Chapter 1 Flashcards
What are the four main functions of the financial services industry?
- Financial Intermediation
- Pooling and Managing risk
- Provision of payment and settlement services
- Portfolio Management
What are the three main types of financial institutions?
- Central Banks
- Deposit Institutions
- Invesment Institutions
What are Governments 4 important economic functions?
- The provision of certain goods and services
- Regulation of markets to protect consumers
- Improving the distributions of incomes through taxation and welfare payments
- Maintaining economic stability
What is the difference between real assets and financial assets?
Real assets are physical such as land, buildings and gold. Financial assets are claims representing the right to some return or ownership of physical assets.
What are the 4 main functions of securities markets?
- Raising capital
- Transferring risk (through derivatives)
- Price discovery (establishing the fair value of assets)
- Creating liquidity (so the price isn’t moved massively with each trade and holders can exchange there securities for cash with ease)
What is the difference between primary and secondary markets?
Primary markets are where initial sales of securities are made. Secondaries markets are where subsequent trading takes place
What are round-trip transaction costs?
Round-trip transaction costs are the total costs of completing a transaction including bid-ask spread, commissions and taxes
What is the difference between the SETS system and the SEAQ system that the LSE uses?
SEAQ is a quote-display system for fixed income and AIM securities. SETS is for FTSE 100, FTSE 250 and FTSE small cap constituents.
What types of stocks are traded on the SETSqx and how does the SETSqx operate?
Less liquid stocks are traded on the SETSqx. The SETSqx combines a period auction book along with quote-driven market marking.
What department is responsible for gilt issuance and how does gilt issuance work?
The Debt Management Office. There is an initial auction held where banks, pension funds and individuals bid. This helps to establish the interest rate of the gilt.
How does corporate bonds issuance work?
Corporate bonds can initially be sold via an IPO or can be sold privately to institutional investors.
What is a DLC?
A DLC is a dual listed company which is when two corporations function as a single operating business but retain separeate legal identities and stock exchange listings.
What is CREST?
CREST is the settlement system used by the LSE
What are the rules for a security to get listed on the main market?
There must be 3 years of published accounts and over £30 million of listed stock or £200k of debt securities.
What is the criterion for a company to be listed on the AIM?
There is no minimum criterion for size, trading record or shares in the public hands.
