Chapter 5: Intro to financial products and customer needs

Question 1

Benefits can be categorised as (4)

Answer 1

• benefits on events unpredictable in time
• benefits on events predictable in time
• benefits for immediate consumption
• benefits from the accumulation of disposable income and capital

Question 2

5 Financial product categories

Answer 2

• insurance contracts
• reinsurance contracts
• pension schemes
• investment schemes
• derivatives

Question 3

Insurance contracts

Answer 3

In return for a single payment (or series of payments) the provider will pay an individual or his/her heirs an agreed amount that start or end on a pre-specified event.
This event may happen to the individual, the individual’s property or a 3rd party.

Question 4

Pension scheme

Answer 4

Involves accumulation of funds paid out on later date, for example retirement, death or withdrawal from the scheme.

Question 5

Investment schemes

Answer 5

Involve an individual paying a single payment or series of payments to a provider with expectation that a higher amount will be paid back at a later date.

Question 6

Derivative

Answer 6

Financial instrument whose value depends on the value of other investments or variables.
Can be used by providers of financial products to pass on risks to 3rd parties.

Question 7

Important to differentiate between a customer’s

Answer 7

• logical and emotional needs

- Current and future needs

Question 8

3 ways a customer’s logical needs are determined

Answer 8

• protection,
• accumulation for a purpose
• accumulation for a purpose as yet unknown out of any remaining disposable income or capital

Question 9

Current need

Answer 9

One triggered by an event that has an immediate effect on a customer’s circumstances,

Question 10

Future need

Answer 10

May be one that relates to a customer’s future aspirations.