes, and liquidity balances. Following the crisis, Basel III introduced two new ratios - the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) - to improve banks' short-term and long-term liquidity management. The LCR requires sufficient high-quality liquid assets to cover net cash outflows over 30 days, while the NSFR aims to ensure long-term assets are funded by stable sources over one year.
This document provides an overview and analysis of Betterment, a robo-advisor startup. It discusses the wealth management industry landscape and how robo-advisors are targeting the underserved middle-income market segment. Betterment offers automated, low-cost investment management through an easy-to-use platform. The document analyzes Betterment's value proposition, performance and funding history. It also examines Betterment's future plans to expand into institutional and retirement services, and estimates the large total addressable market for robo-advisors. Competition in the robo-advisor space is also discussed.
Treasury bills are short-term debt instruments issued by the Bangladesh government with maturities of up to one year. They are sold at a discount to their face value at maturity, with the difference representing the interest earned. Treasury bills carry essentially no default risk since they are guaranteed by the government. Major banks and non-bank financial institutions in Bangladesh participate as primary dealers in the treasury bill auction process managed by the central bank.
Basel III is an international regulatory framework that introduced reforms to improve banking sector regulation and risk management. It consists of 3 pillars - minimum capital requirements, supervisory review, and market discipline. The first pillar sets minimum capital requirements for credit, market and operational risk. It introduced capital buffers and distinguishes between Common Equity Tier 1, Additional Tier 1 and Tier 2 capital. The second pillar aims to ensure banks effectively monitor institution-wide risks. The third pillar promotes market discipline through financial disclosures.
CVA and DVA adjustments are applied to uncollateralized over-the-counter derivatives to account for expected counterparty credit losses (CVA) and the bank's own credit risk (DVA). The CVA calculation considers exposure at default, probability of default based on credit default swap spreads or internal ratings, and loss given default estimated from recovery rates. The adjustments are sensitive to changes in credit spreads and market volatility that impact uncollateralized exposure amounts over time.
The document discusses the LIBOR scandal where it was discovered that several major banks had manipulated the London Interbank Offered Rate (LIBOR) for financial gain between 2005-2009. LIBOR is a benchmark interest rate used globally in contracts worth trillions of dollars. The scandal arose when it was found that banks had falsely inflated or deflated their LIBOR submissions to profit off trades or give the impression they were more creditworthy. This manipulation impacted homeowners, municipalities, and other entities. Several banks including Barclays were fined billions and lawsuits were filed against many of the banks involved totaling over $40 billion. The scandal led to calls for reforming how LIBOR is set and regulated.
This document provides an overview of key concepts related to the financial system including:
- 8 basic facts about the global financial system such as the predominant role of banks and importance of debt over equity.
- How transaction costs, asymmetric information, adverse selection, and moral hazard shape the structure and functioning of the financial system.
- Tools used to address problems of adverse selection and moral hazard like monitoring, regulation, intermediation, collateral, and contract design.
- Examples of how conflicts of interest and crises emerge from these issues and their economic impacts.
Causes of Non-Performing Loan: A Study on State Owned Commercial Bank of Bang...Dhaka university
Research Objectives and Possible Research Questions, Classified Loan, Theories: Ethical theory, Moral Hazard, Political Power, Transaction Cost, Stakeholder, Conceptual framework, Research Position, References and Reviewed Literature
The Basel II accord establishes three pillars for regulating banks' capital requirements:
1. Pillar I sets minimum capital standards to cover credit, market, and operational risks using standardized or advanced approaches.
2. Pillar II involves supervisory review of banks' risk management strategies and capital adequacy plans. Supervisors ensure banks hold capital above minimum levels.
3. Pillar III promotes market discipline through disclosure requirements for banks to publish details of their risk exposures and capital adequacy.
The objectives of Basel II are to promote banking system safety and soundness, enhance competitive equality, and make capital requirements more risk sensitive through a more comprehensive approach to risk management.
This document discusses treasury products in India, including money market instruments like treasury bills, repo/reverse repo, certificates of deposit, and commercial paper. It also discusses capital market instruments like equity shares, preference shares, and various types of debt securities. The primary market for equity shares involves either a fixed price offer or book building process. Various entities are involved in the money market as players, including the central government, public sector undertakings, insurance companies, and banks. Pure borrowers and lenders as well as entities that are both borrowers and lenders participate in the capital market.
Counterparty Risk in the Over-The-Counter Derivatives MarketNikhil Gangadhar
This paper discusses counterparty risk that may stem from the over-the-counter (OTC) derivatives market in the wake of the 2008 financial crisis. The paper aims to assess potential losses to the financial system if one or more major banks or brokers default on their OTC derivative contracts. To estimate counterparty risk, the paper calculates potential losses under different scenarios, taking into account the exposure of the financial system to institutions and the probability that other institutions may also default if a major counterparty fails. The results are discussed in the context of ensuring banking system stability.
The document discusses the yield curve and term structure of interest rates. It defines the yield curve as the graphical depiction of the relationship between the interest rate of bonds of the same credit quality but different maturities. The yield curve is based on the term structure, which refers to how interest rates vary depending on the time period to maturity of the debt instrument. The document outlines several theories that attempt to explain the typical upward sloping nature of the yield curve, including expectations theory, liquidity premium theory, and preferred habitat theory.
Passing CeMAP exam is never an easy task. It is quite complicated and daunting as the syllabus for the exam is quite expansive and humongous. You will have to dedicate a lot of quality time and patience in order become a certified mortgage broker
The Clean 9 Program can help you to jumpstart your journey to a slimmer, healthier you in 9 days. This effective, easy-to-follow cleansing program will give you the tools you need to start transforming your body today! http://www.aloe4us.com/forever-clean-9.html
The cardiac cycle consists of systole and diastole. During systole, the heart contracts and pumps blood out of the ventricles. During diastole, the heart relaxes and fills with blood. The cycle involves coordinated events in the atria and ventricles. It can be analyzed using a Wiggers diagram which plots various cardiac parameters over time, revealing phases like isovolumic contraction, ejection, isovolumic relaxation, and filling. Precisely measuring time intervals within the cycle using Doppler echocardiography provides clinical insights into cardiac function and timing.
Here is an analysis of variations in a red beetle population across three situations:
Situation 1 (Original population): The population consists of mostly red beetles, with a small percentage of black beetles. The red coloration provides better camouflage in their current environment.
Situation 2 (Environment change): The environment darkens due to increased vegetation/debris. Now black beetles have better camouflage than red beetles. Over time, the percentage of black beetles in the population will increase relative to red beetles, as black beetles survive and reproduce at a higher rate.
Situation 3 (New environment): The environment changes again, this time becoming lighter in color (e.g
Principles and Practices in Continuous Deployment at EtsyMike Brittain
This document discusses principles and practices of continuous deployment at Etsy. It describes how Etsy moved from deploying code changes every 2-3 weeks with stressful release processes, to deploying over 30 times per day. The key principles that enabled this are innovating continuously, resolving scaling issues quickly, minimizing recovery time from failures, and prioritizing employee well-being over stressful releases. Automated testing, deployment to staging environments, dark launches, and extensive monitoring allow for frequent, low-risk deployments to production.
The Language of Discovery: Designing Big Data InteractionsJoe Lamantia
The Language of Discovery: A Grammar for Designing Big Data Interactions
The oncoming tidal wave of Big Data, with its rapidly evolving ecosystem of multi-channel information saturated environments and services, brings profound challenges and opportunities for the design of effective user experiences.
Looking deeper than the celebratory rhetoric of information quantity, at its core, Big Data makes possible unprecedented awareness and insight into every sphere of life; from business and politics, to the environment, arts and society. In this coming Age of Insight, 'discovery' is not only the purview of specialized Data Scientists who create exotic visualizations of massive data sets, it is a fundamental category of human activity that is essential to everyday interactions between people, resources, and environments.
To provide architects and designers with an effective starting point for creating satisfying and relevant user experiences that rely on discovery interactions, this session presents a simple analytical and generative toolkit for understanding how people conduct the broad range of discovery activities necessary in the information-permeated world.
Specifically, this session will present:
• A simple, research-derived language for describing discovery needs and activities that spans domains, environments, media, and personas
• Observed and reusable patterns of discovery activities in individual and collaborative settings
• Examples of the architecture of successful discovery experiences at small and large scales
• A vocabulary and perspective for discovery as a critical individual and organizational capability
• Leading edge examples from the rapidly emerging space of applied discovery
• Design futures and concepts exploring the possible evolution paths of discovery interactions
Most people know what they need to do to live a healthy lifestyle, but very few people adopt healthy behaviors. Why? How do we change? Watch this presentation by Lorie Eber, Wellness Coach and get the answers.
Swift is a multi-paradigm programming language developed by Apple for iOS, macOS, watchOS, and tvOS. It was inspired by Objective-C, Rust, Haskell, Ruby, Python, C#, CLU, and other languages. The document discusses Swift's history, principles, syntax including variables, constants, data types, functions, closures, and control structures. It provides code examples and explanations of Swift's main features.
Basics of radiation and production of x raysdbc9427
Electromagnetic radiation, including x-rays, is produced when electrons are accelerated and decelerate, such as when they collide with the target material in an x-ray tube. In an x-ray tube, a stream of electrons is emitted from a heated cathode and accelerated toward the anode. When the electrons collide with the anode, they cause the emission of x-rays. This results in a spectrum of x-rays known as bremsstrahlung radiation. Some electrons may also eject inner shell electrons from the anode atoms, producing characteristic x-ray lines. Modern x-ray tubes use a rotating anode to dissipate heat and allow higher outputs.
The Department of Environment has approved this faulty EIA submitted by the Power Development Board. The project would be implemented by the governments of Bangladesh and India.
This document provides definitions for 5000 academic words. It advertises an audio program that teaches these words in only 15 minutes per day for 4 weeks. It includes a free memory course. The definitions provided are brief and include parts of speech and examples of usage for some of the words.
The document provides an overview of the banking industry in India. It discusses the types and functions of banks in India, including commercial banks which are divided into retail banking, treasury banking, and wholesale banking. It outlines the history of banking in India from the 4th century BC through phases of nationalization. It also discusses the key regulators of the financial sector in India and provides data on the growth and performance of the banking system. Finally, it categorizes the different types of banks operating in India including private, public, foreign and cooperative banks.
The document discusses engaging students with technology and rethinking education. It addresses how technology can support literacy, community, and assessment. Some key ideas include using technology to personalize learning, connect students in multiple ways, and make assessment a conversation rather than just scores on a spreadsheet. The role of joy in education is also discussed.
162 flashcards covering all of the formulas, concepts and strategies needed for the quantitative section of the GMAT. If, at any time, you need more information or instruction, each flashcard is linked to a video lesson (from GMAT Prep Now’s GMAT course)
Like this slidedeck? I write books too! Please check out my newest book Face2face - more info here - http://www.davidleeking.com/face2face
Want to know what trends web designers are thinking about for 2014? Here you go! This presentation has a list of 15 hot web design trends that designers should consider for 2014.
Here's a blog post that goes along with this presentation - http://www.davidleeking.com/2013/10/31/web-design-trends-for-2014/
This document discusses international trade and comparative advantage. It begins by introducing Paul Krugman's support for free trade and comparative advantage. It then discusses concepts like specialization based on comparative advantage, gains from trade including increased competition and economic growth. The document uses an example to illustrate how two countries can both benefit from specializing in different goods based on their relative costs of production. It acknowledges some of the assumptions and limitations of comparative advantage theory. Finally, it discusses patterns of exports for different countries and how the UK's comparative advantage has shifted over time.
The document defines key terms related to industrial disputes and the Industrial Disputes Act of 1947 in India such as industrial dispute, workman, wages, and public utility service. It outlines the objectives of the act to promote amity between employers and workers. It describes features such as encouraging arbitration, setting up works committees, and empowering government authorities to resolve disputes. Finally, it explains the various authorities established under the act to handle different types and levels of disputes, such as conciliation officers, boards of conciliation, courts of inquiry, labour courts, and national tribunals.
Basel iii a comprehensive regulatory response february 2011Maan Barazi
dr Amine Awad in the UAB conference - february 2011 presents views on Reasons behind the International Financial Crisis
Major Components of Basel III
Lebanon’s Action Plan to fully implement Basel III
The Reserve Bank of India has sole authority to issue currency notes with the exception of one rupee notes. As the central bank, it manages the banking needs of the government and holds the cash reserves of commercial banks. It also oversees the country's foreign currency reserves and provides support to commercial banks during financial difficulties. The clearing of accounts between commercial banks has become an essential function of the Reserve Bank, and it controls credit in accordance with government economic priorities.
Bank sources of funds include capital notes and bonds, as well as bank capital accounts. Bank capital accounts serve as an equity base for deposits, and act as a residual source of funds from shareholders that is used to absorb losses and protect depositors.
Here are the key points about the evolution of banking in the USA:
1. Early banks (1791-1832) required special permission from state governments to open and operate. A central bank was established in 1791.
2. From 1832-1864, state governments took over bank supervision. Banks issued their own currencies which were supposed to be convertible to gold/silver. Over 10,000 different bank notes circulated.
3. 1865-1914 was dominated by National bank notes as the main currency until Federal Reserve notes in 1914. The 1907 financial panic caused an economic depression.
4. 1929-1933 saw the onset of the Great Depression. Over 1,000 US banks failed by late 1931.
Mortgage-backed securities (MBS) are created when mortgages are pooled together and sold as securities. There are two main types of MBS: mortgage pass-through securities, where payments are passed through to investors, and mortgage-backed derivatives like CMOs that create multiple classes of securities. Government agencies like Fannie Mae and Freddie Mac purchase mortgages from lenders and pool them to issue MBS to expand the secondary mortgage market. Yields on MBS can be calculated in different ways, such as monthly cash flow yield based on interest and principal payments, or bond equivalent yield which compares the yield to a bond of similar maturity.
The document provides information on the Bank for International Settlements (BIS) and the Basel I accord. It discusses that BIS was established in 1930 by central banks and continues to serve as a forum for international cooperation on banking supervision. Basel I, released in 1988, was the first international banking accord that set minimum capital requirements for credit risk. It established risk weights for various types of assets and exposures. However, it only addressed credit risk and was later improved by Basel II and III.
The document outlines the major duties and functions of central banks, including conducting monetary policy, supervising financial institutions, and maintaining financial stability. It describes the tools that central banks use to implement monetary policy, such as open market operations, reserve requirements, and the discount rate. The goals of monetary policy are also discussed, including price stability, economic growth, and maintaining stable interest and exchange rates.
This document provides an overview of cat bonds, which offer an alternative capacity source for natural catastrophe insurance. Cat bonds transfer catastrophe risk to the capital markets through securitization. Since 1997, 141 cat bonds have been issued totaling $27 billion in risk limits. The market started growing significantly after major hurricanes and earthquakes in the 1990s. Investor interest continues to rise due to attractive yields and increased understanding of natural catastrophe risk. Cat bonds and other insurance-linked securities may prove useful for risk management in China and other parts of Asia in the future.
The document defines various financial and economic terms, including:
- AAA-rating refers to the best credit rating indicating minimal risk of default.
- Annual general meetings (AGMs) allow shareholders to vote on issues such as dividends and board appointments.
- Assets provide income or value and include fixed assets (lasting over 1 year) and current assets that can be easily converted to cash.
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2. UNIT 1
UNIT 1
INTRODUCTION TO
THE FINANCIAL SERVICES,
ENVIRONMENT & PRODUCTS
3. SECTION 1: THE UK FINANCIAL SERVICES INDUSTRY
1.1 The Functions of the Financial Services Industry
Bartering = exchange goods and services
- Problem: Size of some transactions unmatched
MONEY (£££) :
Why use money?
1) Medium of exchange = Separate commodity to exchange for products
2) Unit of account (a/c) = Measure product value
Acceptable to
Sufficient all parties
in quantity
5 properties
Divides to small units
Of £££
Portable Store of value = can be
saved and used later
4. Means of achieving otherwise
Convenience difficult objective
e.g. current a/c e.g. mortgage
Aim of Financial
Services Industry
Protection from risk
e.g. insurance Money from lenders
to borrowers
5. 1.
1.
1
1.1.1 Intermediation
Surplus sector = cash rich
- lend surplus fund to earn money
(1) Low interest rate (IR)
given Money lent to
(2)-(1)
Financial Intermediary e.g. banks & building
Intermediaries
societies (socs)
profit margin
(2) High IR Money lent to
charged
Deficit sector = fewer liquidity
- pay money to anyone willing to lend
Disintermediation = “cut out middle man”
e.g. company (Co.) raises funds from public by issuing shares
6. Why use the financial intermediary?
Problem without … Solved with …
Geographical Locating lenders & borrowers Easy to find
location
Aggregation Potential lender might not have Retail deposits are low, whilst loans are high
enough - aggregate small deposits
Maturity Borrower may need fund longer Most deposits are short term, whilst loans for
transformation than lender willing long term
(e.g. mortgages: 20-25yrs)
- range of deposit a/c – not all depositor
funds w/d at same time
Risk Individual depositors reluctant to Allow spreading risk over variety of
transformation lend all savings to individual/Co. borrowers … if a few fail to repay-
intermediary absorbs loss
7. 1.1.2 Risk Management
Insurance = “means of shifting burden of risk by pooling to minimise financial loss”
Depositors
Small deposits made by
each individual depositor
FUND
Large payment out from insurance fund
e.g. car insurance payments for car accident
caused by a depositor from this insurance fund
1.1.3 ‘Product sales’ intermediaries
- Bring product providers (e.g. banks/insurance companies) & potential customers
E.g. Mortgage advisers, financial advisers, insurance brokers
1.1.2, 1.1.3
8. 1.2 Financial Institutions
<1980s: more defined boundaries between different financial organisations
E.g. retail banks, wholesales banks, life assurance companies etc
NOW: distinction blurred/disappeared
E.g. bancassurance = banks owning insurance companies
1.2.1 The Bank of England (BOE)
- UK central bank
(Federal Reserve – United States)
(European Central Bank – Europe)
2
1.
9. Makes funds available when banking system
Manage UK gold & foreign short of liquidity – maintain confidence
currency reserves for Treasury
Financial cover ஃ when gvt in:
Foreign
Lender of - Deficit …
exchange BOE make automatic loan to
market last resort
gvt
Issuer of - Surplus …
bank notes BOE may lend out as part of its
Banker general debt management policy
to
Regulating banking sector
Functions government (gvt)
NOW: FSA (1/6/98) of BOE
Previously in
charge of
Banker
to banks
Managing new issues of gilt-edged Advisor
securities (gilts) to gvt All major banks have a/c at BOE for:
- deposit/obtain cash
NOW: Debt Mgt Office (Treasury) … - settling clearing
BOE avoids conflicts of settling IR - other transactions
… high influence on IR
Help formulate monetary policy (since 5/97) &
full responsibility for settling IR
Bank Monetary Policy Committee (MPC)
- meet monthly
- set base rate to ensure gvt inflation target met
10. 1.2.2
Proprietary Organisations
Limited (Ltd.) Co. share Co. profit = dividends
ஃ owned by shareholders: contribute to decisions on how Co. run
Mutual Organisations
Not Co. ஃ no shareholders
Owned by members
Proportion of Member type
Some demutualised (i.e. became E.g. mutualisation
proprietary organisations)
Small With-profit policyholders
e.g. Norwich Union, Life assurance Co.
Standard Life Building society Fully
Friendly society Fully Depositors & borrowers
Since Building Society Act 1986 building soc could demutualise (convert into banks ஃ Ltd Co.)
- need approval by members
readily given as members get a high number of free shares
Problem: Carpet bagging = opening a/c in building soc to get subsequent shares
Solution: building soc protect long-term members by restricting opening of new a/c
1.2.2
11. 1.2.3
Retail Banking
Common services (e.g. deposits, loans) to personal & corporate customers
E.g. High-street banks, building socs, supermarkets - Tesco
1.2.3
Wholesale Banking
Raise money via wholesale money markets
where financial institutes & other large Co.s buy & sell financial assets
Top up deposits from branch networks as required
e.g. financial houses
main retail banks e.g. if bank has opportunity to make substantial
building soc profitable loan but doesn’t have adequate deposit
ஃ can raise money quickly on interbank markets
Can raise up to 50% of their
liabilities via wholesale banking
London interbank offered rate (LIBOR) - Includes ~400 banks
= IR charged - recycle surplus cash held in banks
- fixed daily (between banks, specialist money
brokers)
- reference rate for corporate lending
‘LIBOR + specific margin’
- Main difference between retail & wholesale banking was in size – NOW: less distinction
12. 1.2.4 Money Transmission & Clearing Process
Cash
Branch Internet includes
method Cheque clearing
Direct debit
Automatic teller Telephone Credit &
machine (ATM) Standing electronic
orders transfers
1.2.4.1 Current a/c
- Basis of money transmission for most people
- Money paid in & out by cash, cheque, electronically, overdraft
Changes to these a/cs overtime:
‘No frill a/c’, where customers paid fee for service bank provided
Due to high competition: a/cs had interest & benefits, no fees
- But still 1.5 million households not have current a/c
ஃ New type a/c: simple, basic ஃ encourage more people to open a/c including those on:
pension state benefit
1.2.4
Features: cash card, direct debit but no cheque book or overdraft
13. 1.2.4.2 Clearing
= process, at the end of each business day, of settling between banks the
transfer of £££, due to customers using cheques, direct debit, debit card etc
ஃ transfer of net figure from 1 bank to another via a/c in BOE
- Due to automated transfer methods: cheque volume
- Most banks have clearing system with other banks
- those which do not: require an agency arrangement with a clearing bank
Electronic, same day interbank transfers Association of major banks &
for high-value wholesale payment building socs which
co-ordinates UK clearing services
Clearing House Automated Name changed from
Clear cheques Payment Sys (CHAPS) Bankers’ Automated
& paper credits Clearing Services Ltd (BACS)
3-day Association for payment Operates bulk electronic
process clearing (e.g. direct debits)
& clearing services (APACS)
Cheque &
credit card Co. Voca Ltd
14. 1.3
1.3 The Role of Gvt
1.3.1 Influence of the European Union (EU)
- UK member since 1973
- not adopt euro ஃ UK has own currency & monetary policy
BUT influenced by EU policies & laws including financial services
- EU parliament & Council of ministers act on suggestions from EU Commission
to adopt EU laws
The laws can be …
1) Regulations - general application
- entirely binding
- apply to all states (unless specified otherwise)
2) Directives - objective must be achieved in specific time
- But how it is achieved is up to national authorities in each state
15. 1.3.2 Regulations in UK
Level Effect
1st EU law Impact UK financials industry
2nd Acts of Parliament Set laws via subsidiary law (statutory
instruments)
3rd Regulatory bodies Monitor regulation & issue rules on how
rules are to be met
e.g. FSA
4th Financial institutes & Ensure financial institutes themselves
internal departments are operating legally & competently
5th Arbitration schemes Customer complaints referred to
e.g. Financial Ombudsman
Service
1.3.2
16. 1.3.3 Taxation
Raise revenue
Why tax?
Control money supply
- If gvt general tax … less £££ for investment & loan repayment
… less attractive for investors to invest
2 levels of tax on investments (e.g. unit & investments trusts):
1) fund managers taxed
2) investors taxed
1.3.3
17. 1.3.3.1
Country individual treats as home, even if they live for a time in another country
Domicile Domicile of origin = domicile of individuals father (or mother if unmarried) on date of their birth
Domicile of choice = change to different domicile
- Achieved by putting permanent roots in a different country & severing previous
Effects Domicile UK? Inheritance tax
Inheritance tax Yes (birth/live 17 of Any assets worldwide
previous 20 yrs in UK)
No Only on UK assets
Individual present for at least 183 days/tax yr in UK
Income tax – on worldwide (un)earned & (un)brought to UK
Residence Effects
Capital gains tax (CGT) – on worldwide gains
UK has double taxation agreement with other countries ஃ an individual is not
taxed 2 times on the same income/gains
18. 1.3.3.2 Income Tax
= liability based on income received in a tax/fiscal year (6 Apr – 5 Apr next year)
Process of deciding income tax:
Budget delivered (each yr) containing taxation proposal
Finance Bill published
Approved by parliament & receives Royal Assent
Law made: new Finance Act (main law: Income & Corporation Taxes Act 1988)
R85 form – filled to declare individual (children & adults) does not need to pay tax & can
received interest from certain deposits gross, without tax deduction at source
- Children’s income from settlement by parents is treated as parents income for tax purposes
ஃ cannot set children’s unused allowance against this income
19. Income taxed NOT income taxed
Employment salary inc bonus, commission, Redundancy pay & other losses (unless >£30000
taxable benefits ஃ excess tax)
Pensions & retirement annuities Interest on National Savings Certificate
Profits from trade/profession Capital part of purchase life annuity
Tips ISAs & PEPs
Interest on banks & building soc deposits Gift Aid payments
Dividends from Co.s Proceeds qualifying life assurance policy
Income from trusts Gambling profits
Income from gvt & local authority stocks Lottery prizes
Rents & other land & property income Wedding presents & presents from employer
Value of benefits (if total income + benefits > Retirement & redundancy money
£8500) – (Co. cars – tax based on CO2
emission rating)
Education grants to full time students
War widow pension
Some social security benefits
Housing grants
Interest on tax rebate
20. 1.3.3.2.1 Allowances
Personal allowance = income amount received each yr before tax
- Applies to all UK residence incl. children
- Not transferable to anyone else
(2009/’10) £6,475
£9,490 – people >65+ yrs
£9,640 – people >75+ yrs
For people >65yrs with income exceeding specific figure (£22,900 - ’09/10), personal allowance
reduces £1 every £2 income over threshold (not reduce below under-65 allowance)
Blind Person’s allowance
(’09/10): £1,890
- transferable to blind/non-blind spouse
Married couples allowance
- Applied before April 2000
(now withdrawn, unless 1 spouse is born before 6/4/’35)
21. Gross income – Pension contribution – Allowable expense Taxable income
Scheme set by employer/ to Cost carried out by
personal/stakeholder pension employment, allowances
Band Taxable income (£) (’09/’10) % taxed
Earned income Investment income Not apply if individual non-
savings taxable income is
Lower 2,440 10 >£2,440.
Basic 37,400 2,441 - 37,400 20
Higher > 37,400 > 37,400 40
E.g. 1 Married man aged 30 earns £20,000pa E.g. 2 A single woman aged 40 earns £50,000pa
(’09/’10) building society income, & no other (’09/’10). She is employed and has personal
income. His has a personal allowance of £6,475 allowance of £6475
Gross income: £50,000
Gross income: £20,000
Personal allowance: £6,475
Personal allowance: £6,475
Taxable income: £43,525 (50000-6475)
Taxable income: £13,525 (20000-6475)
£2,440 at 10% £244 (2440*0.1)
£2,440 at 10%: £244 (2440*0.1)
£34,960 (37400-2440) at 20%: £6,992 (34960*0.2)
£11,085 (13525-2440) at 20%: £2,217 (11085*0.2)
£6,125 (43525-37400) at 40%: £2,450
Total taxable: £2461 (244+2217)
Total taxable: £9,686
(244+6992+2450)
22. - Most investment income taxed at source at basic rate: 20%
Non-taxpayers get tax-free interest (by signing declaration)
Higher taxpayers pay further 20% of gross interest via tax return/coding
Net rate
Gross rate =
0.8 (100%-20%)
- Share dividends – receive net of nominal 10% tax
Satisfy lower & basic rate taxpayers
Higher taxpayer pays further 22.5% (32.5% total)
Non-taxpayers can NOT reclaim 10%
Net rate
Gross rate =
0.9
23. 1.3.3.2.2 Employees
- Income tax paid via pay-as-you-earn (PAYE) system
– employers calc using tables by HM Revenue & Customs (HMRC)
How calc?
Employers supplied with tax code number for each employee
Amount of ‘free’ pay incl
P40 given to employee by employer in Apr each yr allowances, benefits etc
Previous yr:
Tax deduction, & over/under payments
NI contribution, P45 to employee & HMRC by employer when leaving job from previous yr
tax code
Given to new employer – for information about tax deductions
1.3.3.2.3 Self-Employed (inc business partners)
Total Revenue - total expenses - Capital allowance => Income tax paid to HMRC
based on net profits
- Self-assessment rules: taxpayer calculate own liability & sends it to the tax authorities for approval
/Accountant/HMRC
24. 1.3.3.2.4 Classification of Type of Income
Before: Classified under schedules A, D, E & F – abolished
Now:
Income Tax (Earnings Income Tax (Trading &
& Pensions) Act 2003 Other Income) Act 2005
Covers incomes in
Covers income previous in Schedule E: other schedules
- Employment income
- Pensions
- Taxable social security benefits
Part 2 Part 3 Part 4
- Trading income - Property income - Savings & investment
(from self employment) income incl interest
- Dividends
25. 1.3.3.2.5 Income taxed at Source
- HMRC collects income tax at source from person making payment, not the recipient
- Tax deducted at basic rate
- Further liability at higher rates collected by direct assessment on taxpayer
E.g. in PAYE – employee receives net of tax
1.3.3.2.6 Tax Paid Investment Income
- Investment income taxed at source
- Recipient has no further liability (unless higher rate taxpayer)
- Non-taxpayers reclaim by completing tax return
Interest from bank & element of certain
building soc deposit life annuities
loan stocks
fixed-interest E.g. of investments Income from trusts
loans to Co.s income taxed at source & settlements
debentures
Interest from certain
Dividends from UK Co.s finance Co. deposits
(not income tax liable but tax credit) Distributions
from unit trusts
26. 1.3.3.2.7 Taxation of Proceeds from Life Assurance Policy
- Investors premium paid to Co.s life fund which given to different assets e.g. property, shares
- Basic rate tax on income (e.g. dividend, gilt interest, rental income)
- 20% capital gains tax(CGT) on profit when fund sold
- taxed at source
- Higher rate taxpayer further liability 20% of gain (ஃ total: 40%)
for non-qualifying policy
Qualifying policy rules:
1) Premiums paid ½-yearly / ¼-yearly/yearly, monthly for at least 10 yrs
- if cease before 10yrs or ¾ of terms agreed – non-qualifying
2) Premium in 1 yr must not exceed twice the premium in any other yr or 1/8 of
total premiums payable
3) Sum paid to death must be at least 75% total premiums payable
27. 1.3.3.2.8 Taxation of Proceeds from Unit Trust
Collective investment under trust deed
- Income generated via share dividend
- Unit holders receive net of tax
- ஃ no liability to basic rate taxpayer
- further liability to higher rate taxpayer
- Gilt interest & dividends on foreign shares do not pay UK tax
Pay basic rate tax Pay corporate tax
- Exempt from CGT, although unit holder maybe liable if sell at profit
28. 1.3.3.3 National Insurance (NI)
= tax on earned income
Class Rate
1 - 11% on earnings between primary threshold (£110/wk (’09/’10)) to upper limit (£840/wk (’09/’10))
- Reduced level of 1% on earnings above upper limit
- Employers pay 12.8% on employees earning above lower limit = secondary threshold
(£110/wk (’09/’10)) – but no upper limit
- Lower contribution if employees contracted out of state 2nd pension (S2P)
2 - Self-employed flat rate £2.40/wk- if profit exceed lower threshold (£5,075/wk (’09/’10))
- Paid monthly direct debit
3 - Voluntary contributions by people who otherwise not allowed full basic pension or
sickness benefits (e.g. career break, working abroad)
- Flat rate £12.05/wk (’09/’10)
4 - Additional contribution by self-employed in annual profits between minimum & maximum level
- Paid to HMRC ½-yearly with income tax
- Rate: 8% profits between £5,715 - £43,875 + 1% profits > £43,875
29. 1.3.3.4 Capital Gains Tax (CGT)
= paid on net gain on disposal of physical & financial assts inc shares, unit trust
Sale, transferring/giving asset, received compensation for loss/destruction
CGT not paid in some situations :
Gains on qualifying life
assurance policies Property disposed due
Gilts to death (get inheritance tax)
disposed of by owner
Main private residence National Savings certificate & PAYE scheme
Ordinary private E.g. Premium bond & lottery winnings
motor vehicles
Personal belongings, antiques, Foreign currency for personal expenditure
jewellery etc – if <£6000 ISA
National, historic, PEP (personal equity plans)
scientific gift that
is nations interest
30. - If a loss is made on asset when it is disposed, individual can offset it against gains elsewhere
- How?
1st: Offset loss against gains in the year the loss occurred
Then: Residual loss maybe carried forward to future
years
But capital loss can not be carried back to a previous year
- Tax payable on net gains in tax year
(after deducting allowable capital losses in same/previous year)
- Each individual has annual CGT allowance (£10,100 (‘09/’10))
level of gains allowed in year before CGT start
incl. to trustees of mentally disabled & personal representatives: £5,050 (’09/’10)
- can not carry forward to next year if unused
- Capital loss can be carried forward but annual exemption can not
ஃ losses brought forward to extent required to reduce gain to level of annual exemption
residual losses then carried forward
31. 1.3.3.4.1 Calculation of CGT
Rules:
1) Costs of purchase can be added to the purchase price, & selling costs deducted from sale price
2) Cost of improvements to assets can be treated as part of purchase price (not incl.
maintenance & repair cost)
3) Capital gains before 31/3/82 have different tax – value on 31/2/82 substituted for actual purchase price
Gains – Annual CGT Allowance – Losses Taxable Gains
Subject to 18% tax
- Low rate of 10% on the first £1million of cumulative gains from disposal of trading businesses &
shares = Entrepreneur’s relief
To claim this relief: individual must own at least 5% of ordinary share capital of the
business (most property letting businesses are exempt from this relief)
32. E.g. Vanessa brought £50,000 units in unit trust ( May’04) & sold for £80,000 ( June ‘08).
At the same time she sold £10,000 shares that she brought for £12,000. What CGT
will she pay?
- Gain on unit trust: £30,000
- Annual allowance: £10,100 (9,600)
- Loss on shares: £2,000
- Taxable gain: £17,900 (30000 – 10100 – 2000)
- Tax at 18%: £3,222
- Problem: CGT is due on the whole gain in the year when gain realised, even if the gain made was
in a longer period, but only 1 annual exemption against years worth of gain
- some shareholders & unit-trust holders sell holding each year & then repurchase the
following day ஃ smaller gain covered by that years exemption = bed & breakfasting
Out-lawed in ’98 Budget: shares & unit trusts sold & repurchased within 30 days treated as if
these 2 transactions did not occurred
33. 1.3.3.4.2 Roll-Over Relief (ROR)
= Assets disposed of are replaced by other business assets, on which ROR claimed
ஃ instead of CGT on original disposal, deferred until final disposal made
- Replacement asset must be brought between 1 year before to 3 years after sale of original asset
- Relief claimed up to the lower of either the gain or amount reinvested
1.3.3.4.3 Hold-Over Relief
= CGT on gain of gift of certain assets can be deferred until recipient disposes
- assets used by donor in his/family Co./group trade
- shares in transferor’s personal Co./unlisted trading Co.
- agricultural property – relief from inheritance tax
- assets where immediate charged inheritance tax
1.3.3.4.4 Payment of CGT
- CGT charged on gains from disposal in 6 Apr to 5 Apr next year
- CGT paid on 31 Jan at end of the tax year when gains realised
- Details of chargeable assets disposed during tax year included in individuals tax return
34. 1.3.3.5 Inheritance Tax (IHT)
= Tax on estates of deceased, on…
1) On 40% of the amount estate exceeds nil-rate band (£325,000 (’09/’10)
- From 9/10/’07: surviving spouses/civil partners can increase their own nil-rate band
by the proportion of un-used nil-rate band from the earlier death of their spouse/partner
2) Potentially exempt transfers (PETs) = gifts made during persons lifetime
-Tapering relief (scaling down) over final 4/7yrs before death
80% (4th yr), 60% (5th yr), 40% (6th yr), 20% (7th yr) of max (if longer ஃ exempt)
- some lifetime gifts to Co.s, organisations, trusts not PETs but chargeable lifetime transfers: tax
decreased rate of 20% immediately due & full tax if donor dies within 7yrs (tapering relief)
Donation to charity,
political party, to nation
Small gifts up to £250
per recipient in each tax yr Transfer bet spouses during life & death
Exemptions
Gifts on regulated basis from income Wedding gifts up to £1000 (increased
which not affect donors standard living to £5000 for gifts from parents & £2500
from grandparents
Up to £3000pa for gifts not covered
by other exemptions. Any remainder
can be carried only forward 1yr
35. 1.3.3.6 Value Added Tax (VAT)
= Indirect tax on sale of most goods/services in UK: 17.5%
Exemptions: financial transactions (loans, insurance) (not incl financial advice)
supply of health & education goods: not technically exempt as they have zero-rated tax
subjects to VAT but current rate is 0%
- Business regulated for VAT if annual turnover > £68,000 (’09/’10)
Adv: - VAT paid on business expenses can reclaimed
Disadv: - increase expense to customers (charged VAT)
- increase administration (collecting, accounting & paying VAT)
1.3.3.7 Stamp Duty
= Tax paid by purchaser with respect to certain transaction e.g. security, land
- Tax imposed on documents that give effect to the transaction – e.g. conveyancing of property
- Documents need stamping within a certain time period, else transfer not accepted
- % of purchase price
Stamp Duty Reserve Tax: on securities = 1.5% of market value for bearer instrument
shares = 0.5%
Financial instruments e.g. bonds, where name of owner not recorded ஃ
possession of certificate only proof of ownership ஃ title physically passes
From 13/3/’08: Transactions in a Stamp Duty Reserve Tax charge of < £5 are exempt
36. -Stamp Duty Land Tax - dependent on property value
Stamp duty rate (%) Purchase price of the property (£)
0 < 125,000 (150,000 in spec disadvantaged areas)
1 125,001 – 250,000
3 250,001 – 500,000
4 > 500,000
1.3.3.8 Corporation Tax
= Paid by limited Co.s on profit – within ‘accounting period’ (financial yr)
Trading profits
Also paid by: 1/4/08 – 31/3/09
Capital gains
clubs, societies, associations, trade
& housing associations & by co-operatives Income from lettings
Interest on deposits
NOT: conventional business
partnership, ltd liability partnership,
self-employed individual
37. - Co.s in UK pay corporate tax on worldwide profits
Co.s elsewhere only pay corporation tax on profits from their UK-based business
Co.s rate Profit (£) Rate When due
Small 0 – 300,000 21% ’09/’10 9 months after end of relevant accounting
period
Marginal 300,001 – 1.5 mil Marginal 9 months after end of relevant accounting
period
Main > 1.5 mil 28% ’09/’10 Quarter-yearly instalments half–way
through accounting period
1.3.3.9 Withholding Tax
= tax on income levied at service before that income received
E.g income tax on UK employees
- Tax levied, in specific countries, on income ((un)earned) by non-residents
ஃ income not leave country without being taxed
E.g. UK withholding tax of 20% on earnings of non-resident entertainers & sports people
- UK has double taxation agreement with 100 countries ஃ not taxed twice
38. 1.3.4
1.3.4 Economic & Monetary Policy
Microeconomic objective = concern individual firms/consumer
Macroeconomic objective = long-term objectives economic policies gvt trying to achieve
- economic aggregates = total picture of economy as whole
Balance of payment Unemployment Price stability Satisfactory
equilibrium economic growth
Gvt tries to expand economy Need low, controlled
Foreign currency: so labour, land & capital inflation rate
expenditure = receipt Economic output is growing in
real terms over time &
Rising level of prices: increasing standard of living
£££ into country = £££ out Rate of money supply>
- Linked to exchange rate growth of good/services UK economy grew fast in 2000
- Gvt aim: currency price stable – now onset of recession
(0 inflation is undesirable - 2006: annual growth of gross
ஃ not so … unstimulated investment) domestic product (GDP) at 3%
- high as to reduce export
- low as to increase inflation Measure of value of goods & services produced
within country over specific period of time
- Affects US & EU economy
39. - The four macroeconomic objectives work in 2 pairs:
E.g if unemployment growth
inflation improve balance of payment
- Impossible to achieve all 4
E.g unemployment inflation
- UK economic policy (until recently) was ‘stop-go’ = gvt cause fast and slow economic growth
Employment
Growth Inflation
Inflation Growth
Unemployment
- Gvt aim: - aggregate demand in line with productive economic capacity
- low inflation rate for long periods of sustained economic growth
average annual rate of 2% (max divergence 1% either side)
measured by consumer price index (CPI)
replaced retail price index (RPI)
derived in same way as harmonised index of consumer
prices (HICP): used in eurozone
40. How do the gvt keep inflation regulated?
1) 1.3.4.1 Monetary Policy – acts on money supply & IRs
History: Monetary policy was 2nd place to fiscal policy, as thought fiscal policy had more effect
on demand, whilst monetary policy just fine tunes economy
1979: monetary policy more important in controlling economy
Method: (by monetary economists)
1) Money supply Inflation To control increasing £££ supply
must control amount credit creation
credit creation by banks By manipulating IR* – influence demand for credit
2) Bank restrict amount lend * policy in UK
3) Borrowers required to provide minimum cash deposit to make purchase
- Monetary Policy Committee decides IR BOE lend to banks/other institutes = Repo rate (Base rate)
- Change IR? direction? how much?
Treasury can give BOE determines other IRs charged
instructions in ‘extreme Announce decision immediately to borrowers & paid to lenders
economic circumstances’
Minutes published 2 weeks later
41. 1.3.4.1.1 Impact of IR changes
- Banks base rate is a variable rate – as it follows BOE IR
- Until recently, most IR on loans were variable
- Disadv: (especially in large transactions e.g. mortgage)
Income is not variable ஃ difficult for borrower as:
Sudden IR borrower unable to make repayment repossession
- Due to high, active wholesale £££ market – lender get amounts at fixed rate
Pass rate to borrowers & others
- Disadv:
borrower lose out if variable rate lowers below the fixed rate
penalty if pay off mortgage within fixed rate period (protects lender)
arrangement fee – charged by lender for reserving sufficient fund at fixed rate
- In UK: fixed rate mortgages – short initial period
variable rate – remainder of term
- Other EU countries: longer fixed term
42. 2) 1.3.4.2 Fiscal Policy (MP) – manipulate finances of public sector … influence
money supply & economy activity
Gvt, local authority, public corporations
- Public sector provide national/regional services e.g. education, healthcare, transport
Funds from private sector
Funds from individuals & firms via (in)direct tax
- Changes in public & private sector affect the economy
- Outcomes:
Budget … Amount of tax … £££ to Result on economy
public sector spending
Balanced = - Neutral
Surplus > - Employment
- Money supply
Deficit < - Employment
- Money supply (inflation)
Gvt borrow to finance the deficit
Public Sector Net Cash Required (PSNCR)
= cash measure of public sector short-term net financing required
43. - Aim of gvt: Increase sustainable level of growth & employment
- Fiscal policy maintains sound public finances over the medium term
2 fiscal rules:
1) Golden rule = gvt borrow to INVEST, not fund current spending
2) Sustainable investment rule = public sector net debt, as proportion of GDP, is held
over the economic cycle at a stable level
- Fiscal policy outlined by gvt Chancellor of Exchequer in the annual Budget (March)
Pre-budget report – allow public to consult on policies Revenue plans
(incl individual & Co tax)
Gvt planned
expenditure
- Monetary policy – acts on economy as whole
- Fiscal policy – can have macroeconomic & microeconomic effects & target specific parts of economy
E.g. 1) Tax incentives to manufacturing Co.s to boost employment
2) Gvt grants to firms that move to underdeveloped geographic areas
44. LOOK AT APPENDIX (I)
1.3.5 Welfare & Benefits 1.3.5
- UK gvt provide assistance in need
- Lots of critics, as it is expensive. But the system is envy of other countries
- High number of benefits, but low amount £££ ஃ benefits are only to get individual out of extreme poverty
1.3.5.1 Support for People on Low Incomes
(= specifications)
1.3.5.1.1 Working Tax Credit
= Top up of earnings on low incomes for disability/ cost of qualifying childcare
People (16+yrs) with children, work 16> hrs/wk
People (25+yrs) with no children, work 30 hrs/wk
- 16+yrs, work 16yrs/wk, disabled
- they/partner 50+yrs & work 16 hrs/wk & return to work after out-of-work benefit
1.3.5.1.2 Income Support
- Tax free benefit
- Not dependent on claimant having paid NI contributions
Income lower than specific amount
Saving < £16,000 (<£6000 ignored) – assume £1/wk every £250 above £6000 (deduct benefit)
Working < 16hrs/wk (disability & working > 16hrs/wk)
Not full time student
16+yrs
High Range can claim: >60yrs, single parent, disabled, unemployed
45. 1.3.5.1.2.1 Income Support Payments (ISP)
- Amount of ISP depends on lots of factors: age, income, savings, partners/children
- 3 parts of payments:
1) Personal allowance – cover day-2-day expenses of claimant, partner, children
2) Premiums – additional payments to people with extra needs e.g. disabilities
3) Other additions – inc mortgage interest payments & other housing costs
1.3.5.1.3 Jobseeker’s Allowance (JSA)
Contribution based Income based
- payable for 6 months seeking work for at least 40hrs/wk
- fixed rate- irrespective of savings/partners earnings working <16hrs/wk
- paid gross but taxable 18 yrs – pensionable work
not in full time education
dependent on having paid Class 1 NI contribution
signed JSA agreement – steps to look for work
- credited NI contributions (NICs) every week receiving JSA
46. 1.3.5.2 Support for Bringing Up Children
2 types:
1) During pregnancy
2) During children growing up
1.3.5.2.1 Statutory Maternity Pay (SMP)
- from employer when woman becomes pregnancy while employed
worked for same employer, without break, > 26 wks incl 15th week before baby due (qualifying week)
average weekly earnings in 8 weeks up to qualifying week not less than lower earning limit
– level NICs become payable
must have paid at least a specific minimum level of Class 1 NICs
- Payable for 39 weeks
- Earliest payment begins: 11 weeks before the baby due, & latest when baby born
- 2 rates:
1) 1st 6 weeks: amount paid is 90% average weekly earnings
2) Remaining: flat rate – subject to 90% of average weekly earnings
- Taxable
- NICs due on amount paid
47. 1.3.5.2.2 Maternity Allowance
- Given if individual not able to claim SMP e.g. self-employed, recently changed jobs
- Paid by Department of Work & Pensions (DWP) – not employers
- Disadv: lower rate than SMP
- Adv: not subject to tax
Rate:
1) Standard rate to those earnings > lower earning limits
2) 90% average earning paid to earnings < lower limit but > minimum threshold
- High number of restrictions
- Payable for 39 weeks
- Earliest payment begins: 11 weeks before baby due, latest: baby born
1.3.5.2.3 Child Benefit
- tax free benefit to parents bringing up child
- not means-tested & not depend on NICs paid
- to each child <16yrs to 19yrs – if full time education/training
- higher rate to eldest child, lowest to youngest
48. 1.3.5.2.4 Child Tax Credit
- help parents on low incomes (people earning < £66,000/yr maybe eligible)
- payable in addition to child benefit
- parent do not have to be working to claim
- paid to child’s carer
- paid until 1st Sept after child’s 16th birthday/20th birthday (if child in full time education, not
claiming income support/any tax credit, not serving custodial sentence of 4+ months)
1.3.5.3 Support for People Ill/Disabled
1.3.5.3.1 Statutory Sick Pay (SSP)
- Paid by an employer to an employee who is off due to illness for 4+ days
- paid maximum for 28 weeks (spells of sickness with < 8wks between them) = 1 spell
- to people with average earnings > NICs payable
- taxed & NI deducted (like normal earnings)
49. 1.3.5.3.2 Incapacity Benefits
- claim if self-employed/ long period of sickness (>28 wks)
- depend on payment of Class 1/2 NICs – else may get income support
- 3 levels:
1) Short-term lower rate - payable to 28 wks
- not subject to income tax
2) Short-term higher rate - payable 29-52 wks
- taxable
3) Long-term rate - terminally ill: highest rate from 28+ wk
- highest rate
- payable if sick > 52 wks
- taxable
1.3.5.3.3 Attendance Allowance
- for those 65+ years & need personal care as ill
- not means-tested & not dependent on paid NICs
- 2 levels:
1) lower rate – need care by day & night
2) higher rate – need help both day & night
50. 1.3.5.3.4 Disability Living Allowance (DLA)
- for people who need help with personal care &/or getting around
- Tax free
usually for <65yr old
need help for qualifying 3 month period & expect to need help for further 6 months
(unless terminal within 6 months)
2 components:
1) Care component – for daily tasks e.g. washing, cooking etc
2) Mobility component – if difficulty in walking/ not walk
1.3.5.3.5 Carer’s Allowance
- for people giving up time/job to look after someone
- not need to be relative to qualify
- not depend on NICs
- flat rate (+ for partners/children)
- taxable & declared on tax returns
Carer: - between 16-65yrs
- spend > 35hrs/wk as carer
- earn no more than certain amount each wk
- not in full-time education (21+ hr/wk supervised study)
Patient: - receive DLA/AA/constant attendance allowance
- not in hospital
51. 1.3.5.4 Support for People in Hospital/Residential/Nursing Care
- some of patients needs met by NHS ஃ benefits reduced whilst claimant in hospital
- if in residential care/nursing home but can not afford the minimum charges
ஃ income support available
- if in private establishment, income support available if < £16,000
(worked out by adding fees for home + meals & subject to maximum benefit amount
dependent on the type of care received)
1.3.5.5 Support for People in Retirement
- 1st introduced in 1908
- current state pension from WW2 since NI Act 1946 (pension to employed people at 65
yrs)
- flat-rate pension = basic state pension
- not related to employee earnings
- NI Act 1959 - intro earnings related pension:
1961: Graduated pension scheme
1978: State earnings related pension scheme (SERPs)
2002: 2nd state pension (S2P)
52. 1.3.5.5.1 Basic State Pension (BSP)
- provide little more than subsistence-level standard of living
- 25% of national average earning
- single person: £95.25/wk, married couple: £152.30/wk (’09/’10)
- pay-as-you-go basis, NICs from working population immediately paid out
- no. pensions & employment - chance of BSP above inflation
- gvt proposes BSP in line with average earnings index not cost of living index – in 2012
1.3.5.5.2 Additional State Pension
SERPS - aim: pension 25% average earnings (BSP) to 50%
- pay-as-you-go funding ஃ increased cost pressure
S2P - initially offered on earnings-related basis, changing to a full flat rate basis
- only to employed people paying Class 1 NI contribution, not self-employed
- obliged to be S2P unless contracted out (themselves (full contribution paid but rebate by
transfer to alternative pension arrangement) or employer (on membership of employer’s pension
scheme – pay lower NIC))
1.3.5.5.3 Pension Credit
- ensure retired have total income of specific minimum amount
- single person: £130/wk, couple: £198.45/wk
- increasing each yr taking account of inflation
53. LOOK AT APPENDIX (II)
SECTION 2: FINANCIAL ASSETS
- Less people hold financial wealth in cash, but invest to make profit (intermediary chain)
2.1 Deposits
- Deposit based investments: capital element fixed but investment income varies
- Why?
Adv Disadv
Capital secure – amount invested Inflation reduces value of capital (increased
intact inflation causes value to reduce in real term)
Readily accessible banks & Risk of loss of capital if institute becomes insolvent
building societies (Financial Services Compensation Scheme)
2.1
54. 2.1.1 Bank a/c – 3 types of interest bearing a/c:
1) 2.1.1.1 Deposit a/c
- Depositors (individual/corporation) invest £1- no max
- Return via interest - variable (banks base lending rate)
- calculate daily & added to a/c on periodic basis ( ¼ly, ½-yearly, yearly)
- Some have higher IR, by may need minimum investment
- Deposits can be subject to notice withdrawal e.g. 7 days
- maybe waived subject to penalty e.g. Amount interest that could be earned over period
- Investment fund for emergency/other
- Less attractive long-term
2) 2.1.1.2 Money Market Deposit a/c
- Higher IR than deposit a/c
- IR reflects current money market IR & vary according to amount invested
- 2 types:
1) Fixed a/c - term deposit a/c = sum £££ invested for fixed period (e.g over night, 5yrs)
- interest fixed over period & can not be withdrawn before
2) Notice a/c fixed term but need notice period to withdraw
- no
- bank given same period of notice of change in IR (e.g. 7 days, 6 months+)
- for people with high amounts of cash to place on short-term deposit until required
55. 3) 2.1.1.3 Interest Bearing Current a/c
- Provide immediate access to funds without loss of interest
- Range of services: cheque-book & guarantee cards, cashpoint facility
- Mass market caused by high competition between banks/building societies
- IR (may have lower rates on phone/internet)
- Some banks offered high-interest cheque a/c – have higher IR, but require higher minimum level
of investment (£1000-£10000)
2.1.1.4 Taxation
- tax on interest = 20% e.g. 4% gross interest ஃ net = 3.2%
- lower & basic tax payer – no further liability
- higher rate tax payer – liable for 20% more
- interest paid gross/can reclaim tax for non-tax payers who complete R85 form
- 10% taxpayers can reclaim additional 10%
56. 2.1.2 Building Society a/c
- For investors’ with surplus funds for long time
- Competitive IR
- Different from banks in legal structure:
Building societies = mutual organisations owned by members
Banks = limited co.s owned by shareholders
- 2 types of a/cs:
Ordinary share a/c
- Instant access without penalty
- Lower IR than notice a/cs
Notice a/c
- Access in 7, 30, 60, 90 days
- If require immediate access: get penalty charge
(interest earned over notice period)
- Tiered IRs (higher investment higher rate)
- Short-term & immediate access
- Taxation (2.1.1.4)
2.1.2
57. 2.1.3 Offshore Deposits
= Investment medium, bank/building society/other form of investment based outside UK
in country with more adv taxation – “taxation havens” e.g. Canary Islands
- Disadv: Higher risk than onshore investment, as:
1) adverse currency movements when converted back to sterling
2) less protection by investors protection schemes
– check via local regulatory
authorities
- Maybe useful if investor needs £££ outside UK
- Interest paid gross
- UK resident must declare to HMRC
- can avoid tax by letting returns roll up & withdrawing £££ in future when become
non-resident
- Specific rules if investor resident/non-resident for UK tax
2.1.3
58. 2.1.4 Cash ISAs
= Tax- efficient individual savings a/c
- Different forms (3.2.4) e.g. cash ISA – tax free interest on bank/building society deposit a/c
- maximum: £3,600 per tax year
2.1.5 National Savings & Investments
= Range of savings & investment products on behalf of gvt
- From post-office & NS&I website
- Low risk – all products guarantee return of any capital invested
- Different types if products for different types of investors (terms, IRs, tax)
2.1.4 &
59. 2.3.1.1 Buying & Selling Shares
- Stock Exchange (SE) = London’s stocks & share market
- Trade: gvt stock, share capital & loan capital, oversees, options
2 markets:
Main market Alternative Investment Market (AIM)
- Allows Co.s to be quoted on SE - Separate market on SE (since ‘95)
- Requirements incl: - for new Co.s with potential to grow
- Financial & other information - Enable Co. to raise capital by issuing share
- Co. must’ve traded for > 3yrs - high public audience & high profile by joining
- > 25% issued shares in public hands - less rules & rigidity than main market
Listing Rules by FSA (acts as
UK Listing Authorities (UKLA)
60. Types IR Age (yrs) Minimum Other
Amount (£)
Easy Access Tiered, *(gross paid & income taxable) 11+ 100
Savings a/c
Investment Variable, Tiered – 7 levels, * 7+ or 500 – 50,000
a/c parents if
child <7
Income Variable, Tiered, *, Monthly regular income,
Bonds Interest paid until withdrawal No term & capital withdrawn at any time
Guaranteed Guaranteed 1,2 or 5 yrs at a time, Fixed IR 16+ Interest paid monthly, net of basic rate
income Bonds depending on term income tax
Guaranteed Calculated yearly but added to investment 16+ Lump-sum investment,
growth bonds at the end of the term 1,3 or 5 year term
Guaranteed 18+ Lump sum, fixed term investment with growth
equity bonds potential linked to FTSE100 while security on
original investment
Savings Gross interest- no liability to income or CGT 100 -15,000 Fixed interest certificate (FIC)= fixed IR on chos
Certificate ஃ attractive to higher rate tax payers term (2/5 yrs)
Index linked certificate = value with inflation
(terms 3 & 5 yrs)
Premium Bonds 100- Regular (monthly) draw for tax free prizes for
30,000 investors,
/person Prizes maybe worth lots of £££,
Encash any time with 8 days notice
Children’s Fixed for 1st 5yrs + bonus on 5th yr, final 16+ for <16 Lump sum for 5> yrs,
Bonus Bonds bonus on 21st birthday Encash <21 yrs, No interest paid after 21yrs
61. 2.2 Fixed-Interest Securities
2.2.1 Gvt. Stocks
- Gilt edged securities (gilts) = British gvt securities & represent gvt borrowing
- Safe - as gvt not default interest or capital payments
- Categorised according to length of time left until redemption date = date gvt buys gilt back at original
issue value (par value) [normal: £100]
Short dated (shorts) Medium dated (mediums) Long dated (Longs) Undated
- <5 yrs - 5 – 15 yrs - 15>yrs = No redemption date
- 0-7 yrs (UK Debt - 7 – 15 yrs (UK Debt - at gvt discretion
Management Office) Management Office) - Gvt under no obligation
to ever redeem
- Interest paid at fixed rate = coupon
- Index-linked gilts = interest payments & capital value move in line with inflation
ஃ investors purchasing power of capital & interest received is constant
(unlike other fixed interest stocks – inflation reduces purchasing power)
E.g. If gilts with coupon of 5% & redemption date 2021 = “Treasury 5% 2021”
- Interest normally paid ½-yearly
E.g. If holder of £10,000 nominal of Treasury 5% 2021 £250 interest per 6
months
Paid grossly – subject to income tax
2.2, 2.2.1
62. - Not redeemable by investors before redemption date, but can be sold to other investors
Price depends on: 1) Market IRs
2) Nearness to redemption date
3) Supply & demand
Gilts prices quoted: Cum dividend or Ex dividend
Buyer acquires stock itself & While buyer acquires stock itself, forthcoming
entitlement to next interest payment interest payment payable to previous owner of
the stock (i.e. seller)
- Capital gains made on gilt sale are free of CGT
E.g. Higher rate taxpayer buys £100,000 par value Treasury 5% 2019 at price 80.0
i.e. pays £80,000 for stock
Receives annual interest: £5,000 [£2,500 per ½ yearly] (5% of £100,000 = £5000)
= represents yield 6.25% [5,000/800,000]
Interest paid gross but 40% tax paid ஃ net annual interest = £3000 [5000*0.4 = 2000, 5000-2000= 3000]
Later he sells stock for £90,000 – no CGT on gain of £10,000 [90,000-80,000]
63. 2.2 Fixed Interest Securities
Gvt Stocks 2.2.3 Permanent Interest 2.2.4 Corporate
2.2.2 Local
(2.2.1) - Bearing Shares(PIBS) Bonds
Authority Stocks
- issued by building society to raise capital
Local authority can borrow - fixed IR – ½ yrly
£££ by issuing stocks/bonds - paid gross – taxable
(fixed term, fixed interest
- PIBs rank below ordinary a/c in priority
securities)
of payment – if Co. becomes insolvent
- Secured on local authority assets
- Represent loans to commercial organisations
- Not negotiable (i.e. can not get
lower - Fixed redemption dates, specific redemption
price) & fixed return at maturity value & fixed IR
- Return of capital on maturity guaranteed
- Brought & sold at prices reflecting market IRs
- not as secure as gilts(as no gvt guarantee)
- Higher risk than gilts – as no gvt backing ஃ
- Guaranteed IR – ½ yearly tend to offer higher yields (profits)
- Paid net:
- Basic:20%
- Higher: 40%
- Non-taxpayer: can reclaim
2.2.2 – 2.2.4
64. 2.3 Equities & Other Co. Finance
- Co. need to raise £££ to commerce/expand business
- High number of ways, incl: corporate bonds (2.2.4), shares
2.3.1 Ordinary Shares (equities)
- Brought by private investors, most transactions made by institutions, life, pension funds
- Shareholders ‘own Co’ ஃ 2 main rights:
1) Receive share of profit via dividends
2) Participate in how Co. run – voting at shareholders meetings
- Rights of shareholder differ from Co. to Co.
ஃ specific rights in Articles of Association – found at Co.s offices or Co. House
- Direct investment in shares is high risk (loss of all capital) ,
- mitigate by investing in a range of shares & products (3.2)
- Share trading prices depend on a number of factors:
Profitability of individual Co.
Strength of market sector
Strength of UK & worldwide economies
Supply & demand for shares & investments
- Share prices in:
- short term – fluctuate
- long term – outpaced inflation & provide higher growth than deposit type investments
2.3, 2
65. 2.3.1.2 Returns From Shares
2.3.1.2.1 Risk & Reward
- Shareholders in limited liability (LLB) Co. ஃ not liable for Co. debt as they are a separate legal identity
- Investment can reduce/loss if Co. liquidates
- High potential for return – over long-term
2.3.1.2.2 Assessment of Financial Returns
2 forms:
1) Capital growth = growth share prices
2) Income = dividends received on share of Co.s distributed profits
- Assess success of shares & future performance by:
1) Earnings per share = [Co.s net profit / No. shares]
- not normally amount of dividends to shareholder on each share
(as Co. retains some profit for e.g. expansion)
2) Dividends cover = how much of profit distributed as dividends
- e.g. if 50% profit as dividends: “covered twice”
- 2+ cover – acceptable by investor
<1 – company paying dividends from retained surplus from previous year
3) Price/Earnings ratio (P/E) = share price / earnings per share
- useful guide to shares growth prospect
66. 2.3.1.3 Taxation of shares
- Dividends received net of 10% (tax credit equal to amount deducted)
- Non-taxpayers can not reclaim
- Higher taxpayer have to pay additional 22.5% ஃ 32.5% of gross
… introduced to smooth effect of abolition of advanced corporation tax (ACT) – 6/4/99
E.g. Higher rate taxpayer receives net dividend of £900 from UK shares
ஃ gross dividend is £1000 [900/(100%-10%)].
She pays further 22.5% of gross ஃ further £225 [1000*0.225]
- Gains subject to CGT
- may offset against annual CGT exemption allowance
67. 2.3.1.4 Ex-Dividend
- Dividend paid ½-yearly on dividend date
- Lots of administration to ensure dividend paid on time
ஃ Payment process begins a few weeks before - ‘snapshot’ of shareholders anyone
purchasing shares between then & dividend not receive
between this period, share is ex-dividend (xd)
- share expected to fall approximately by the dividend amount on the day it becomes xd
2.3.1.5 Share Indices
- Stock Exchange Daily Official List gives closing price of previous days
FT & other newspapers
- 3 ways to measure share performance:
1) FT Ordinary Share Index (FT Index) = index of 30 major industrial Co.s share
- represent ~ ¼ market value of UK equities
2) FTSE 100 Index = index of top 100 Co.s, weighed according to market value
3) FTSE Actuaries All-Share Index = index of ~ 900 shares split into sectors
- measure price movements, show yields, ratios, total returns
68. 2.3.1.6
Rights Issues
SE rule:
Existing Co., with shareholders, who want to issue more shares, 1st have to offer shares to
existing shareholders (usually at discount)
- shareholders not wanting to take up right, can sell right to someone else
Compensates for any fall in value of existing shares (which may occur
due to dilution of the holding as a proportion of the total shareholding)
Scrip Issues (/Bonus Issue/Capitalisation Issue)
= Issue of additional shares, FREE, to existing shareholders
- No extra capital is raised
- Achieved by transferring reserves into Co.s share a/c
Increase the number shares & reduce the share price proportionally
69. 2.3.1.7
Preference Shares
= Shareholders entitled to dividends on Co.s profits at fixed rate
- Not carry voting rights unless dividends delayed
- Payment hierarchy: 1) Loan interest
2) Preference shares
3) Ordinary share dividends
Other Shares
Cumulative preference shares = if dividend not paid, entitled to dividend accumulation until
paid
Convertibles = securities issued by Co.s to raise capital which can be converted to ordinary
Co. shares at a later date
- before: issued in form of a loan (lower IR than normal as can convert to equity)
now: convertible preference shares
70. 2.3.2 Loan Stock
- Co. borrows from banks & other lenders
- Loan stock & debentures are for long-term ஃ help in Co.s long term plan
- issued on specific terms incl. interest payable, redemption date etc
Loan secured in some way e.g. on Co.s property (unlike loan stock)
- Some loans stocks are converted to ordinary shares - (but no obligation)
- Interest rather than dividends payable (whether or not sufficient profit made)
- Paid net of 20% tax
- Higher taxpayer: additional 20%
- Non taxpayer: can reclaim
- Creditors = holders of these debts of issuing Co. (i.e. to who £££ owed)
- take priority over shareholders
- not have right to vote at meetings
- Risk depends on Co.s prospects & strength
Loan stock is higher risk than debentures - as no backing security
71. 2.4 Real Estate
2.4
Residential property
Types Agricultural property
Commercial & Industrial property
Adv Disadv
Property acceptable security for borrowing Risk of unable to find suitable tenants
UK property market well developed Location very important
Rents (ஃ capital value) tend to move with Property less available than other forms of
£££ values ஃ good against inflation investment
Property management readily available Property market affected by economic conditions
Highly costly
- High risk for small investors ஃ spread risk:
Property bonds = underlying fund invested to range of properties & shares in property Co.s
Real estate investment trusts (3.2.2.3)
2.4.1 Taxation
Property income - allowable expense deductions Income tax (Basic: 22%)
On disposal of property CGT (can offset capital expenditure against CGT)
72. 2.4.2 Buy-To-Let (BTL)
- Overall trend in 30yrs: property prices increasing
ஃ problem for 1st time buyers esp. SE UK Eased by
renting market
In recession: uncertain job market difficult to commit to large mortgage
- Shortage of BTL in UK compared to EU as traditionally BTL mortgages had …:
higher IR charged compared to the standard mortgage, as lenders
thought BTL was more to do with commercial loans
CHANGED rental income excluded from borrowers income, when
assessing
ability to make mortgage repayments
Why? - Stimulate growth in private sector of rental market
- Encourage borrowing at competitive IR to sustain income & capital growth
- BTL mortgages scheme is a result of an initiative by the Association of Residential Letting
Agents (ARLA) & mortgage lenders (introduced by Alliance & Leicester, Halifax & Natwest)
- many schemes require agent to be member of ARLA involved in selecting suitable
property, tenants, tenancy agreement, managing property
- Gross rent needs to be 125-150% of monthly mortgage payment
- Other costs e.g. wear & tear (10%/yr) (not incl. cost of furniture, fittings) offset against
income tax (from rent)
73. 2.4.3 Commercial Property
= Anything not residential e.g. shops, offices, hotels etc
- Provides high rental income, steady growth in capital value
Adv Disadv
Require rental reviews (normally no Higher average value
more than 5 years between reviews) ஃ spreading risk more difficult
Longer lease than residential property Generally not show spectacular growth
More stable & long-term tenants Higher borrowing IR
Lower initial refurbishment costs
- Lenders carry out detailed investigation before lending:
Land & property quality
Reputation of builder, architect etc
Suitability of likely tenant
2.4.3
74. 2.5 Commodities
e.g. metals, foodstuff, electricity, timber, timber, music, art
- Lots of opportunity - directly & indirectly:
1) Investment in precious metals
2) Lots of trade via ‘forward contracts’
binding agreement where 1 party must sell & other must buy
specific amount of commodity at specific price at specific date
- Lots of traders do not need the commodities, but make profit by speculating price movement
via purchasing & selling
2.6 Foreign Exchange
= Exchange of currencies between countries
Foreign exchange market = international market where currencies exchanged
- buying & selling over the whole world
Main participants: - 24 hour due to technology
Banks, central banks, - millions of transactions per hour
other financial institutions
2.5
75. - Changing price of 1 currency for another reflects demand & supply of the currency
Due to:
1) international trading of:
Goods – raw materials from different countries
Services – financial services, individual to different country for jobs
2) Investment
Short term – Co. in surplus want to invest e.g. in country with current high IR
Long term – individual & Co. buy shares & long-term loans to borrowers of other countries
- Currency speculators = trade in currency markets to speculate changes in exchange rates &
buying/selling at appropriate time
E.g. Exchange £1million to $, at 55p exchange rate (ஃ $1=55p) ஃ £1 million = $1,818,182 [£1,000,000/0.55]
Exchange $1,818,182 to £, at 57p exchange rate Profit: £36,364
[$1,818,182 x 0.57 = £1036363.64, £1036363.64 - £1,000,000 = £36,364]
2.6
76. 2.7 Money Market Instruments
- Term to describe a number of forms of short-term debt
- Interest is dependent on the amount invested/borrowed & amount repaid
2.7.1 Treasury Bills
= short-term redeemable securities issued by the Debt Management Office
(DMO) of the Treasury
- Fund-raising instruments used by the UK gvt. (similar to gilts)
- Low risk
- Difference compared to gilts:
Treasury Bills Gilts
Term Short (~91days) Long
Interest paid? No (zero-coupon’ securities. Instead Yes
issued at discount par value
- Can by brought and sold throughout term
- Strong secondary market by banking organisations Significant IR changes
- Prices tend to rise steadily until redemption date Affected by: Supply & demand
- Purchased in large amounts (mainly large organisations)
77. 2.7.2 Certificates of Deposit (CDs)
- Method of facilitating short-term (~3/6 month) larger scale lending (£50,000+)
If required for longer period: ‘rolled over’ for further 3/6 months
- Issued by building societies & banks
- Interest: Fixed rate
paid with return of capital at term end
- Are bearer securities
= repayment on specified term will be made to certificate bearer on maturity date
- if require £££ before maturity date, can sell the certificate
- Can sold between banks to balance their liquidity position
78. 2.7.3 Commercial Paper
= unsecured promissory note (i.e. a promise to repay funds that have been
received in exchange for the paper)
- Issued by businesses (e.g. pension funds & insurance Co.s), who want to borrow large amounts
- Offers cheaper borrowing opportunities for Co.s with good credit ratings
- if Co. has bad credit rating: Paper backed by letter of credit from a bank
that guarantees repayment
- Issue period: 5 – 45 days
- can roll over if required for longer period
Adv
Flexible IR is not fixed for a long period
79. LOOK AT APPENDIX (III)
SECTION 3: FINANCIAL PRODUCTS 3.1, 3.2
- help solve financial problems & meet financial needs
- ‘Packaged’ products supplied by product providers
3.1 Investments
- Main form of direct investment (Section 2)
3.2 Collective (/Pooled) Investments
= Arrangement where individual investors can contribute (via lump sum/
regular savings) to a large investment fund
Lower risk High choice
Adv for investor
Reduced dealing cost Services of skilled investment manager
at cost shared amongst investors
80. Location (e.g. country)
Industry (e.g. technology, energy)
- Categories of investment funds Type (e.g.shares, gilts, etc)
Other forms of specialisation (e.g. ethical investments etc)
Aim (to produce …)
income (& modest capital gains)
capital gains (& modest income)
Balance between growth & income
- Managed funds = manager invests appropriate proportion in a range of Co.s to meet
managed funds objectives
Chosen by people seeking steady growth, where risk loss is minimum
(e.g. pension provisions/mortgage repayments)
Unit trusts Investment trusts
Main forms of
collective investments
Investment bonds Open Ended Investment Co.s (OEICs)
81. 3.2.1 Unit Trusts
3.2.1
= pooled investment created under trust deed places obligations on
the manager & trustee
- Investor may contribute via lump sum / regular contribution / both
- Lots of unit trusts in UK: total funds = £450 billion
- Trust is divided into units
- Open ended ஃ manager can create more units in response to demand
Valuing fund assets
Managing trust fund
3.2.1.1 Role of Unit Fixing unit prices
Trust Manager
Manager obliged to buy back units
Offering units for sale Buying back units (under trust deed)
from unit-holders
Incl. investors who wish to sell
- Manager generates profit via management fees & dealing in units
82. 3.2.1.2 The Trustee
- has overall responsibility to ensure investor protection
Hold & control trusts assets
Set out trusts investment directives Ensure investor protection procedures adequate
Issue unit certificate to investors Roles Approve proposed marketing
Collect & distribute income from trusts assets
Supervise maintenance register of unit holder
Ensure manager complies with terms of trust deed
- Trustee roles carried out by institutions e.g. clearing banks/life Co.s
3.2.1.3 Authorisation of Unit Trusts
- Regulated under Financial Services & Market Act 2000 (UK)
- Authorised by FSA
83. 3.2.1.4 Pricing of Units
= Total value of assets / No. units issued
- Calculated by manager daily by a method specified in the deed
- Directly related to value of underlying securities that makes up fund
- 3 Prices:
Offer price = price investor buys units from manager
Bid price = price manager buys back units from investors
Cancellation price = minimum permitted bid price
- takes into account full cost of buying & sell
- when there are buyers & sellers of units, bid price > minimum level,
as costs reduced due to underlying asset not needing to be traded
- Unit trusts use bid price, offer price & bid offer spread
difference between bid & offer price (5-6%)
- Some managers moving to a single-price system – as better understood by investors
- may impose exit charge if sold within 3/5yrs
84. 3.2.1.4.1 Historic & Forward Pricing
Before 1988: client brought & sold at price determined before start of dealing period
e.g if funds daily valuation is at noon ஃ dealing period: midday to midday (following day)
Historical pricing
- Now this is unacceptable, as it does not reflect what is happening in the market
Forward pricing
= clients buy/sell in given dealing period at prices determined at end of dealing period
- prices published in the financial press are a guide to investors
- Firms managers can use historical pricing
- but must switch to forward pricing if underlying market in which trust invested
moves 2% either direction since last valuation
85. 3.2.1.4.2 Buying & Selling Units
- No need for secondary market in units of Stock Exchange, as unit manager must buy units
back if investor wishes to sell
Simple & more attractive for investors recorded as confirmation
- Units can brought directly from manager/intermediaries via writing/telephone
- Purchaser receives 2 documents from the manager:
1) Contract note = specifies fund, No. units, unit price, amount paid
- gives purchase price (needed for CGT when units sold)
2) Unit Certificate = specifies fund & no. units held
- proof of ownership
- To sell units, unit holder must sign form of renunciation on the reverse of the unit certificate send
it to the manager (new certificate sent to the unit holder if they still holds units)
3.2.1.5 Charges
1) Initial charges = cover cost of purchasing fund asset & commission payments to intermediaries
- typically covered by bid-offer spread
2) Annual management charge = fee paid for use of professional investment manager
- varies: 0.5 – 2% of fund value
- deducted on monthly/daily basis
86. 3.2.1.6 Types of Units
Accumulation units Distribution/Income units
= Automatically reinvest any income generate = Split off any income received
by underlying asset (for capital growth) & distributed to unit holders
May increase unit value in line
3.2.1.7 Taxation of Unit Trusts with value of underlying assets
3.2.1.7.1 Income Tax
- Authorised unit trusts (except. fixed interest trusts) treated as Co.s for tax
ஃ Corporation tax on income (not growth within fund)
- Dividend income received already 10% taxed
Lower & basic rate taxpayer – no further liability
Non tax payer – not reclaim
Higher rate taxpayer - further 22.5% of gross incomes (ஃ 32.5%)
e.g. Distribution of £18 net to shareholders:
ஃ gross = £20 [£18/1-(10% tax)]
- if higher taxpayer: further £4.50 taxed [20*22.5%]
87. - Income from overseas securities, cash & fixed interest securities have 20% corporation tax
ஃ when this income is paid out …
Non taxpayer – reclaims
Lower rate taxpayer – reclaim ½ (liable 10% & reclaim 10%)
Basic rate taxpayer – no additional liability
Higher rate taxpayer – further 20% of gross income
e.g. Distribution of £40 net to unit holder (from overseas)
ஃ Gross income = £50 (£40 / (1-20%))
- if higher rate taxpayer - pay further £10 (£50 * 20%)
- if non-taxpayer – reclaim £10 (£50 - £40)
3.2.1.7.2 CGT
- None within unit trust
- Maybe liable when unit cashed
- Reduced liability due to annual exemption allowance, taper relief
88. 3.2.1.8 Risk of Unit Trusts
- Reduced risk as:
- Pooled investment = spread between 30-150 different shares
- Legal constitution: trustees have responsibility of proper management (reduce risk of fraud)
- Actual risk is dependent on the type of unit trust
(as different trusts for different investors for different risk profiles):
Investment type Risk
Cash fund Similar to deposit a/c (low)
Specialist fund High
(e.g. emerging market)
Overseas funds Added risk of currency fluctuations
- No guarantee that initial capital returned in full or specific income paid
89. 3.2.2 Investment Trusts (IT)
3.2.2
= Collective investment, but unlike unit trusts, not unitised fund
- Not actual trusts, but public limited Co.s whose business is investing in stocks & shares
- To invest: Investor purchase shares of the IT Co. on the Stock Exchange
To cash in: Sell to another investor
- Closed ended = number of shares available is constant
- Share price dependent on:
Some extent on value of underlying investment (not so directly as unit trusts)
Factors affecting demand & supply
Lower than Net Asset Value (NAV) per share
= total value of investment fund / number share issued
- Discounted ஃ investor should receive higher income & growth level than obtained by
investing directly in the same underlying shares
- Can benefit from gearing = borrow £££ to take adv of business investment opportunities
(like other businesses)
Unit trust can High growth potential of rising market
NOT use gearing – but can cause losses (e.g. in 2000s)
90. 3.2.2.1 Taxation
- > 85% of income received by fund managers must be distributed as dividends to shareholders
Lower & basic taxpayer – no further liability Net of 10%, with tax credit
Higher taxpayer – 32.5% of grossed up dividends
- CGT:
Fund manager exempt
Investors subject on sale of shares
3.2.2.2 Split Capital Investment Trusts (/Split-level trusts/ Splits)
= fixed term investment trusts offering 2+ different types of shares
- Most common forms of shares:
- Income shares = receive whole income generated by portfolio but no CG
- Capital shares = no income receives – but when trust wound up at end of fixed term,
share all capital growth remaining after fixed capital requirement
Also have intermediate shares
91. 3.2.2.3 Real Estate Investment Trusts (REITs)
- Tax efficient property investment, which avoids disadv of direct property investment
- Available in UK in 1/2007 (previously in USA, Australia)
- Expected many property Co.s will convert to REITs
– subject to one-off charge of 2% of asset value
Remainder from
development/other services
75+% of gross income
derived from property rent
Single property REITs only allowed
No corporation tax on income/growth in special cases e.g. shopping centres
– need to meet requirements
Main features
Can be held in ISAs, child trust funds,
self invested person pensions
No individual can have >10% shares
90+% net profit to shareholders