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unit 1 intro to financial services > financial markets > Flashcards

financial markets Flashcards

1
Q

what two sectors back legal tender?

A
  1. central bank 2. government
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2
Q

What are the two main objectives of uk financial regulation?

A
  1. To protect consumers
  2. to provide profit to financial firms
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3
Q

what does money require to be accepted as a medium for exchange? name four factors

A
  1. divisible
  2. portable
  3. generally acceptable
  4. sufficient in quantity
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4
Q

what is fungible?

A

it is interchangeable and identical to a unit of money that is of the same unit and can be divided to produce the same outcome

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5
Q

what is a unit of account?

A

a monetary unit of measurement to determine the value of goods, services and any other transaction

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6
Q

are cheques, bacs transfer or atm’s a form of legal tender?
what service is used?

A

No

these are electronic money transmission services

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7
Q

what form of money is most widespread?

A

Electronic

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8
Q

what is the keyword for financial institutions that move our money around electronically?

A

Intermediary

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9
Q

what is a budget surplus? (Surplus sector)

A

when income and expenditure exceed expenditures (more income than expenses)

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10
Q

what is a deficit sector?

A

when expenditure exceeds revenue and income

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11
Q

examples of a deficit sector?

A

mortgages, loans, government borrowing

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12
Q

what is one example of a financial intermediary?

A

a bank

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13
Q

what is liquidity

A

how fast you can get your cash, to get money whenever is needed

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14
Q

what is risk transformation?

A

mitigating risk and in turn creating a competitive advantage. to create risk free solutions to clients and users

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15
Q
A
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16
Q

On what terms is life insurance set at?
and does it guarentee a payout to the insuree?

A

a set term is set on life insurance. There is no guarenteed payout as the life may survive

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17
Q

On what terms is life assurance set at?
is there a guaranteed payout?

A

there is no fixed term.
There is a guarenteed payout

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18
Q

is life assurance or life insurance more expensive and why?

A

life assurance
because it guarantees a payout

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19
Q

What is general insurance?
what does it cover?

A

the protection of valuables (home equipment)

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20
Q

what is indemnification?

A

it means that the insured pays a premium to the insurer to cover the loss or damage of goods insured.

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21
Q

what is a composite insurer?

A

it is an insurance company which covers both life assurance and general insurance

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22
Q

what are product sales intermediaries?

A

they bring product providers (insurance providers, investment firms and mortgage brokers) together with customers to produce a sale.

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23
Q

examples of sectors that product sales intermediaries work in?

A

financial advisor, insurance and mortgage brokers

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24
Q

who is the issuer of banknotes

A

Bank of England

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25
Q

who does the government have an account with?

A

Bank of England

26
Q

who lends to the government if there is deficit on making an automatic loan

A

Bank of England

27
Q
  1. from what year has the bank of england set uk interest rates?
  2. and what does the bank of england adjust in order to maintain price stability
A

1.1997
2. monetry policy

28
Q

what is monetry policy?

A

it is an economic policy that controls how much money is in the economy and how much it costs to borrow the money.

29
Q

what does monetry policy influence.
name three things?

A
  1. inflation rates
  2. interest rates
  3. employment
  4. business expansion
30
Q

what are the main goals of monetry policy?
name three things?

A
  1. maximum employment
  2. stable inflation
  3. moderate long-term interest rates
31
Q

who do major banks have an account with?
and what influence does the account provider create?

A
  1. bank of england (banker of banks)
  2. influence over rates in money markets
32
Q

BOE manages foreign currency reserves on behalf of what government department?

A

The treasury

33
Q

what is a lender of last resort? and who can provide?

A
  1. a lender of last resort is a bank that bails out or provides liquidity or emergency credit to a failing bank or financial institution
  2. the bank of england
34
Q

name five examples of major financial institions?

A
  1. insurance companies
  2. credit unions
  3. mortgage companies
  4. central banks
  5. brokerage firms
35
Q

What is the role of the financial policy committe? (FPC)
Memory tip (think about a risk assessor who is very fat who sits on the BOE and reads emails on the economic climate)

A

Looks at the whole economy
1. reduces risks
2. identifies risks
3. take action to remove or reduce risks to the financial system

36
Q

who/what authority passed on uk rate setting to the BOE in what year? and what is another word for uk rate setting?

A

the chancellor passed on uk rate setting to the BOE in 1997
Monetry policy

37
Q

who regulated financial services/banking regulation from 2001 to 2013?

A

Financial Services Authority

38
Q

what were the two main areas that the FSA regulated?

A

Prudential Regulation Authority (PRA)
Conduct of business regulation (COB

39
Q

what is prudential regulation Authority? What are the enforcements on financial institutions?

A

rules to maintain the stabiility, solvency and financial safety
ensuring standards are met by the financial institutions
to avoid firms from collapsing and defaulting

40
Q

what is solvency?

A

the ability for a company to meet its long term debts and obligations

41
Q

what does the Conduct of Business Regulation entail?

A

relates to how firms conduct their business with consumers i.e the sales process and marketing process of financial products

42
Q

what two regulations did the FSA use to Regulate?

A
  1. Prudential regulation
  2. conduct of business regulation
43
Q

which bank suffered failed prudential regulation and in what year?

A

northern rock 500

44
Q

who did the bank that failed the prudential regulation go to in the time of crisis, keyterm for the liquidity?
1. what did they first do?
2. who ended up bailing them out?
3. who did it affect and why?

A
  1. BOE (lender of last resort for bail)
  2. The taxpayer and the government
  3. it affected the economy at a huge cost as the taxpayers and governement protected the customers who had their life saving with the bank
45
Q

what authorities does the new regulatory system comprise of?
there are three

A
  1. Financial Policy Committee (FPC)
  2. Prudential Regulation Authority (PRA)
  3. Financial Conduct Authority (FCA)
46
Q

Financial Policee Committe new instructions? who do they provide guidance to?

do they make rules?

A

rules? no, only guidance

prevent fiancial risk internally and externally that may threaten uk stability
PRA & FCA
Prudential Regulation Authority & Financial Conduct Authority

47
Q

what does the financial conduct authority do and what powers do they have?

A

responsible for how they conduct their business in the sales process and the prudential regulation for solo regulated firms.

they have power to create rules for all financial firms

48
Q

what is a solo regulated firm?

A

firms regulated only by the FCA

49
Q

what is a dual regulated firm?

A

firms regulated by the FCA and PRA

50
Q

how is the FCA funded

A

by levies paid from all financial firms

51
Q

what is a levy?

A

a charge, such as a tax, fine, or other fee, that is imposed on something

52
Q

what is the FCA a continuation of?
and what specific responsbilities are handed over to what regulation?

A

the Financial Services Authority (FSA)
most prudential regulations are handed over to the PRA

53
Q

what is fiscal policy?

A

the use of government spending and taxation to influence the economy

54
Q

What is the treasury?
what are examples of what effect this has on the economy ?

A

government department that implements fiscal policy. This in turn controls how much tax the economy pays towards spending (benefits , health, education & defence)

55
Q

what does the treasury do if there is a government tax shortfall? and how does it balance the shortfall? and what is the key term?

A

borrow from the financial markets.
issue bonds, referred to as gilts

56
Q

what is a tax shortfall? and what may the government need to do in order to compensate?

A

an underpayment of tax, it means less cash is available to pay the required tax amount.
The government will need to borrow .

57
Q

what firm initially had the responsibility of issuiing gilts?
who was it transferred to?

A
  1. BOE
  2. DMO (Debt Management Office)
58
Q

what are gilts?

A

loans to the central government where a set rate of return to fund the shortfall is given and money is returned on maturity.

59
Q

what is maturity in finance?

A

the date on which the final payment is due on a loan or other financial instrument

60
Q

which regulators work together?

A

the PRA and FCA

61
Q
  1. what are dual regulated firms regulated by?
  2. what are the main functions of each regulation?
A
  1. The PRA and FCA
  2. The PRA for prudential regulation
  3. the FCA for conduct of business
62
Q

what are solo regulated firms regulated by and what are the regulations functions?

A

FCA for prudential regulation and also the FCA for authorisation on COB regulation

unit 1 intro to financial services (1 decks)

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