Cemap 1 Unit 1 Topic 1 Flashcards
What are the 4 properties of money to be accepted as medium of exchange?
- Suficient in quantity 2. Generally acceptable to all parties in all transactions 3. Divisible into small units 4. Must be portable.
What is inflation ?
A sustained increase in the general level of prices of goods and services
Why financial intermediation exists ?
It channels the money from those who have surplus (banks), to those who wish to borrow it and are willing to pay for the privilege (customers )
What are Financial intermediation ?
A financial intermediary borrows money from a surplus party and lends it to a deficit party. The intermediary then charges interest to the deficit party and pays some of this interest to the party with the surplus
What are the 4 elements of intermediation ?
- Geographical location
2.aggregation
3.maturity transformation
4.risk transformation
What are the product sale intermediaries
The financial advisor
The mortgage advisor
The insurance broker
What is disintermediation?
When Lenders and Borrowers interact directly with each other and cut out the middleman.
Example : Crowdfunding.
What are the Bank of England functions?
Banker to the Government
Issuer of Bank Notes
Banker to the Banks
Advisor to the Government.
The BOE manages gold reserves and foreign currency on behalf of the Treasury.
Lender of Last Resort. BOE can make funds available when the banking system is short of Liquidity* (Northern Rock).
Maintaining Economic Stability
1st April 2013 - 2016: The Financial Services Act 2012 divided the responsibility for financial stability between The Treasury, The BOE, and two new regulators:
The Financial Conduct Authority (FCA), and Prudential Regulation Authority (PRA)
What are the differences between a mutual organisation and a proprietary organisation?
Proprietary Organisations are Limited Companies owned by shareholders who have the right to a share in the distribution of the profits (think banks and other businesses).
A Mutual Organisation however is owned by it’s members, who can determine how the company is managed through general meetings(think building societies and credit unions).
What is demutualisation?
is where a building society can convert into a bank (limited Company).
What is a credit union ?
A credit Union is a mutual organisation run for the benefit of it’s members. In order to join a credit union members must pay a required entrance fee and buy at least £1 of shares. All shares in the credit union are equal, regardless of how many are owned.
Traditionally, credit unions operated in the poorer sections of the community as an alternative to loan sharks, providing savings and reasonably priced short and long term loans to their members.
What is interbank market ?
banks are able to recycle surplus cash directly between each other or through specialist money brokers.
What is wholesale banking ?
Wholesale banking refers to the process of raising money through the wholesale market where financial institutions and other large companies buy and sell financial assets.
How building societies raising money from the wholesale market?
Building Societies are permitted to raise funds on the wholesale markets but are restricted to 50% of their liabilities. For banks there are no restrictions.
