Chapter 2, Saving And Borrowing

Question 1

What is the role of banks?

Answer 1

The link between savers and borrowers

Question 2

What is a surplus?

Answer 2

The excess money, used to pay various costs (staff wages, office rental payments, taxes)

Question 3

How do banks make profit?

Answer 3

Make profit on the difference between what they pay savers and what they charge borrowers

Question 4

What is equity alertantively referred to as?

Answer 4

Shares or stocks

Question 5

What does equity represent?

Answer 5

Ownership

Question 6

How does a business raise money when setting up a company?

Answer 6

Selling shares

Question 7

Why is equity preferred to borrowing?

Answer 7

• Interest needs to be paid on borrowing (not equity)
• Money borrowed has to be repaid (not equity)

Question 8

What are IPO’s?

Answer 8

Initial public offerings

Question 9

What is an example of a massive IPO?

Answer 9

Communications company, Zoom inc (floated in April 2019)

Question 10

Who are IOU’s issued to?

Answer 10

Directly to investors

Question 11

What are bonds?

Answer 11

The subdivides on IOU’s

Question 12

Why may many individuals not have a surplus of money?

Answer 12

Shortage of money due to needing to finance high-cost items, such as household items (TV, washing machine)

Question 14

What are loans for homes called?

Answer 14

Mortgages

Question 15

What are personal loans?

Answer 15

Money borrowed for a consumer item, such as a TV or washing machine

Question 16

What is a bank overdraft?

Answer 16

Form of loan where a bank can demand repayment immediately

Question 17

How long is a mortgage repaid over?

Answer 17

25-30 years

Question 18

How do governments collect money each year?

Answer 18

Imposing taxes on residents (for roads, hospitals, defence, education, wages)

Question 19

Where does government borrowing come from?

Answer 19

Individuals and firms in the form of regular issue bonds

Question 20

What is national debt?

Answer 20

A countries outstanding bonds

Question 21

What was the UK national debt in 2022?

Answer 21

More than £2.4 trillion

Question 22

What places generate a surplus of money rather than shortage?

Answer 22

Norway, Gulf states, Singapore

Question 23

How does Norway and the Gulf generate a surplus of money?

Answer 23

Due to an abundance of natural resources, particularly oil and gas

Question 24

How does Singapore generate a surplus of money?

Answer 24

Due to a very successful economy, and careful government spending with revenue

Question 25

What is a safer form of investment?

Answer 25

Buying shares in established companies (Microsoft, Apple)

Question 26

Are smaller bonds/equity more or less financially secure?

Answer 26

Less financially secure

Question 27

Are larger bonds/equity more or less financially secure?

Answer 27

More financially secure

Question 28

How does equity and bond differ?

Answer 28

- Equities give the holder an ownership stake in the issuing company - Equities have no set date if repayment - Equities do not pay interest

Question 29

Why are investors willing to put money into equities when they can see little/no prospect?

Answer 29

They hope the company will perform well and generate profits

Question 30

What is the NYSE?

Answer 30

New York Stock Exchange

Question 31

What is the ADX?

Answer 31

Abu Dhabi Securities Exchange

Question 32

What is the LSE?

Answer 32

London Stock Exchange

Question 33

What is the TSE?

Answer 33

Tokyo Stock Exchange

Question 34

What is the SSE?

Answer 34

China’s Shanghai Stock Exchange

Question 35

What is the JSE?

Answer 35

Johannesburg Stock Exchange

Question 36

What are markets?

Answer 36

Where deals are arranged (stock exchanges)

Question 37

When can bonds be bought or sold?

Answer 37

Before they reach their repayment dates

Question 38

Why are most bonds bought/sold away from the big exchanges?

Answer 38

Nearly all bonds have a maturity or repayment date when the bond holder’s IOU will be repaid

Question 39

What are OTC’s?

Answer 39

Over-the-counter facilities

Question 40

What do OTC’s do?

Answer 40

Trades that arranged away from established exchanges either directly between buyer and seller or via an intermediary such as a bank or broker

Question 41

How are risks controlled?

Answer 41

Taking out insurance from insurance companies

Question 42

What are some types of insurance?

Answer 42

Marine insurance (if a ship breaks down or hits rocks) ‘Life policy’

Question 43

Examples of well-known insurance companies?

Answer 43

Axa of France and Allianz of Germany

Question 44

What is reinsurance?

Answer 44

When insurance companies take out insurance of themselves, allowing the risk taken on to be shared

Question 45

What is the Foreign Exchange?

Answer 45

Changing a particular quantity of one currency for an equivalent amount of another currency

Question 46

What is the most important currency in the world?

Answer 46

The US dollar

Question 47

How is the foreign exchange quoted?

Answer 47

Measured against how much the US dollar is worth