Module 14 Financial Services Sector Flashcards
1
Q
Types of banks
A
- Commercial banks
- Investment banks
- Central banks
- Merchant banks
2
Q
What is Financial Intermediation?
A
Pooling funds from different sources and using these funds to provide loans and make investments
3
Q
Bulding society
A
- no external shareholders
- borrowers and lenders are ‘members’ who vote on how the society is run
4
Q
NS&I
A
- operates online and through some Post Offices
- takes deposits from the public and is backed by HM Treasury
- not a bank and does not provide lending services
5
Q
Peer-to-peer lending
A
- borrow money directly from investors
- avoiding the role of the bank as intermediary
- borrow money more cheaply
6
Q
What do investment banks do?
A
- providing advice to corporate customers who want to raise finance and assisting in the issue of securities
- managing corporate mergers and acquisitions
- buying and selling shares and bonds on behalf of both corporate and private customers
7
Q
Types of General/Non-life insurance
A
- Vehicle insurance
- Buildings and contents insurance
- Pet insurance
- Health insurance
- Accident insurance
8
Q
Additonal types of general insurance for business
A
- Employer’s liability insurance
- Professional indemnity insurance
- Public liability insurance
- Business interruption insurance
- Cyber and data risks insurance
9
Q
What is the difference between life insurance and life assurance?
A
- Life insurance is a fixed-term policy which insures against an individual’s death for the duration of that period
- Life assurance is not for a fixed term and will provide cover until the insured person passes away
10
Q
8 Advantages of collective investment funds
A
- invest relatively small amounts
- managed by professional fund managers (past performance)
- pooling of investments enables the fund to make purchases of securities at a lower cost
- Risk is reduced by exposure to a widelydiversified spread
- no capital gains tax (‘CGT’) payable when a fund trades in shares only when their
investment in the fund itself is sold - investor can gain exposure to foreign stocks
- Different funds provide for different investment objectives
- Specialisation in particular sectors is possible
11
Q
4 Disadvantages of Collective investment schemes
A
- individual cannot choose their own investments
- Fund manager may change jobs
- Larger collective funds find it more difficult to invest in shares of companies with a relatively small capitalisation
- layer of charges which are payable within funds
12
Q
Active investment managment
A
- changes their portfolio on a regular basis
- do not believe that the securities markets are efficient
- believe that markets and securities can be mis-valued
13
Q
Passive investment management
A
- believe in the efficient market hypothesis, so design their funds to mirror specific indices without attempting to ‘beat’ the market.
14
Q
Hybrid investment management
A
- fund managers are being requested to outperform indices
- fund managers to use a mixture of the two
15
Q
Unit Trust
A
- open-ended fund
- monitored by trustees
- overall objectives are determined in advance and laid out in a trust deed
- trust deed also sets out the charges which an investor is subject to
- not continuously priced, value of the underlying fund is determined at regular intervals (valuation point)
16
Q
Open-Ended Investment Companies
A
- open-ended but are structured as a company so they can continually issue and redeem their own shares
- must use a depositary to look after the funds must be independent and separately authorised
- originally required to have one price with no bid-offer spread. Since October 2008 been permitted to use dual pricing, although few do.
17
Q
Investment Trusts
A
- public limited companies whose shares are listed on a stock exchange
- closed-ended which means that they issue a fixed amount of shares
- not subject to the same inflows and outflows do not need much liquidity
- more flexibility in gearing, and therefore the risk thereby increasing possible returns
18
Q
Monetary stability
A
- prices are stable and there is confidence in the local currency
- Stable prices are defined by the government’s inflation target
- Bank has responsibility by decisions taken by its Monetary Policy Committee
19
Q
Financial stability
A
- detecting and reducing threats to the financial system as a whole maintina public confidence
- delegating work to the Financial Policy Committee.
20
Q
What is the Financial policy commitee?
A
- committee of the BoE established in 2013
- looks for risks and weaknesses in the UK financial system
- 13 expert members (6 from within the BoE)
- meet quarterly and at times of crisis
21
Q
What can the Finacial policy commitee do?
A
- setting the minimum capital requirements for banks to hold
- setting limits on the gearing levels of banks
- setting limits on borrowing
- set limits on lending
22
Q
Three objectives of the Prudential Regulation Authority?
A
- promote the safety and soundness of the firms it regulates
- contribute to the securing of an appropriate degree of protection for insurance policyholders
- facilitate effective competition between firms
23
Q
Three operational objectives of the FCA
A
- Secure an appropriate degree of protection for consumers
- Protect and enhance the integrity of the UK financial system
- Promote effective competition in the interests of consumers
24
Q
What does the European System of Financial Supervision (ESFS) consits of?
A
- The European Systemic Risk Board (‘ESRB’)
- Three European supervisory authorities:
- the European Banking Authority (‘EBA’)
- the European Securities and Markets Authority (‘ESMA’)
- the European Insurance and Occupational Pensions Authority (‘EIOPA’)
25
Q
Penalties of Bribary
A
- Maximum jail time of 10 years
- Company convicted of failing to prevent bibery could receive ulimited fine
