1.1 Intro To Financial Services Flashcards
What 4 properties must money have in order to be acceptable as a medium of exchange?
1) sufficient in quantity
2) acceptable to all parties
3) divisible into small units
4) portable
What is inflation?
A sustained increase in the general level of prices of goods and services
Money represents which 3 things?
1) a medium of exchange
2) a unit of account
3) a store of value
What is a financial intermediary?
An entity that acts as a middleman between two parties in a financial transaction. Ie. Banks, building society
What is disintermediation?
Lenders and borrowers who interact directly with each other without the use of a middleman. Eg. Crowdfunding
What are the 4 elements of intermediation?
1) geographic location
2) aggregation
3) maturity transformation
4) risk transformation
What are product sales intermediaries?
The intermediation that brings together product providers and potential customers. Eg. Mortgage advisors, insurance brokers, financial advisors
What is the difference between retail banks and wholesale banks?
Retail banks provide payment services and savings and loans to personal individuals or smaller businesses.
Wholesale banks provide funding for other financial institutions or very large corporate clients
What does the term ‘bancassurance’ mean?
A term coined to describe banks that own insurance companies (or vice versa).
What is life assurance?
Insurance that provides payment (as a lump sum or an income) on the death of the person covered by the policy. Also known as life insurance or life cover.
What is general insurance?
Insurance designed to cover policyholders from the financial consequences of adverse life events. Eg. Household, motor, travel
What are the main 7 functions of the Bank of England?
1) issues banknotes
2) banker to the government
3) banker to the banks
4) advisor to the government
5) foreign exchange market
6) lender of last resort
7) maintains economic stability
What is liquidity?
Asserts that can be quickly made available to meet an institutions liabilities without affecting the market price of those assets (eg. Cash)
What are Gilt-Edged Securities?
Gilts are loans to the government.
Which two authorities are responsible for financial stability alongside the treasury and the Bank of England?
The Financial Conduct Authority (FCA)
Prudential Regulation Authority (PRA)
What is a proprietary organisation?
They are limited companies owned by their shareholders who have the right to share in profits in the form of dividends and to vote at shareholders meetings.
What is a mutual organisation?
These are not companies and do not have shareholders. They are instead owned by their members. Eg. Building societies, credit unions
What is demutualisation?
This is term used to describe the conversion of a mutual company to a proprietary company. Eg. A building society to a bank, life assurance companies
Approval is required from the members but is her really given due to the windfall of free shares. The term ‘carpetbagging’ refers to the opening of accounts in mutual companies expected to demutualise to obtain free shares and restrictions are now in place to help prevent this.
What is a credit union?
A mutual organisation in which a member must meet the membership requirements, pay the entrance fee and buy at least one £1 share (ordinary or deferred) in the union. All members are equal regardless of share ownership. Credit unions offer simple savings and loan facilities.
What must a credit union show if they wish to pay interest on savings instead of dividends?
Necessary systems and controls in place
At least £50,000 or 5% total assets in reserve (whichever is greater)
What is the unique feature of credit unions?
Members savings and loan balances are covered by life assurance. On death any loan balance will be paid off and a lump sum to equal to savings held will be paid subject to overall limits.
What is the interbank market?
The market which recycles surplus cash held by banks, either directly between banks or through the services of specialist money brokers.
Building societies may also raise funds on the interbank market but are restricted to 50% of their liabilities.
What is Libor?
The rate of interest charged on the interbank market - London Interbank Offered Rate
What is the definition of Insurance?
A means of shifting the burden of risk by pooling to minimise financial loss
What is Libor being replaced with in 2021?
SONIA - Sterling Overnight Index Average
