Chapter One: The UK Financial Services Industry: An Overview

Question 1

What do banks do with the money they receive into current and savings accounts?

Answer 1

Lend it out to other customers in the form of loans

Question 2

Who issues Gilts?

Answer 2

The Debt Management Office (DMO)

Question 3

What is the primary function of a Gilt?

Answer 3

To function as a loan to the Government

Question 4

What are the names of the two institutions that fund Government borrowing?

Answer 4

1. National Savings & Investments (NS&I)

2. The Debt Management Office (DMO)

Question 5

Over what period do Gilts accrue interest?

Answer 5

Every 6 months

Question 6

What is the difference in ownership between a Bank and a Building Society?

Answer 6

A Bank is owned by Shareholders and Building Societies are owned by their ‘Members’

Question 7

What financial product would you use to “transfer risk”?

Answer 7

Insurance

Question 8

‘Physical Assets’, ‘Earnings’ and ‘Financial Transactions’ can all be insured. Apart from these three, what else can be insured?

Answer 8

Profit Potential

Question 9

‘Physical Assets’, ‘Earnings’ and ‘Profit Potential’ can all be insured. Apart from these three, what else can be insured?

Answer 9

Financial Transactions

Question 10

What are the two objectives of the Capital Markets?

Answer 10

1. Enable investors to invest in assets that provide the potential for ‘real growth’;
2. Help companies to raise monies without resorting to debt

Question 11

What are the two types of financial investments in the Capital Markets?

Answer 11

1. Shares;

2. Fixed-Interest Bonds (Stocks)

Question 12

How does an investor hope to financially benefit from Shares?

Answer 12

Through the appreciation of Capital and the distribution of Dividends

Question 13

How can an investor purchase a percentage of a company?

Answer 13

Through Shares

Question 14

How does an investor hope to financially benefit from Stocks?

Answer 14

Through a return of interest from the company and potentially through Capital appreciation from selling on the Stock

Question 15

How do the majority of investors access Stocks & Shares investments?

Answer 15

Through Collective Investment Schemes (CIS)

Question 16

What are the 4 key components of the UK Financial Services Sector?

Answer 16

1. Financial infrastructure;
2. Financial markets;
3. Financial firms;
4. Financial sector authorities

Question 17

What is the name of the 2 Financial Authorities that regulate the retail financial services?

Answer 17

1. Financial Conduct Authority (FCA);

2. Prudential Regulation Authority (PRA)

Question 18

What is it referred to as when a Building Society becomes a Bank?

Answer 18

Demutualisation

Question 19

What are Unit Trusts and Open Ended Investment Companies an example of?

Answer 19

Collective Investment Schemes (CIS)

Question 20

What benefits are afforded to Friendly Societies?

Answer 20

Tax exempt status

Question 21

Who regulates payment systems?

Answer 21

Payments Systems Regulator (PSR)

Question 22

Who oversees payment systems?

Answer 22

The Bank of England (BoE)

Question 23

What are the two types of Financial Adviser?

Answer 23

Independent & Restricted

Question 24

List the indirect services offered by Banks and Building Societies?

Answer 24

1. Portfolio management;
2. Stockbroking services;
3. Wills & Executorships;
4. Collective Investment Schemes;
5. Insurance & Pensions

Question 25

Who is the ultimate authority of the Treasury?

Answer 25

The Chancellor of the Exchequer

Question 26

What is the key European Union initiative for the financial services called?

Answer 26

The Financial Services Action Plan (FSAP)

*On a bit of a tangent, ‘FSAP’ was the sound made when my mate threw a Nodder at our German teacher in high school!

** You’ll remember the acronym now!!!

Question 27

What happens to Economic Growth when taxes are increased?

Answer 27

It slows down

Question 28

What are the two forms of Economic Policy utilised by the UK government?

Answer 28

1. Fiscal Policy - the adjustment and application of taxes;

2. Monetary Policy - the rates of interest and money supply

Question 29

Which institution has the responsibility for determining the interest rates?

Answer 29

The Monetary Policy Committee (MPC) which is a part of the Bank of England (BoE)

Question 30

What is Quantitative Easing?

Answer 30

Where the Bank of England purchases both Gilts and Corporate Bonds

Question 31

How does Quantitative Easing help stimulate the Economy?

Answer 31

By increasing the amount of money in circulation

Question 32

What is the impact of Quantitative Easing on interest rates?

Answer 32

Interest rates decline