45 Questions
What is a key characteristic of cash deposits?
Interest income with no potential for capital growth
Why might large deposits earn a better interest rate?
They are more economical for banks to process
What type of account allows money to be withdrawn at any time?
Instant access account
Why do deposit-taking institutions compete intensely with each other?
To attract new deposits
How does the interest rate paid on deposits vary?
Tied up money earns higher rates
What is a distinguishing feature of fixed-term accounts compared to accounts that permit immediate access?
They offer higher interest rates.
What is the main reason behind the low interest rates on instant access deposit accounts?
Monetary policy setting base rates around zero.
What do Islamic savings accounts typically avoid in line with Shariah principles?
Paying or receiving interest.
What is the key difference between conventional fixed-term accounts and Shariah-compliant savings accounts?
Expected profit sharing instead of earning interest.
What is the significance of the expected profit rate in Islamic banking accounts?
It reflects the percentage return expected to be paid by the bank.
What was the role of goldsmiths in the 16th century regarding gold coins?
Issuing receipts for gold coins deposited by customers
What converted the receipts issued by goldsmiths into a form of money?
Acceptance by people for making payments
What characterized banknotes before 1931 in terms of exchangeability?
They were convertible on demand to the equivalent amount of gold
What distinguishes 'fiat money' from other forms of money?
It is not convertible into any tangible asset like gold
According to economic theory, what functions does money serve?
Three functions: store of value, medium of exchange, and unit of account
What is a key reason why money market investments are considered unsuitable for the medium to long term?
Their returns are negatively impacted by inflation and taxation over time.
What advantage do money market funds have over pure money market accounts?
They invest in a range of instruments from many providers.
In what scenario might an investor choose to move their funds to money markets?
At the peak of a bull market cycle when economic prospects worsen.
What risk does an investor face when placing funds in a money market account at a bank?
Risk of loss due to the stability of the bank.
What role do money market investments play in a client's portfolio?
Safe haven during market falls
What distinguishes money market funds from traditional retail deposit accounts offered by banks?
Pooling of funds with other investors
Why might placing funds in a money market account be considered less risky compared to other types of investments?
"Short-term nature with limited market risk exposure"
What is the advantage of investing in money market funds rather than individual AAA-rated investments?
"Greater diversification and access to broader instruments"
What level of risk do money market funds carry according to the text?
Moderate risk varying between different instruments.
What potential drawback do money market funds introduce according to the text?
Introduce exchange rate risk through foreign currency investments.
What distinguishes Commercial Paper (CP) from Treasury bills in terms of issuer type?
CP is issued by large companies, while Treasury bills are issued by the government.
What is a distinguishing feature of Certificates of Deposit (CDs) compared to regular deposit accounts?
CDs can be traded in the secondary market, while regular deposit accounts cannot.
What is a key characteristic of money market instruments in terms of ownership?
Ownership is evidenced by holding the physical paper instruments.
How does the maturity period of a Commercial Paper (CP) typically compare to that of a Certificate of Deposit (CD)?
CP generally has shorter maturities than CDs.
How do money market accounts differ from money market funds?
Money market accounts require a minimum balance, while money market funds do not.
Why is the valuation of property considered subjective?
Each property is unique in terms of location, structure, and design.
What makes property illiquid in the context of trading?
High transaction costs and not being instantly tradeable.
How does the finite supply of land impact property investments?
It restricts availability and can lead to price determination through demand changes.
Why is diversification challenging for property investors?
Property is only purchasable in discrete and sizeable units.
Who can typically build a diversified property portfolio according to the text?
Institutional investors or very wealthy investors
Why do many private investors prefer to invest in commercial property instead of residential property?
Potential for higher rental income from commercial property
In what ways can investing in property provide diversification benefits to a portfolio?
Low correlation with traditional asset classes
What is a significant drawback of investing in property through a mutual fund, as highlighted in the text?
Inability to realize investments quickly
Why is commercial property often considered more suitable for long-term investing institutions compared to residential property?
Higher risk of prolonged downturns in residential property
What makes property investment more accessible to those managing smaller diversified portfolios?
Indirect investment options like mutual funds and shares in property companies
What was the main purpose of the Bretton Woods Agreement?
To stabilize currency markets by fixing currencies against the US dollar.
Why did the Bretton Woods Agreement prohibit countries from devaluing their currencies by more than 10%?
To stabilize exchange rates and prevent excessive devaluation.
What event led to the eventual abandonment of the Bretton Woods Agreement?
Increasing pressure for capital movement and international trade growth.
Why did currencies start floating freely against each other after the Bretton Woods Agreement was abandoned?
Due to increasing capital movement and global trade pressures.
Why did London become a major center for forex trading?
Due to its location between Asian and American time zones.
This quiz covers the topics of cash deposits, the money market, the property market, and foreign exchange (FX) in the context of financial markets. It also mentions the other main asset classes such as equities, bonds, and derivatives. Test your knowledge on different types of accounts, depositors, and the characteristics of cash deposits.
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