Chapter 1 - Introduction to the financial services

Question 1

What is a retail bank and activities?

Answer 1

Retail bank - providing banking services to general public
Activities
- Lending (morgates,credit,loans)
- Savings
- Pensions
- Financial planning and advice
- Insurance

Question 2

What is a Wholesale bank and its activities?

Answer 2

Wholesale - provision of funds on a larger scale to larger clients
Activities
- Custodian banking
- Insurance markets
- Bonds
- Derivatives
- Fx
- Equity
- Investment banking
- Fund managers

Question 3

What are equity markets?

Answer 3

Facilities the trading of shares in quoted companies and listed companies. Regulating bodies, such as the US Securities and Exchange Commission (SEC), or the Financial Conduct Authority.

Question 4

What are bond markets?

Answer 4

The buying/selling of debt instruments. Government and other companies list bonds to raise capital. Regulated by the International capital market association.

Question 5

What is the foreign exchange market?

Answer 5

Facilities the trading of currencies as well as the interest rates. Trading occurs OTC.

Question 6

What are derivatives markets?

Answer 6

Derivatives are based on an asset whose value determines the value of a derivative product.
Futures
Options
Swaps
Forwards
The largest derivative market is the CME - Chicago Mercantile Exchange

Question 7

What are insurance markets? The largest insurance markets in 2020.

Answer 7

Insurance markets specialize in the management of risks. The different markets are Reinsurance, Risk-sharing, and Captive insurance. the largest insurance markets in 2020 were, USA, China, Japan, UK, Germany, and Taiwan. The premiums are then reinvested back into the market.

Question 8

How do retail banks tend to operate

Answer 8

Retail banks tend to operate on high street branches, but due to the increase in online banking, this has lowered the banks.

Question 9

What are savings institutions?

Answer 9

Also known as building societies, and mutual savings . They allow people to keep their money, earn interest, and access loans. The structure is different from ordinary banks as the depositors jointly own the building society.

Question 10

What is crowdfunding and the different types

Answer 10

Crowdfunding is raising small amounts of capital by large number of people. The different types are:
- Debt crowdfunding - investors receive their money back with interest
- Equity crowdfunding - Investors receive equity/shares back
- Donations

Question 11

What is peer-to-peer?

Answer 11

P2P lending cuts out the banks. This means that borrowers get lower rates, while savers get far more improved rates. They profit by fees. This can be seen as a more risky approach, money can not be withdrawal immediately.

Question 12

What is an investment bank?

Answer 12

Investment banks:
- Provide advise for companies and arrange companies who want to float on stock market
- carry out mergers and acquisitions
- Provide services for those who want to invest in shares and bonds
- Corporate finance and advisory work
- Treasury dealing

Question 13

What are pension funds?

Answer 13

They are long-term investments designed to specifically capture savings for an individuals retirement, in stock, bonds and cash.

Question 14

What are insurance companies?

Answer 14

They ensure risks are managed effectively and provides solutions. Protection planning is offered. these products range from payment protection policies

Question 15

What are fund managers?

Answer 15

Manage investment funds through collective investment schemes, pension funds, and insurance funds. the UK is the largest center for fund managers

Question 16

What is a stockbroker? What is a wealth manager?

Answer 16

Stockbrokers - arrange trades on behalf of their clients, earn money through commission or fees.
Wealth managers - offering wealth management services to clients. earn money by charging fees or earning commission.

Question 17

What are Custodian banks?

Answer 17

Custodian banks are banks that specialize in the safekeeping of securities. The core activities undertaken are:
- Holding assets in safekeeping
- arrange settlements
- processing corporate actions
- have annual general meetings

Question 18

What are platforms?

Answer 18

Platforms are online services used by intermediates, such as IFAs to view their client investment portfolios. Platforms also make their services available direct to investors, and platforms earn their income by charging services.

Question 19

What are third-party Administrators?

Answer 19

TPA undertake investment administration on behalf of other firms. These are outsourced by firms so firms can focus on their work, and TPA can solely focus on administration.

Question 20

What are trade and professional bodies?

Answer 20

These ensure individuals are correctly represented, such as CISI qualification. Also ensures investment firms are represented correctly. Examples are:
- International capital market association (Bonds)
- International swaps and derivative association
- Association of British Insurers

Question 21

What is financial planning?

Answer 21

Financial planning is arranging a clients financial affairs to meet their financial objectives.

Question 22

What are Independent Financial Advisors?

Answer 22

Independent financial advisors provide advise based on the whole market products, this advise will be unbiased.

Question 23

What is restricted advise?

Answer 23

Restricted advice is when firms give advise based on their firms products

Question 24

What is execution-only?

Answer 24

Execution only is when customers instruct firms to buy/sell financial instruments without any advise. In order to operate with the regulatory guidelines, the FCA state these rules must be followed:
- Give no advice
- Make suitability clear - explicitly state the firm isn’t responsible]
- Provide documentation

Question 25

What is robo-advice? How does this work?

Answer 25

The application of technology to provide financial advice, without the need for financial advisors. This works by a prospective investor entering clients data, then an algorithm will decide which investment is chosen.

Question 26

What is FinTech?

Answer 26

financial technology which is used to enhance financial services. It can be used by:
- Faster onboarding process
- Data collection
- Real-time pricing updates

Question 27

What is ESG?

Answer 27

Environmental, social and governance. Firms should adopt this approach. ESG rating agency can tell investors which investments suit their objectives.

Question 28

Who regulates the US financial services industry?

Answer 28

Securities and Exchange commission (SEC)/ Federal Reserve Bank

Question 29

What is the FCA?

Answer 29

Regulates the UK financial services industry