Chapter 8 - Financial Innovation Flashcards
What is financial innovation?
A new financial product, process or service which:
1) Fills a gap in the market
2) Corrects imbalances of information available
What are some core examples of financial innovation?
1) Hedge Funds (market neutral portfolios)
2) MBSs
3) ETFs (low cost and high liquidity)
4) Weather Derivatives
5) Sukuk (solution for Muslim investors)
6) Green finance (help to reach net zero)
What is fintech?
New technology which seeks to improve financial services
What do fintechs aim to do?
- Increase efficiency
- reduce costs
- improve security
Why is it important for firms to adopt fintech?
They will otherwise lose their competetive edge
Their survival could then be at risk
What is digital banking?
An umbrella term for access banking features through a website
Can be via mobile or computer
What are the draws of digital banking?
Ease of access
Simplicity
Convenience
What is vital to a succesful digital banking solution?
- Secure connection to prevent security being compromised
Key points about crypto
- Decentralised
- Highly volatile
- volatility has not stopped popularity
- Can hold money without Govt intervention
- Amount of currency is limited
Uses blockchain
What is a robo-advisor?
An investment service with little to no human interaction
How do robo-advisors work?
Investors fill in surveys regarding circumstances and goals.
Algorithms then calculate risk appropriate portfolios
What are some robo-advisors capable of doing?
Tax loss harvesting to minimise CGT bills
What AUM are robo advisors expected to have by 2027
4.7tr
What is investment crowdfunding?
Startups raising capital from a pool of backers in exchange for a share in the company
When and why did investment crowdfunding get popular
post 2008 after public trust in financial institutions fell
