1. UK Financial Services Sector

Question 1

Key aims of a government’s economical policy (6)

Answer 1

• Gives legal and regulatory framework for economic activity
• Involved in directing and managing an economy
• Sustainable growth
• Control inflation
• Full employment
• Manage balance of payments

Question 2

What is sustainable economic growth

Answer 2

Implies increase in national income in real terms (.per head of population)
Implies major fluctuations in business cycle (boom/bust) are avoided
economic activity grows in upward trend
key aim of government econ policy

Question 3

What is the UK aim of a moderate inflation level (%)

Answer 3

2%

Objective of Bank of England

Question 4

Full employment government target?

Answer 4

Target level of employment with low levels of unemployment

involuntary unemployment is short term

Question 5

Balance of payments (gov target)?

Answer 5

Between import and export

Question 6

What is fiscal policy? 2 key tools?

Answer 6

• gov policy on taxation, public borrowing and public spending
• direct taxation - taxation of incomes of individuals and on the profits of companies (corporation tax), as well as on wealth transfers in the form of inheritance tax.
  indirect taxation - taxation of products and services that consumers/companies purchase and use (i.e. VAT)

Question 7

Direct taxation

Answer 7

tool of government fiscal policy
taxation of incomes of individuals and on the profits of companies (corporation tax), as well as on wealth transfers in the form of inheritance tax.

Question 8

INDIRECT TAXATION

Answer 8

• tool of fiscal policy
  the taxation of products and services that consumers/companies purchase and use
  ie, value added tax (VAT)

Question 9

PSNCR?

Answer 9

Public sector net cash requirement - offish term for UK gov budget defecit

Rat at which gov must borrow to maintain financial commitments

prev known as PSBR (public sector borrowing requirement)

Question 10

How can government intervene in the economy

Answer 10

Spend, collect, divert

• spending more money and financing this expenditure by borrowing (issuing gilts to investors)
• collecting more in taxes without increasing spending (ie, increase tax levels/lower threshold levels)
• collecting more in taxes in order to increase spending, thus diverting income from one part of the economy to another.

Question 11

Gov increases spending - what happens to national income?

Answer 11

Rises

Question 12

What government action indicates a contractionary fiscal stance

Answer 12

Increasing tax collection without increasing spending, or reducing spending alone

Raising tax can also ease inflationary pressures

hopes of slowing down unsustainable production or lowering asset prices.

Question 13

What gov action indicates neutral fiscal stance

Answer 13

Increased tax collection (either increased taxes or lower threshold) in order to increase spending

Diverting income between parts of economy

Question 14

Balanced budget multiplier

Answer 14

measures changes in aggregate output when the government changes its spending and taxes at an equivalent rat

if the government increases spending and taxation by the same amount

(taxpayers would save some of the money now paid in increased tax, but the government spends 100% of increased tax within economy

increased aggregate monetary demand

More real money is spent

Question 15

How does government fiscal policy impact balance of payments

Answer 15

gov spending/tax reductions may be inflationary - by increasing demand for products

increased domestic prices makes imports relatively cheaper and exports less competitive

Question 16

How can fiscal policy affect employment

Answer 16

increased government spending on capital projects, on which people are employed to work

government-funded training schemes

taxation of companies on the basis of the numbers and pay levels of employees

gov spending can create inflationary pressures leading to unemployment

fiscal policy = tightrope

Question 17

Fiscal policy planning

Answer 17

Fiscal policy changes can have knock on effects with long timeframes

Budget spending to then plan how much will need to be raised by tax/borrowing

Annual cycle - Autumn in UK statement of changes to budget

Question 18

Is fiscal policy short or long term

Answer 18

Long term - annual cycle of gov finances - not responsive to short term developments

Gov uses monetary policy for shorter term adjustments

Question 19

What does European system of financial regulation consist of

EIOPA
EBA
ESMA

Answer 19

European systemic risk board
3 supervisory authorities
- EIOPA (european insurance and occupational pensions authority)
- EBA (european banking authority)
- ESMA (european securities and markets authority)

Question 20

Financial services regulation in China

CRSC
CBIRC
PBOC

Answer 20

The China Securities Regulatory Commission (CSRC)

The China Banking and Insurance Regulatory Commission (CBIRC)

The People’s Bank of China (PBOC).

Question 21

Fin services regulation in HK

SFC
SEHK
HKFE
HKME
IA

Answer 21

Securities and Futures Commission (SFC)
Stock Exchange of Hong Kong (SEHK)
Hong Kong Futures Exchange (HKFE)
Hong Kong Monetary Authority (HKMA)
Insurance Authority (IA)

Question 22

Fin services regulation in Japan

FSA
SRO
JSDA

Answer 22

Financial Services Agency (FSA), which includes planning, supervisory and inspection functions.
Self-regulatory organisations (SROs), such as the various Japanese securities exchanges and the Japan Securities Dealers’ Association (JSDA)

Question 23

Fin regulation in Singapore

MAS
SGX
SIC

Answer 23

Monetary Authority of Singapore (MAS)
Singapore Exchange (SGX)
Securities Industry Council (SIC).

Question 24

Impact of recession on financial markets

Answer 24

recession + early recovery = low/falling inflation, low/falling interest rates

(loan demand slow, bond prices increase, central bank eases monetary policy)

Question 25

Fixed income securities during recession (price?)

Answer 25

High prices

low interest rates - attractive to fix - higher prices for securities

Question 26

Boom period definition + fixed income securities price

Answer 26

period of increased commercial activity within either a business, market, industry, or economy as a whole
medium to long term

high interest rates - lower priced fixed income securities

Question 27

Bull vs bear market

Answer 27

Bull - persistently rising share prices

Bear - downward trend in share prices

Question 28

Current vs capital accounts?

Answer 28

Accounts used to measure UKs balance of payments
current - imports and exports of goods and services
capital - transference of financial capital

Question 29

UK current account deficit + how to combat

Answer 29

Defecit - not matching overseas expenditure with overseas income

Correction - allow sterling to fall in value, increasing cost of foreign goods/services to UK buyers - encourages buying british

cheapens UK goods/services for overseas buyers - increasing exports

Question 30

UK interest setting process

Answer 30

MPC (monetary policy committee) - part of BofE
Target is 2% - +/- 1%
Meet 8 times/year to set interest rates
Open comms

Question 31

What is base rate?

Answer 31

BonEs short term benchmark repo rate (rate of lending from central bank to commercial banks)

Base rate effects commercial rates quickly

Question 32

Money market operations BofE

Answer 32

framework for ops in sterling, must;

• implement and maintain MPCs interest rate decisions
• meet liquidity needs

Contributes to stability of banking system

Question 33

What is quantitative easing

Answer 33

Monetary policy - occurs when interest rates are hovering around 0 so bank cannot lower them to effect economy

Central bank purchases securities form open market to

reduce interest rates + increase money supply

Question 34

3 key measures of economic activity

Answer 34

GDP = C + I + G + (X-M)
Consumer expenditure, Investments, Government spending, X-M balance of payments
- total goods services produced in a country

GNP = GDP + net property income from abroad - net payment outflow to foreign assets
- total value of goods/services by country’s citizens whether home or abroad

NI = GNP + capital consumption

• sum of all incomes of residents in the UK
• Measures cost of living

Question 35

What are interest rates? What causes changes to them?

Answer 35

= the cost of borrowing money

Affected by demand
Lots of demand for credit = high rates
Less demand = lower rates

Higher inflation - raises rates - lenders want to make up for lost purchasing power

gov: central bank affects rates by buying and selling a countries securities - buying injects money, decreasing rates

Question 36

Fiscal vs monetary policy

Answer 36

Fiscal : gov policy on taxation, borrowing and spending

Monetary : Concerned with changes in amount of money in circulation + interest rates

Question 37

Fiscal policy

Answer 37

Gov policy on taxation, pub borrowing + pub spending
direct taxation: taxation of individuals + company profits (corporation tax) + inheritance tax
indirect : taxation of products + services used by consumers/companies - e.g. VAT

Question 38

What is a business cycle

Answer 38

Cycle of expansion and contractions that economies undergo over time

Question 39

ok