Chapter 1A - Overview Flashcards
To provide an overview of the Financial Services Industry and its' key objectives
What are the four main Financial Services functions?
1 - to provide means for savings to be protected, and channelled into Capital Management
2 - to match savers with a need for quick access funds, to borrowers who need long-term funds, whilst the Financial Institution can take a longer-term investment period
3 - to allow individuals and companies to insure against risks they dont want to take, but others are willing to accept in return for regular payment
4 - to allow investors to disperse risk across different investment products
How do banks use money deposited in Current Accounts?
- lend it to borrowers
- interest is charged to the borrower which covers bank costs
How are Banks and Building Societies owned differently?
Banks are owned by Shareholders; building societies are owned mutually by everyone who uses the service
How do Banks turn a shareholder profit?
They charge interest on loans
How do Building Societies pay shareholders?
Trick question - they dont have shareholders. This normally means lower interest for borrowers and higher rates of interest paid
What is a Gilt?
A Gilt is a government derived investment that offers fixed interest for the investor and acts as a loan to the UK Goverment.
How often is interest paid on a Gilt?
Every six months
Does a Gilt holder have a guaranteed return?
No, they get back the face value, but that can be less than originally invested.
What is the name given to a Gilt which is linked to RPI?
Bonus: why is this done?
Index-linked
Bonus: it protects against the impact of inflation.
Which Government institution offers Premium Bonds?
National Savings and Investments
What four things are commonly protected with insurance?
1 - Physical Assets
2 - Earnings
3 - Profit Potential
4 - Financial Transactions
Briefly explain the principle of insurance
Small, regular payments are pooled and invested for profit, and to protect against inflation.
What risk transfer occurs when taking an insurance policy?
The payment transfers risk from the individual to the insurer.
What is the name given to the insurance of crucial earnings in the event of death?
Life Assurance
What happens when a risk is too large to be covered by just a single insurance policy?
It is reinsured
