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TC FINANCE > Module 14 - Financial Services Sector > Flashcards

Module 14 - Financial Services Sector Flashcards

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1
Q

Commercial bank

A

Usually ltd companies that collects deposits from individuals and companies and lends money to them when they wish to borrow money - go between for those who have extra money and those who are short on funds

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2
Q

Financial intermediation

A

Pooling funds from different sources and using these funds to provide loans and make investments

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3
Q

Building society

A

operate in a similar manner to a bank but have no external shareholders: borrowers and lenders are members who vote on how the society is run

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4
Q

NS&I

A

takes deposits from HM Treasury but is not a bank and doesn’t provide lending services

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5
Q

peer-to-peer lending

A

Borrow money directly from investors - usually cheaper than going through a bank

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6
Q

Investment banks

A
  • provide advice to corporate customers who want to raise finance and assist in the issue of securities
  • managing corporate M&A
  • buying and selling shares and bonds on behalf of both corporate and private customers
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7
Q

Securitisation

A

takes assets which are illiquid and pools them together and transforms them in to a more liquid security e.g. MBS

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8
Q

What does the underwriter do in an insurance company

A

Assesses the risks and quotes the premium

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9
Q

When is an insurance business viable

A

As long as the total premiums received is more than the claims paid out

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10
Q

What do insurance companies do with the premiums

A

They are steady, predictable inflows of cash which are invested by the insurance company with the aim of providing the maximum possible return balanced with the need to be able to pay out when required

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11
Q

What are the two general categories of insurance

A
  1. general

2. long-term savings and life insurance

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12
Q

What is life insurance vs life assurance

A

Life insurance is fixed term whereas life assurance is not for a fixed term

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13
Q

Term insurance

A

An individual’s life is insured for a specific period or term

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14
Q

Whole of life policies

A

A capital sum will be paid upon the death of the policyholder - can be used to meet inheritance tax liabilities

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15
Q

Endowment policies

A

Combining life insurance and savings

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16
Q

Investment management

A

Involves the investment of a client’s assets to meet pre-determined objectives - usually to either maximise returns or to match liabilities

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17
Q

Collective investment schemes

A

Large funds which can be invested in on behalf of investor by professional fund managers

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18
Q

Adv of collective investment schemes

A
  • can invest small amounts regularly
  • funds managed by professional
  • pooling allows purchases at lower costs
  • risk reduced by diversification
  • no CGT when a fund trades in shares
  • exposure to foreign stocks
  • specialisation possible
19
Q

Disadv of collective investment schemes

A
  • cannot choose investments
  • management is less certain
  • larger funds find it difficult to invest in shares with small capitalisation
  • layer of charges payable
20
Q

What are the three alternative investment management styles that may be adopted

A

active
passive
hybrid

21
Q

active management

A

changes portfolio on regular basis attempting to improve returns of funds

  • do not believe in efficient market hypothesis
22
Q

passive management

A

believe in efficient market hypothesis so design their funds to mirror specific indices

23
Q

hybrid management

A

try to outperform indices rather than track them - mix of active and passive

24
Q

collective funds may be either ____

A

onshore or offshore

25
Q

Three forms of onshore funds

A
  • unit trusts
  • open-ended investment companies
  • investment trusts
26
Q

Unit trusts

A
  • investor’s holdings in units
  • monitored by trustees
  • open-ended
  • pricing is at valuation point
  • dual price
  • no stock exchange listing
  • charges set out in trust deed
27
Q

Open-ended investment companies

A
  • company structure
  • shares
  • depositary looks after funds which must be independent
  • dual pricing but usually single price
  • valuation point for pricing
  • listing is optional
28
Q

Investment trusts

A
  • plc
  • listed on stock exchange
  • closed ended (fixed amount of shares)
  • more flexibility in gearing/ risk
  • single price
  • real time pricing
29
Q

NAV

A

net assets attributable to OS / number of ordinary shares in issue

30
Q

which type of funds are priced based on the NAV

A
  • unit trusts

- OEIC

31
Q

Monetary stability

A

Prices are stable and confidence in local currency - stable prices defined by inflation target

32
Q

Financial stability

A

detecting and reducing threats to the financial system as a whole

33
Q

FPC

A
  • committee of BoE
  • looks for risks and weaknesses in the financial system
  • 13 expert members (6 from BoE) who meet quarterly at times of crisis

tools:

  • setting minimal capital requirement for banks to hold
  • set limits on gearing levels of banks
  • setting limits on borrowing
  • using regs to set limits on lending
34
Q

PRA

A
  • part of BoE
  • prudential regulation and supervision of banks etc
  • monitoring adequacy of internal systems and controls

three objectives:

  1. safety and soundness of firm it regulated
  2. contribute to the securing of appropriate degree of protection for insurance policy holders
  3. facilitate effective competition between firms
35
Q

What is the main difference between PRA and FPC

A

FPC looks at financial system as a whole whereas PRA focuses at firm level

36
Q

FCA

A
  • independent public body
  • accountable to treasury
  • purpose defined by FS and Markets act 2000

objectives:

  1. secure an appropriate degree of protection for consumers
  2. protect and enhance integrity of UK financial system
  3. promote effective competition in the interests of consumers
37
Q

Four of the FCAs key responsibilities

A
  1. conduct regulator
  2. prudential regulation
  3. admission to LSE
    - tackling financial crime
38
Q

Regulated activies:

A
  • entering into a regulated credit agreement as a lender
  • debt collection
  • advising on or managing investments etc
39
Q

Exemptions from the requirement to be authorised by FCA

A
  1. professional firms e.g. solicitors, accountants, actuaries
  2. firms offering payments by instalments
  3. appointed representatives working on behalf of firms that are already authorised
40
Q

What makes up the ESFS

A
  • ESRB
  • EBA
  • ESMA
  • EIOPA
41
Q

City Fraud

A

Wrongful or criminal deception intended to result in financial or personal gain - involves dishonesty, misrep and legally recognised harm

42
Q

In terms of money laundering regulations all relevant businesses must:

A
  • conduct a money laundering and terrorist financing written risk assessment
  • have an appropriate anti-ML and terrorist financing systems in place
43
Q

The Bribery act 2010

A

Increases max jail term by an individual from 7 to 10 years and an unlimited fine for a company

four offences:

  • paying bribes
  • receiving bribes
  • bribery of foreign public officials
  • failure of commercial organisations to prevent bribery

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