Chapter 1: Introduction to The Financial Services Sector

Question 1

What does the financial services sector do?

Answer 1

Connects those needing capital with those with capital for investment.

Question 2

What are the two distinct areas on the financial services sector?

Answer 2

Wholesale (institutional) and Retail sectors

Question 3

Name the 5 markets that make up the financial services sector

Answer 3

Equity Markets
Bond Markets
Foreign Exchange Markets
Derivatives Market
Insurance Market

Question 4

What 4 things are traded on the derivatives market?

Answer 4

Options, swaps, futures and forwards

Question 5

What 3 activities take place in the Wholesale Sector?

Answer 5

Fund Management
Investment Banking
Custodian Banking

Question 6

What 5 activities take place in the Retail Sector?

Answer 6

Retail Banking
Insurance
Pensions
Investment Services
Financial Planning and Advice

Question 7

What is the global market capitalisation?

Answer 7

US$ 109 Trillion

Question 8

What is a multilateral trading facility?

Answer 8

Systems that bring together multiple parties to trade shares, bonds and derivatives.

Question 9

Which is the largest financial market?

Answer 9

Forex

Question 10

What do derivatives market trade?

Answer 10

Complex products based on underlying instruments.

Question 11

What is an underwriting syndicate?

Answer 11

Group of people join to underwrite insurance to spread out risk.

Question 12

What is the reinsurance industry?

Answer 12

Insurance for insurance companies. Can lay off some risk with a reinsurer.

Question 13

What is a savings institution?

Answer 13

Commonly known as a building society in the UK. Jointly owned by individuals who have deposited money or borrowed money “the members”.

Question 14

What do savings institutions specialise in?

Answer 14

Services for retail customers, deposit accounts and mortgages.

Question 15

What is an example of a savings institution?

Answer 15

National Savings & Investments. Owned by the Government, offer premium bonds and national savings certificates.

Question 16

How does P2P lending differ to traditional banking model?

Answer 16

In banking deposits are taken by the bank and lent to others. In P2P lending this is done directly.

Question 17

What are the 3 types of crowdfunding?

Answer 17

1. Donation
2. Debt crowdfunding - capital returned with interest.
3. Equity crowdfunding - receive equity in venture .

Question 18

What five areas do Investment Banks operate in?

Answer 18

1. Corporate Finance
2. Banking for government and institutions
3. Treasury dealing
4. Investment Management for sizable clients
5. Securities trading

Question 19

What is treasury dealing?

Answer 19

Managing the holdings of a company, to provide liquidity and protect against risks.

Question 20

What is a Third-Party Administrator?

Answer 20

They undertake investment administration on behalf of other firms.

Question 21

What is Financial Planning?

Answer 21

Planning how to meet a clients financial and lifestyle objectives.

Question 22

What is the difference between an independent and restricted financial advisor?

Answer 22

Restricted only offers products available from their own firm, whereas independent gives unbiased advice on all financial products.

Question 23

What does Execution-Only mean in Investment Distribution?

Answer 23

This is a firm that will only do what the customer tells it to. They offer no advice.

Question 24

What do Execution-Only firms have to ensure that they do?

Answer 24

Retain evidence that they
- Gave no advice
- They’re not responsible for assessing product suitability

Question 25

What is a Platform?

Answer 25

Online services used by intermediaries, such as financial advisors, to view and administer client portfolios. E.g. Hargreaves Lansdown