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Business, Technology, and Finance > Business Finance > Flashcards

Business Finance Flashcards

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1
Q

What are the purposes of financial intermediaries?

A
  1. Bring together investors and lenders with borrowers and users of funds
  2. They mirror the real world by providing a relatively risk-free lending environment and easily accessible funds for borrowing
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2
Q

What are the roles of the financial intermediary

A
  1. Making a market by putting lenders and borrowers in touch
  2. Risk diversification
  3. Aggregation
  4. Maturity transformation
  5. Advice
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3
Q

What are the four contractual arrangements between the bank and the customer?

A
  1. Bailor/bailee
  2. Receivable/payable
  3. Principal/agent
  4. Mortgagor/mortgagee
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4
Q

What is the relationship between the bailor and bailee?

A

Safeguard property

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5
Q

What is the relationship between the receivable and payable?

A

Contractually owe each other dependant on whether overdrawn or in credit

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6
Q

What is the relationship between principal and agent?

A

The bank acts as an agent for the customer

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7
Q

What is the relationship between the mortgagor and mortgagee?

A

Bank has the right to assets of the customer if customer defaults on the loan

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8
Q

Define fiduciary relationship

A

That the bank is expected to act in good faith in its relationship with the customer

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9
Q

What are the three main components of the UK banking system?

A
  1. Primary banks
  2. Secondary banks
  3. Bank of England
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10
Q

Define primary banks

A

Banks that deal with day-to-day money transmission

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11
Q

Define secondary banks

A

Banks that offer tailored advice to large commercial clients usually in raising considerable sums

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12
Q

Define Bank of England

A

Acts as a banker to the banks by lending money to the banking sector through its financial market operations

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13
Q

What are examples of cash transmission mechanisms?

A
  1. General clearing
  2. Electric Fund Transfers (EFT)
  3. Bank Automated Clearing System (BACS)
  4. Clearing House Automated Payments System (CHAPS)
  5. Society for Worldwide Interbank Financial Telecommunication (SWIFT)
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14
Q

What are the features of general clearing cash transmission?

A
  1. Mainly cheques
  2. costly
  3. Takes up to four days
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15
Q

What are the features of EFT?

A
  1. Electronic Fund Transfers
  2. A computer-based system used to transfer money electronically
  3. The most common form is Electronic Point of Sale (EPOS) in shops
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16
Q

What are the features of BACS?

A
  1. Bank Automated Clearing System
  2. Deals with salaries, standing orders, and direct debits
  3. The account of the payer is debited the same day as the account of the recipient is credited
17
Q

What are the features of CHAPS?

A
  1. Clearing House Automated Payments System
  2. Covers items larger than £10,000
  3. Provides same-day clearing
18
Q

What are the features of SWIFT?

A
  1. Society for Worldwide Interbank Financial Telecommunication
  2. For international transfers
  3. Covers items larger than £10,000
  4. Provides same-day clearing
19
Q

What are the two main roles of the Bank of England?

A
  1. Carrying out monetary policy

2. Ensuring financial stability

20
Q

How does the Bank of England carry out monetary policy?

A
  1. The Bank of England lends money to the banking sector at the base rate, which is set by the Monetary Policy Committee
  2. Banks then lend and borrow money among themselves at rates such as the London Intern Bank Offered Rate (LIBOR), which then, in turn, affects the rates offered to customers when combined with determining factors
21
Q

How does the Bank of England ensure financial stability?

A
  1. The Bank of England’s Financial Policy Committee (FPC) is responsible for taking action to remove systemic risks in the UK financial system as a while
  2. The Prudential Regulation Authority is also part of the Bank of England and is responsible for prudential regulation and supervision of banks, building societies, credit unions, insurers, and major investment firms
22
Q

What is the FCA responsible for?

A
  1. Promoting effective competition

2. Ensuring that relevant markets function well

23
Q

What are the two main types of financial markets?

A
  1. Money markets

2. Capital market

24
Q

Define money market

A

Covers a vast array of markets buying and selling different forms of money or marketable securities

25
Q

Define capital market

A

The national and international market in which a business may obtain the finance it needs for its short-term and long-term plans

26
Q

What is the function of money markets?

A

To offer opportunities for businesses to invest surplus funds

27
Q

What is the function of the capital market?

A

To provide a source of funds for businesses and an exit route for investors

28
Q

Define marketable securities

A

Short term highly liquid investments that are readily convertible into cash

29
Q

What are examples of money market financial instruments?

A
  1. Treasury bills
  2. Deposits
  3. Certificates of deposit
  4. Gilts
  5. Bonds
  6. Commercial papers
30
Q

What are the features of treasury bills?

A
  1. Issued by the Bank of England on behalf of the government
  2. The minimum investment is £500,000
  3. Last up to six months
  4. Secure
  5. Low returns
31
Q

What are the features of deposits?

A
  1. Usually placed in accounts with banks
  2. Periods from overnight to five years
  3. Higher yields than treasury bills
32
Q

What are the features of certificates of deposit?

A
  1. Issued for deposits of £50,000 or more
  2. Fixed-term
  3. Can be traded in the CD market
33
Q

What are the features of gilts?

A
  1. Offer a range of maturities and rates

2. Based on the money market rates

34
Q

What are the features of bonds?

A
  1. Debentures

2. Loan stock of companies quoted on the Stock Exchange

35
Q

Define commercial papers

A

IOUs issued by large companies that can be held to maturity or sold to third parties beforehand

36
Q

What are examples of ways businesses can access finance?

A
  1. National stock markets
  2. The banking system
  3. Bond markets
  4. Leasing
  5. Debt factoring
  6. International markets

Business, Technology, and Finance (8 decks)

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