Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

IFoA CP1 > 4. Financial Products & Customer Needs > Flashcards

4. Financial Products & Customer Needs Flashcards

1
Q

What do people in countries with no/little state benefits instead use as a safety blanket?

A

Financial contracts or schemes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the term for when social security benefits are only given to the poorest in society?

A

Means tested

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What does a means tested social security system encourage?

A

Encourages individuals to not make alternative private pension provisions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the main risk for an individual when it comes to social security benefits?

A

Political risk that these may be withdrawn in future

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Name the 6 types of social security benefit
(PISMHL)

A
  • Pension
  • Income support due to unemployment, illness or disability
  • Survivor benefit
  • Medical care
  • Long-term care
  • Housing support
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What’s the definition of insurance?

A

Benefit in return for series of payments which starts or ends on a pre-specified event. Could be a payment to a 3rd party instead

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Who is insurance benefit contingent on life paid to?

A

Heirs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is reinsurance?

A

Ceding some of the risk an insurer has accepted to a re-insurer in exchange for premium

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What’s the definition of a pension scheme?

A

An accumulation of funds paid out upon a specified event (generally retirement)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What 3 things do pension schemes do to meet customer needs?

A
  • Retirement income
  • Protect against financial impact of death
  • Accumulate assets to pay off e.g. mortgage
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How does a pension scheme ensure standard of living is maintained

A

By accumulating interest so income is maintained in real-terms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the 3 insurance principles which decide contract design and benefits? (PIP)

A
  • Pooling of risk
  • Insurable interest
  • Pre-funding
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Why is it essential that an insurance contract involves an insurable event?

A

Policyholder must have an interest in the claim not happening so they won’t encourage it to occur

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the term for if a policyholder didn’t have an interest in the claim not happening so they would encourage it to occur

A

Moral hazard

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is pre-funding?

A

One putting money aside in advance of the occurrence of an event

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the 3 risks with pre-funding rather than insuring?

A
  • Event timing
  • Cost of event
  • Return that can be earned on the pre-funding money before event
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the concept of pooling risk?

A

Pooling finances allows a group to protect individuals against uncertainty

18
Q

Give 3 examples of pooling of risk

A
  • Retirement community
  • Trade union
  • Employee association
19
Q

When pooling risk, what additionally benefits from economies of scale?

A

Fixed or admin costs

20
Q

What 4 things do an investment bank do? (APII)

A
  • Advise on mergers
  • Provide trading services for bonds, equities & derivatives
  • Issue shares & bonds to finance firms raising capital
  • Invest in markets
21
Q

What do retail banks do?

A

Provide savings and loan products to individuals & small businesses

22
Q

Name 3 bank assets (CES)

A
  • Cash
  • Expected future loan payments
  • Securities
23
Q

Name the 5 risks that banks face (DIPFC)

A
  • Default risk
  • Interest rate changes
  • Process risk
  • Fines from failing to meet regulation
  • Cashflow issues
24
Q

Why does a bank not need to hold a buffer on current account deposits?

A

There will be a limit on when a customer can withdraw a given sum of money and will pay a slightly lower interest rate

25
Q

Is a credit card a secured loan?

A

No, no collateral taken

26
Q

Is a personal loan secured?

A

Yes, collateral is taken

27
Q

How long is a personal loan interest rate fixed for?

A

The duration of the loan

28
Q

Are corporate loans secured?

A

Usually are since most firms have tangible assets

29
Q

Are corporate loans generally fixed or variable in interest rate?

A

Generally variable

30
Q

What additional risk does a bank using a house as mortgage collateral incur?

A

Market risk

31
Q

What are derivatives?

A

A financial instrument whose value depends on the value of another investment (e.g. shares)

32
Q

Who does a bank act as an intermediary between?

A

Matching buyers & sellers or savers & spenders

33
Q

What is a mortgage backed security?

A

Where banks repackage mortgage repayments to sell

34
Q

What is an asset backed security?

A

Repackaging of loan repayments to be sold to investors

35
Q

How are ABSs usually made up?

A

Banks split loans into homogenous groups to create tranches of ABSs

36
Q

How may a supermarket use ABSs?

A

If they sell items on credit but want the money now

37
Q

What is PPI?

A

Insurance to protect against if repayment are unable to be made due to accident or illness

38
Q

Which 2 groups was PPI mis-sold to?

A
  • Self-employed customers
  • Those who already had alternative provision
39
Q

What does an investment scheme do?

A

Where an individual makes a series of investments with the expectation that more is paid back

40
Q

Name the 4 logical needs of financial product stakeholders (MPAA)

A
  • Maintain lifestyle
  • Protection
  • Accumulation for known purposed
  • Accumulation for purposes as yet unknown
41
Q
A

IFoA CP1 (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions