types of lending

what is a cash deposit

money lent to a bank

how do you earn on a cash deposit

interest income, no capital growth

when is the capital repaid

all at maturity

what determines the interest rate

institution

deposit size (bigger = better)

access (is the account locked for a while or can u access it always?)

are cash deposits subject to tax

yes - the gross interest rate will be quoted but u will acc recieve a net interest rate after tax

3 reasons to hold cash

liquidity —> instantly spendable

income —> predictable interest return

safety —> no market volatility, often gov protected up to a certain limit

4 drawbacks of holding cash

default risk —> bank could fail

inflation —> erodes real return (after tax could even be negative!)

variable —> interest rates change

lowest returns —> cash returns the least of all asset classes

extra checks u have to think about when depositing cash overseas

currency conversion costs

exchange rate risk

creditworthiness of banking system and bank

does a protection scheme exist for non-residents?

tax on the interest

exchange controls regarding repatriation

what are T-bills

treasury bills - when you lend your money to the gov for a SHORT TERM (up to a year max)

how do you earn through t-bills

issued at a discount, redeemed at par

no coupon

t-bills are often treated as a…

…risk free benchmark

how are t-bills issued

weekly DMO tenders - competitive bids from eligible banks

what does CP stand for

commercial paper

what is CP

the corporate t-bill —> short term lending to companies

when are CPs issued

ongoing issuance - rates advertised so investors buy whenever they have funds

what are two types of CP

direct paper —> issuing directly

dealer paper —> selling via a dealer

how do i know which CP to buy

its rated by the main agencies

[pick up here from asset backed