chp 5 - mock exam

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What is a key characteristic of cash deposits?

High-risk investment nature

Complicated withdrawal process

Interest income with no potential for capital growth (correct)

Potential for capital growth

Why might large deposits earn a better interest rate?

They are harder to withdraw

They have a higher risk of default

They are more economical for banks to process (correct)

They are tied up for a shorter period

What type of account allows money to be withdrawn at any time?

Fixed-term account

Investment account

Instant access account (correct)

Notice account

Why do deposit-taking institutions compete intensely with each other?

To attract new deposits Signup and view all the answers

How does the interest rate paid on deposits vary?

Tied up money earns higher rates Signup and view all the answers

What is a distinguishing feature of fixed-term accounts compared to accounts that permit immediate access?

They offer higher interest rates. Signup and view all the answers

What is the main reason behind the low interest rates on instant access deposit accounts?

Monetary policy setting base rates around zero. Signup and view all the answers

What do Islamic savings accounts typically avoid in line with Shariah principles?

Paying or receiving interest. Signup and view all the answers

What is the key difference between conventional fixed-term accounts and Shariah-compliant savings accounts?

Expected profit sharing instead of earning interest. Signup and view all the answers

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. Signup and view all the answers

What was the role of goldsmiths in the 16th century regarding gold coins?

Issuing receipts for gold coins deposited by customers Signup and view all the answers

What converted the receipts issued by goldsmiths into a form of money?

Acceptance by people for making payments Signup and view all the answers

What characterized banknotes before 1931 in terms of exchangeability?

They were convertible on demand to the equivalent amount of gold Signup and view all the answers

What distinguishes 'fiat money' from other forms of money?

It is not convertible into any tangible asset like gold Signup and view all the answers

According to economic theory, what functions does money serve?

Three functions: store of value, medium of exchange, and unit of account Signup and view all the answers

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. Signup and view all the answers

What advantage do money market funds have over pure money market accounts?

They invest in a range of instruments from many providers. Signup and view all the answers

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. Signup and view all the answers

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. Signup and view all the answers

What role do money market investments play in a client's portfolio?

Safe haven during market falls Signup and view all the answers

What distinguishes money market funds from traditional retail deposit accounts offered by banks?

Pooling of funds with other investors Signup and view all the answers

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" Signup and view all the answers

What is the advantage of investing in money market funds rather than individual AAA-rated investments?

"Greater diversification and access to broader instruments" Signup and view all the answers

What level of risk do money market funds carry according to the text?

Moderate risk varying between different instruments. Signup and view all the answers

What potential drawback do money market funds introduce according to the text?

Introduce exchange rate risk through foreign currency investments. Signup and view all the answers

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. Signup and view all the answers

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. Signup and view all the answers

What is a key characteristic of money market instruments in terms of ownership?

Ownership is evidenced by holding the physical paper instruments. Signup and view all the answers

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. Signup and view all the answers

How do money market accounts differ from money market funds?

Money market accounts require a minimum balance, while money market funds do not. Signup and view all the answers

Why is the valuation of property considered subjective?

Each property is unique in terms of location, structure, and design. Signup and view all the answers

What makes property illiquid in the context of trading?

High transaction costs and not being instantly tradeable. Signup and view all the answers

How does the finite supply of land impact property investments?

It restricts availability and can lead to price determination through demand changes. Signup and view all the answers

Why is diversification challenging for property investors?

Property is only purchasable in discrete and sizeable units. Signup and view all the answers

Who can typically build a diversified property portfolio according to the text?

Institutional investors or very wealthy investors Signup and view all the answers

Why do many private investors prefer to invest in commercial property instead of residential property?

Potential for higher rental income from commercial property Signup and view all the answers

In what ways can investing in property provide diversification benefits to a portfolio?

Low correlation with traditional asset classes Signup and view all the answers

What is a significant drawback of investing in property through a mutual fund, as highlighted in the text?

Inability to realize investments quickly Signup and view all the answers

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 Signup and view all the answers

What makes property investment more accessible to those managing smaller diversified portfolios?

Indirect investment options like mutual funds and shares in property companies Signup and view all the answers

What was the main purpose of the Bretton Woods Agreement?

To stabilize currency markets by fixing currencies against the US dollar. Signup and view all the answers

Why did the Bretton Woods Agreement prohibit countries from devaluing their currencies by more than 10%?

To stabilize exchange rates and prevent excessive devaluation. Signup and view all the answers

What event led to the eventual abandonment of the Bretton Woods Agreement?

Increasing pressure for capital movement and international trade growth. Signup and view all the answers

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. Signup and view all the answers

Why did London become a major center for forex trading?

Due to its location between Asian and American time zones. Signup and view all the answers