1. The Purpose & Structure of the Financial Services Industry Flashcards
Name 5 financial activities that make up the professional financial sector.
International banking, Equity markets, Bond markets, Foreign exchange, Derivatives, Fund management, Insurance, Investment banking.
What are the three core functions of the financial services sector?
- Investment chain
- Risk (and control of risk)
- Payment systems
Name 3 services offered by the Retail financial sector.
Retail banking, Insurance, Pensions, Investment services, Financial planning/financial advice.
What services do retail banks offer?
Retail banks provide services such as taking deposits from, and lending funds to, retail & business customers.
Larger retail banks may also offer products such as asset management, pensions & insurance, & sometimes broker services.
What does ‘demutualisation’ mean?
Demutualisation is the process whereby a savings institute (building society) transforms itself into a bank that is quoted on stock exchanges.
What do investment banks offer?
- Corporate finance & advisory work (for mergers & acquisitions)
- Banking (govts., institutions & companies)
- Treasury dealing
- Investment management for sizeable investors
- Securities trading
Name some examples of what insurance companies can offer.
Insurance companies provide life cover & general insurance cover (motor, contents & building insurance).
Can also offer services around protection planning such as:
Paying out in the event that an individual is unable to meet repayments on loans & mortgages.
Fleet insurance against the risk of an airline’s plane crashing.
How do insurance companies make and invest their money?
Insurance companies collect premiums for the cover provided.
This premium income is used to buy investments such as shares and bonds.
What is ‘re-insurance’?
The reinsurer takes on some of the risks of other insurance companies, which allow those insurance companies to pass on risks that they cannot, or do not wish to, absorb themselves.
Reinsurance companies are usually very large, well funded & have a wide spread of operations.
What are the three types of fund manager?
- Institutional
- Retail
- Private client
What is SWIFT?
SWIFT is a communications platform that enables its members to trade financial information securely & reliably and, in doing so, standardise international financial transactions.
What are stock brokers?
Advisers who advise investors about which individual shares or bonds the should buy.
Can also offer execution only services - accept clients order and execute this instruction on terms that are most favourable to the client.
What are Custodians?
Custodians are banks that specialise in safe custody & asset services, looking after portfolios & bonds on behalf of others such as fund managers, pension funds & insurance companies.
What activities do custodians undertake?
- Holding assets in safe keeping, such as equities and bonds
- Arranging settlement of any purchases and sales of securities
- Asset servicing (collection income & processing corporate actions)
- Providing information on the underlying companies & their AGM’s
- Managing cash transactions
- Performing foreign exchange transactions where required
- Providing regular reporting on all their activities to their clients
What value is applied to define each segment of client’s wealth?
Mass affluent - investable assets over $100k
High net worth individuals - over $1mil
Very high net worth individuals - over $5mil
Ultra-high net worth individuals - over $30mil
