Chapter 1

Question 1

Why do mutual organisations offer higher interest rates than proprietary companies?

Answer 1

Building societies have no shareholders to keep happy with dividends so can offer higher interest rates

Question 2

What is the main way the government raise money?

Answer 2

Through issuing GILTS and promoting NS&I products

Question 3

What is the PSNCR?

Answer 3

Deficit in monies - e.g. spent more on state benefits than taxation

Question 4

What are the 3 European Supervisory Authorities?

Answer 4

1 - European Banking Authority - Banking
2 - European Securities & Markets
Authority - Stock Markets
3 - European Insurance & Occupational Pensions Authority - Life & Pensions

Question 5

What is the role of the ECB?

Answer 5

Control monetary policy and interest rates across EU states

Question 6

What is the ESRB & ESFS

Answer 6

1 - ESSR - European Systemic Risk Board - monitor and access the stability of the financial system - Macro

2 - ESFS - European System of Financial Supervision - individual financial institutions - Micro

Question 7

What is the FSB & FATF?

Answer 7

1 - Financial Stability Board - worldwide stability of financial system

2 - Financial Action Task Force - worldwide anti-money laundering

Question 8

What are the 4 key components of the UK financial sector?

Answer 8

FIRM

Firm
Infrastructure
Regulatory Authorities
Markets

Question 9

What is the PSR?

Answer 9

Payments Systems Regulator - competition-focused regulator with the purpose of making payment systems work well for all that use

Question 10

What are the 3 statutory objectives of the PSR?

Answer 10

1 - Ensuring payment systems consider and promote interests of all businesses and consumers

2 - Promote effective competition in markets

3 - Promote development and innovation of payments systems

Question 11

What role does the BoE & FCA play in payment systems?

Answer 11

The Bank of England oversees the payments system

The Financial Conduct Authority regulates the BoE and recognised investment exchanged - can impose sanctions

Question 12

What are the 2 basic ways of organising financial markets?

Answer 12

1 - On-exchange markets - FCA trading floors for stocks and shares

2 - Over the counter (OTC) markets - less transparent and less regulated - can take place without knowledge of transaction price

Question 13

How do international markets operate?

Answer 13

They are interlinked with the UK as a major financial centre

Monies flow in and out and are unlikely to match

Question 14

4 Types of Financial Firms

Answer 14

1 - Insurance
2 - Pension
3 - Reinsurance
4 - Investment houses

Question 15

Core Activities of Financial Firms

Answer 15

1 - Current Accounts
2 - Savings Accounts
3 - Wills
4 - Mortgage and loans

Question 16

Indirect Services of Financial Activities

Answer 16

1 - Portfolio Management
2 - DMS
3 - AMS
4 - Execution Only
5 - Stockbroking services
6 - Trusts & OEICs

Question 17

What is a life insurance subsidiary set up by a banks or building society called?

Answer 17

Bancassurers

Question 18

Since the RDR, there are 2 categories of advice. Name them

Answer 18

1 - Independent

2 - Restricted
a - multi-tied - limited range of providers
b - tied - one companies product range

Question 19

What relationship did the EU have on UK regulation and the financial system?

Answer 19

UK financial system was subject to regulations imposed by both the EU and UK government.

We have had more fiscal control as did not use the EU currency.

However around 70% of the FCA’s policies were driven by EU initiatives.

Question 20

What is the FSAP and the 3 objectives?

Answer 20

Financial Services Action Plan - improve single market for financial services

1 - create single market
2 - provide open and secure retail markets
3 - better prudential rules and supervision

Question 21

Who is ultimately responsible for the regulation of UK financial services?

Answer 21

HM Treasury under direct authority of the Chancellor of the Exchequer

Question 22

What did the FSMA 2000 do?

Answer 22

Simplified UK regulatory framework

1 - Financial Services Authority - sole regulator
2 - Financial Ombudsman Service - advice complaints
3 - Financial Services Compensation Scheme

Question 23

What did the Financial Services Act 2012 do?

Answer 23

1 - Financial Policy Committee - part of BoE which is responsible for reducing and removing systematic risk (stability of system as a whole)

2 - Prudential Regulation Authority - regulates largest UK firms - regulated itself by PRC

3 - FCA - regulates all firms not covered by PRA

Question 24

What roles does the UK government play in maintaining economic stability?

Answer 24

Fiscal policy - government control of taxation

Monetary policy - control of interest rates and money supplies

Question 25

How does fiscal policy work?

Answer 25

Taxes - raise revenues to spend and re-distribute wealth

Influence public - higher taxes mean save especially into ISAs etc.

Question 26

How does monetary policy work?

Answer 26

Sets out interest rates and uses quantitative easing (buy government securities) to lower inflation rates which is good for UK economy

Question 27

Why has QE not caused inflation?

Answer 27

Doesn’t get passed to public as used to balance sheets as lots of debt from credit crunch

Question 28

What is the Balance of Payments?

Answer 28

Statement of transactions between one country and the rest of the world

Question 29

What is Industrial policy and give an example?

Answer 29

Strategic efforts and policies to encourage growth of manufacturing sector

Factory gate taxation - control indirect costs (tax) as raise tax revenues paid by customers rather than manufactures

Question 30

What is the role of the MPC and what is the process?

Answer 30

Responsible for setting interest rates since May 1999 to try and meet government inflationary targets

The 9 MPC members fronted by the Governor of the BoE meet 8 times a year