Coursework paper

PART A

TITLE

Your choice, but it needs to be interesting and relevant

INTRODUCTION

You’re going to introduce the topic here and tell the reader what the article will cover.

MAIN ARTICLE – POSSIBLE HEADINGS

1 GLOBAL ISSUES THAT HAVE LED TO STOCK MARKET VOLATILITY IN THE

PAST 12 MONTHS

2 WHAT’S CAUSED THESE ISSUES TO DEVELOP ?

3 HOW HAVE THESE ISSUES AFFECTED STOCK MARKETS AND THE GLOBAL

ECONOMY ?

4 HOW INVESTMENTS OTHER THAN EQUITIES COULD BE INCLUDED IN A

CLIENT’S PORTFOLIO TO REDUCE VOLATILITY

5 EXAMPLES OF INVESTMENT PRODUCTS

SUMMARY

Possible headings and sub-headings

Global issues that have led to stock market volatility

– China

– Fall in oil prices

– Greek economy

– Switzerland unpegging the Swiss Franc from the Euro

– Terrorism

– Cyber crime

– Syria and Iraq

How these issues have developed

China

– Growth slowing and forecast figures reduced

– Weakening outlook for growth

– Surprise devaluation of the Yuan on Aug 11 2015 (www.economist)

– Mass sell-off of stocks by investors in 2015

– State pension fund tried investing in domestic shares

– Large injections of capital into blue chip shares – unsuccessful

– China’s demand for oil and commodities has fallen

– Emerging market economies who rely on China are at risk

Fall in oil prices

– Demand lower due to weak economic activity

– Switch away from oil to other fuels

– US now imports less oil – creating spare supply

– Saudis and Gulf allies have not cut production

Greek economy

– Problems started after the 2007-8 financial crisis

– Flow of money to Greece from core European countries fell

– Structural weakness in the Greek economy

– Fears around Greece’s inability to service its debt obligations started

– Data on debt levels mis-reported

– Greece couldn’t devalue its currency (member of Eurozone)

Swiss unpegging from the Euro

– Swiss franc pegged to Euro during the financial crises

– Value of Swiss Franc soared when it was unpegged

– Exports became dearer and Swiss exporters suffered

Terrorism

– Markets don’t like uncertainty

– The market reaction following terrorist incidents is usually downwards

– But markets are resilient and tend to bounce back

Cyber crime

– A bigger risk now than ever before, due to the sheer number of connected

people and devices (http://uk.norton.com/cybercrime-definition)

– Has been called the biggest threat to the financial sector and to businesses

Syria and Iraq

– US and European stocks sharply lower following the downing of the Russian

jet

– Ongoing uncertainty in the region

ALTERNATIVE INVESTMENTS

CASH DEPOSITS

– CAPITAL IS SECURE

– CASH ISA – CURRENT INVESTMENT UP TP £15,240 – TAX FREE

– BANK AND BUILDING SOCIETY ACCOUNTS

– CAN BE USED AS EMERGENCY FUNDS – TYPICALLY 3 TO 6 MONTHS’

INCOME

– EASY ACCESS

– FINANCIAL SERVICES COMPENSATION SCHEME (FSCS)PROTECTED – UP TO

£85,000 BUT REDUCING TO £75,000 PER PERSON PER INSTITUTION FROM

JAN 1

– FSCS WILL ALSO COVER DEPOSITS FOR 6 MONTHS UP TO £1m FOR

TEMPORARY HIGH BALANCES

– AMOUNT HELD ON DEPOSIT WILL DEPEND ON CLIENT’S RISK PROFILE

NATIONAL SAVINGS AND INVESTMENTS (NS&I) PRODUCTS

– PREMIUM BONDS – TAX FREE – COULD BE USED FOR EMERGENCY FUNDS –

£50,000 PER PERSON MAX

– VERY LOW RISK

FIXED INTEREST FUNDS

GILTS

– LOANS TO BRITISH GOVERNMENT

– LOW-RISK

– GUARANTEED INCOME FOR A SET PERIOD

– CAN BE TRADED ON STOCK MARKET

– GAINS ARE FREE OF CGT

– INCOME IS TAXABLE

– LESS VOLATILE THAN EQUITIES

– REASONABLE RETURNS

– NOT RISK-FREE

– GILT PRICES VULNERABLE TO INFLATION

CORPORATE BONDS

– LOANS TO COMPANIES

– SIMILAR TO GILTS BUT MORE VOLATILE AND MORE RISK, BECAUSE

COMPANY MAY FAIL

– PAY A FIXED RATE OF INTEREST

– LOW TO MEDIUM RISK

– MOST BONDS ARE FREE OF CGT

– SAME TAX TREATMENT AS GILTS EXCEPT INCOME IS PAID NET OF 20%

TO PROVIDE DIVERSIFICATION AND REDUCED RISK, INVESTORS

MAY WISH TO USE FIXED INTEREST UNIT TRUST FUNDS , WHICH

SPREAD INVESTMENT ACROSS A WIDE RANGE OF COMPANIES

AND GOVERNMENT STOCKS

STRUCTURED PRODUCTS

– CONTRACTS WITH BANKS / BUILDING SOCIETIES

– CLEARLY DEFINED RETURN, DEPENDING ON THE PERFORMANCE OF

SOMETHING ELSE, SUCH AS A STOCK MARKET INDEX

– TWO TYPES – STRUCTURED DEPOSITS AND STRUCTURED INVESTMENTS

– STRUCTURED DEPOSITS RETURN 100% OF THE INVESTOR’S CAPITAL AT

THE END OF A SPECIFIED TERM, BUT IT COULD BE MORE

– STRUCTURED INVESTMENTS PROVIDE A RETURN THAT DEPENDS ON THE

PERFORMANCE OF A STOCK MARKET

– CAPITAL MAY BE AT RISK WITH A STRUCTURED INVESTMENT

REAL ESTATE INVESTMENT TRUSTS (REITS)

– TAX-EFFICIENT WAY OF INVESTING IN PROPERTY

– COMPANY THAT CAN INVEST IN BOTH COMMERCIAL AND RESIDENTIAL

– REIT COMPANIES AVOID CORPORATION TAX PROVIDING THAT 90% OF

THEIR RENTAL INCOME IS DISTRIBUTED TO SHAREHOLDERS

– INVESTORS PAY TAX ON THE PROPERTY INCOME DISTRIBUTION THEY

RECEIVE

– REIT SHARES CAN BE HELD IN AN ISA

– INVESTMENTS AND THE INCOME PAID ON THEM CAN FALL AS WELL AS

RISE

http://finance.zacks.com/reits-vs-stocks-3920.html

PEER TO PEER LENDING

– COMPANIES PUT INVIDUALS AND BORROWERS TOGETHER

– CAN BE INCLUDED IN ISAS

– BORROWERS BENEFIT FROM LOWER RATES THAN CONVENTIONAL LOAN

PRODUCTS

– LOANS TO ARE MADE TO A WIDE RANGE OF BORROWERS TO PROVIDE

DIVERSIFICATION

– NOT RISK FREE

– NOT PROTECTED BY THE FINANCIAL SERVICES COMPENSATION SCHEME

http://www.moneysupermarket.com/savings/peer-to-peer-lending/

 

When suggesting alternative investments, try and do some research about how they’re taxed and how that compares with equities.

Also consider – are these alternative investments regulated by the FCA ? Are they protected by the FSCS and how easy would they be to sell quickly ?

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