Other areas of financial services

Question 1

What is fund management?

Answer 1

It’s when a firm creates an investment fund for its clients which will enable those clients to invest together, sharing in any gains made or losses suffered.

Question 2

What is Foreign Exchange? FX? Forex?

Answer 2

It’s when money in different currencies are exchanged so that a trade can take place.

Question 3

What is insurance?

Answer 3

A method to manage risk.

Question 4

What is financial planning?

Answer 4

Providing assistance to individuals to organise their financial affairs to achieve their financial objectives such as retirement.

Question 5

What is another name for fund management?

Answer 5

A Collective Investment Scheme (CIS)

Question 6

Why do individuals use fund management?

Answer 6

1) To spread their risk by investing in a range of companies,
2) To benefit from the fund manager’s expertise in determining which companies are likely to generate the most future profits.

Question 7

What type of investment is fund management?

Answer 7

Indirect. This is because you don’t invest directly in the company’s shares.

Question 8

What is diversification

Answer 8

Spreading your risks?

Question 9

What term is used to describe not putting all your eggs in one basket?

Answer 9

Diversification.

Question 10

What are the benefits of fund management?

Answer 10

1) Pooled into a single fund.
2) Diversification
3) Fractions of shares can be bought.
4) Expertise of the fund manager.

Question 11

When do individuals use FX?

Answer 11

When they are travelling abroad they convert Pounds into another currency that they can spend whilst they are away.

Question 12

Why are there 2 FX rates?

Answer 12

1) one that the FX trader will buy and

2) one that the FX trader will sell.

Question 13

How do FX traders make money?

Answer 13

By charging a difference in buying and selling.

Question 14

How are FX rates quoted?

Answer 14

An example is as follows:
£1 buys 1.25 US dollars or
1 US dollar buys £0.80.

Question 15

What is the principle of insurance?

Answer 15

1) Providing security against particular events.

2) Enables risks to be pooled.

Question 16

Why do insurance companies provide insurance?

Answer 16

They charge a premium and they hope to make a profit.

Question 17

Who buys insurance?

Answer 17

Individuals and companies.

Question 18

What is insurance syndication?

Answer 18

When insurers group together to form a syndicate they pool or share risks. Each syndicate member takes a percentage of the risk and the same percentage of the premium.

Question 19

What does financial planning deal with?

Answer 19

Money and assets. It is about agreeing on future objectives and then agreeing how money and assets can be used to meet these.

Question 20

What does financial planning include?

Answer 20

May include tax planning, debt management, protecting income and capital and retirement planning.

Question 21

What is retirement planning?

Answer 21

Planning to save up sufficient money whilst you are working to support you when you no longer work.

Question 22

What is a pension?

Answer 22

A source of income in retirement.

Question 23

What are the sources of pension?

Answer 23

1) State of Government,
2) Individual pension,
3) Company pension.

Question 24

What is a pension scheme?

Answer 24

An investment vehicle where employees save money from their salaries. The money is invested in stocks and shares and bonds which hopefully grow in value.

Question 25

What impacts the size of a pension?

Answer 25

1) The amount of money contributed.
2) The time it is invested.
3) The return it generates between investment and retirement.
4) The age of retirement as this determines how long the money needs to last.
5) Life expectancy at the retirement age.