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R01 Financial Services, Regulation And Ethics > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

What are the 4 functions of the financial services?

A
  1. Savings - Protect and Channel into capital
  2. Match savers and borrowers
  3. Risk
  4. Diversification
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2
Q

What is Reinsurance?

A

When risks are too big for one company, a Reinsurance company will insure a proportion in exchange for a proportion of the premium

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3
Q

What is a derivative?

A

Similar to a contract - Used to offset the losses - protection for financial transactions, such as currency.

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4
Q

What are the 2 key objectives of capital markets

A
  1. Investors - able to invest in assets that provide growth above inflation
  2. Companies - able to raise money without help from banks
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5
Q

What financial instruments were created as a result of the key objectives of the capital markets?

A
  1. Shares - allows investors to buy a % or ownership from a company, therefore benefitting from company increase in value and receive dividends
  2. Bonds - allows investors to lend companies money in exchange for pre defined interest payment
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6
Q

Who are the EU Regulatory bodies?

A

European Supervisory Authorities ESAs

  1. EBA European Banking Authority
  2. ESMA European Securities & Markets Authority
  3. EIOPA European Insurance & Occupational Pensions Authority
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7
Q

What is the role of the European Central Bank (ECB)

A

Coordinate and control the monetary policy and the interest rates in countries using the Euro

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8
Q

What does the Financial Action Task Force (FATF) primarily deal with

A

Anti money laundering

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9
Q

What are the 4 key components of the UK Financial Services structure

A
  1. Financial infrastructure
  2. Financial markets
  3. Financial firms
  4. Financial authorities
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10
Q

Who oversees, monitors and facilitates the payment systems?

A

The Bank of England

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11
Q

What are the 3 objectives of the PSR (payment systems regulator)

A
  1. Consider and promote the interests of all
  2. Promotes effective competition
  3. Promotes development- particularly the infrastructure used to operate the system
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12
Q

What is the purpose of the PSR

A

To work well for those who use them

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13
Q

Who established the PSR

A

The FCA

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14
Q

What are on exchange markets

A
  • FCA regulate the key changes in the UK
  • used to trade investments such as equities and derivatives
  • specifically designed locations such as London Stock Exchange
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15
Q

What are OTC Markets

A
  • no physical exchanges

* users formed a committee that examine how markets function

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16
Q

What are the ‘core’ services offered by banks and building societies

A
  • current accounts
  • savings accounts
  • wills
  • mortgages/loans
17
Q

What are the ‘extra’ services offered by banks and building societies

A
  • Portfolio management
  • Stockbroking
  • Insurance, Investment & Pensions
18
Q

When was the 3x ESAs created?

A

Jan 2011

19
Q

When was the FSAP adopted by the European Commission?

A

Financial Services Action Plan adopted May 1999

20
Q

What were the 3 objectives of the FSAP

A
  1. Create a single EU market
  2. Open and secure retail markets
  3. Prudential rules and structures of supervision
21
Q

What was the FSAP designed to do?

A
  • promote Europe’s wider economy by removing barriers and increasing competition amongst firms, thereby:
  • increasing efficiency
  • reduction of cost raising capital
22
Q

Which Gvt department is responsible for the regulation of the market?

A

HM Treasury

Under direct supervision of the Chancellor of the Exchequer

23
Q

Who is responsible for the regulation and conduct of business in the UK Markets

A

The Chancellor of the Exchequer

24
Q

Which key legal instruments govern the regulation and conduct of business?

A
  1. FSMA 2000

2. FSA 2012

25
Q

Current regulatory framework in the UK include …

A

1 FPC - financial policy committee

  1. PRA- prudential regulatory authority
  2. FCA - financial conduct authority
26
Q

What do the PRA do?

A
  • subsidiary of the B of E

- authorise and regulate larger firms (banks etc)

27
Q

What do the FCA do

A
  • has conduct and market responsibilities

- Authorises smaller firms (IFAs etc)

28
Q

What does Prudential mean

A

Issues such as levels of capital, solvency and risk management

29
Q

What do tax rates determine

A
  • level of revenue received by the Exchequer
  • economic activity of the country
  • ability of people to invest
  • influences the best/most convenient choice of investment for individuals
30
Q

What is economic policy

A

The set of actions the Gvt propose to take on

  1. Expenditure
  2. Borrowing
  3. Interest rates
31
Q

What is Fiscal policy

A

Control of taxation
Borrowing
Gvt spending methods

32
Q

What is monetary policy

A

Actions involving-

  • interest rates
  • money supply
33
Q

Who is responsible for defining the level of Gvt borrowing and expenditure

A

Chancellor of Exchequer

BUT the responsibility of the control of interest rates lies with the
Monetary Policy Committee MPC

34
Q

What is described as the ‘dampening effect’ on the economy

A

When the Gvt borrows money it reduces the amount of money in circulation

35
Q

What is Quantitive Easing

A

Bank of England buying back Gilts and Corporate Bonds from financial sector, thus injecting more liquidity into the system.

36
Q

Who has responsibility for setting interest rates

A

The Monetary Policy Committee

* prior to 1997 this was the Chancellor of the Exchequer

37
Q

What 4 things influence the UK economy

A
  • interest rates (key)
  • taxation
  • spending
  • borrowing
38
Q

What are the aims of the PRA?

A

Enhance financial stability by promoting the safety and soundness of authorised firms- including minimising the impact of their failure.

39
Q

What is the objective of the FCA?

A

To ensure the relevant markets function well.

  1. Consumer Protection
  2. Integrity
  3. Competition

R01 Financial Services, Regulation And Ethics (1 decks)

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