Financial Services Industry

Question 1

What are the 4 main functions of the financial services industry?

Answer 1

1. Financial intermediation
2. Pooling and managing risk
3. Payments and settlement services
4. Portfolio Management

Question 2

What is financial intermediation?

Answer 2

Financial system providing channels for funds to move from savers to borrowers

Intermediaries reduce information and transaction costs by:
1. Providing services and products that allow savers to become investors
2. Ensure adequate provision of information
3. Allow borrowers to access a range of savers that can meet a variety of terms.

Question 3

What’s pooling and managing risk?

Answer 3

1. Pooled investment products allow multiple savers to invest in a wide variety of investments than they would be able to individually
2. This reduces each individual’s overall risk exposure
3. E.g. Insurance (transfer risk in return for a premium)
4. E.g. Derivatives (options and futures allow investors to manage risk exposure)

Question 4

Brief explanation of payments and settlement services

Answer 4

1. How money and financial assets can be managed, transmitted and received
2. Banks are main provides of payment systems that allow money exchange
3. Settlement services are provided by clearing houses to make sure buyers and sellers complete a transaction

Question 5

What is portfolio management?

Answer 5

A financial system that allows investors to manage their wealth

They have access to investment advice and investment management

Question 6

In terms of sustainability, what does ESG stand for?

Answer 6

Environmental, social and governance

Question 7

Explain savers and borrowers

Answer 7

Savers have funds to invest (also known as lenders/ investors)

Borrowers need those funds

Question 8

Who are the main savers/ lenders and borrowers in the economy?

Answer 8

1. Main lenders are households
2. Main borrowers are companies and governments

Question 9

Give me some examples of different intermediaries between savers and borrowers

Answer 9

1. Insurance companies
2. Pension funds
3. Pooled investment vehicles
4. Other investment institutions