practice questions Flashcards
The Santander Group, in 2008, acquired which of the following organisations?
Alliance and Leicester
Barclays.
Standard Chartered
TSB
Alliance and Leicester.
Feedback:
Correct. Santander acquired Alliance and Leicester in 2008.
How many credit unions are there in the UK?
- <75
-approx 150
-approx 275 - > 300
Approximately 275.
The Lloyd’s insurance market is based in the City of London and is made up of syndicates known as:
- directors.
- managers
- members
- underwriters
members
Where do investment banks raise their money?
The financial markets.
Feedback:
Retail banks obtain their funds from deposits; investment banks get their money from financial markets.
Which of the following is an independent think tank which is concerned about the levels of personal debt in the UK
Citizens Advice.
The Centre for Social Justice.
The Financial Services Consumer Panel
The Monetary Policy Committee.
The Financial Services Consumer Panel
Feedback: Citizens Advice provide advice people need for the problems they face. The Centre for Social Justice is particularly concerned with high levels of consumer debt. The Financial Services Consumer Panel is an independent statutory body that advises and challenges, for example, the Financial Conduct Authority (FCA). The Monetary Policy Committee (MPC) is a subsidiary of the Bank of England that sets interest rates.
Which of the following means ‘competition between the few’?
Autocracy.
Meritocracy
Monopoly.
Oligopoly
Oligopoly
Feedback: Oligopoly could be used to describe the domination of UK retail banking by very few providers. Autocracy means that something is controlled by one person. Meritocracy means that people rise in status due to their ability. A monopoly is where one provider controls the whole market.
Advertising by the UK’s largest banks is mainly focused on:
brand image.
detailed features
product costs.
regulatory requirements
brand image.
Feedback: The largest banks compete more on image than on price and detail. Advertisements do not usually include detailed features. The main focus is usually the brand rather than specific product costs. Regulatory requirements is not a feature of advertising by banks.
Where a market is dominated by a small number of large providers, which of the following frequently exists?
Highly competitive pricing.
No choice for consumers.
Product differentiation.
The same advertising between competitors.
Product differentiation
Feedback : In an oligopolistic market firms compete less on price and more on product differentiation. There will be very limited difference in pricing. There will be some choice for consumers. The advertising will not be exactly the same.
Which of the following banks failed, triggering the start of a global financial crisis in 2008?
Goldman Sachs.
Lehman Brothers.
Merrill Lynch.
Northern Rock.
Lehman Brothers Feedback: It was Lehman Brothers. Goldman Sachs and Merrill Lynch did not fail. Although Northern Rock did fail, it did not trigger the global financial crisis.
The term recession is used to describe a period when:
economic activity is high and unemployment is high.
economic activity is high and unemployment is low.
economic activity is low and unemployment is low.
economic activity is low and unemployment is high
economic activity is low and unemployment is high.
Financial sustainability can be said to focus on three key elements. These are:
bank, regulatory and policy.
capital, liquidity and reserves.
customers, staff and suppliers.
environmental, social and economic.
environmental, social and economic.
Which of the following types of newspapers are likely to include the least amount of detail in a financial article? The:
broadsheet press
financial press.
middle-market press.
tabloid press.
tabloid press.
Feedback: In the tabloid press, a financial article is likely to be short and use headlines / sound bites rather than detail. Broadsheets are likely to include a reasonable amount of detail in a financial article. The financial press is likely to include the most detail in a financial article. Middle-market newspapers are likely to include a reasonable amount of detail in a financial article.
A provider’s reputation is partly affected by:
changing regulations
corporate behaviour.
government spending.
increasing competition.
corporate behaviour.
Feedback: Changing regulations, government spending and increasing does not affect the provider’s reputation.
The Resolution Foundation has produced a number of reports highlighting which aspect of personal finance?
Current accounts.
Debts
Investments
Mis-selling.
Debts
Feedback: The Resolution Foundation has mainly reported on personal debt. It is a think tank that has reported on the levels of personal debt in the UK.
What is the main focus of BBC Radio 4’s Money Box programme? To provide:
analysis of the global banking industry.
information on a wide range of personal finance issues.
information on graduate recruitment in the UK.
political commentary on government spending.
information on a wide range of personal finance issues.
Feedback: Money Box focuses on personal finance issues
Demographic trends would be considered under which aspect of a PESTEL analysis?
The economic environment.
The legal environment.
The political environment.
The social environment.
The social environment.
Feedback: Demographic trends are part of the social environment.
Which of the following is not covered in the Banking Conduct of Business Sourcebook (BCOBS)?
The requirement to provide fair after-sales service.
The right to cancel a product after purchase.
The information that banks must communicate to customers.
Ensuring levels of liquidity are maintained.
Ensuring levels of liquidity are maintained
Feedback: It does not cover liquidity levels. BCOBS comprises rules and guidance for providers that accept deposits from customers such as the requirement to provide fair after-sales service, the right to cancel a product after purchase. and the information that banks must communicate to customers.
A declining level of unemployment is most likely to result in:
higher demand for products and services and higher inflation.
higher demand for products and services and lower inflation.
lower demand for products and services and higher inflation.
lower demand for products and services and lower inflation.
higher demand for products and services and higher inflation.
Feedback: Declining unemployment means more people are employed and therefore demand for products and services is likely to increase so prices are likely to rise. People are likely to be more confident and to spend more money on products and services, leading to price rises.
Why might the profits of a financial services provider be reduced when the Bank rate rises?
Loans become less affordable.
Loans become more affordable.
Low inflation affects profitability.
Stocks and shares become more preferred.
Loans become less affordable
Feedback: Loans become less affordable for customers when Banks rate rises. Financial services providers will make less profit if a smaller number of people are taking out loans. Loans become more affordable when interest rates are low. Low inflation would not cause interest rates to rise, all other things being equal. Savings will increase when interest rates rise.
When an investor is investing directly in the stock market, the term ‘diversification’ relates to:
avoiding investments that involve risk.
investing in several different companies.
investing in high risk companies
investing in one company.
investing in several different companies.
Feedback:
Diversification is essentially about spreading the investment to reduce risk and relates to investing in a range of companies.
The average amount of loss that someone could predict that they will face is known as:
catastrophic loss.
expected loss.
speculative loss.
unexpected loss.
expected loss.
Feedback: The amount of loss someone might predict to face in their lifetime is known as expected loss.
If Micky’s income has risen by 2 per cent and inflation is 1 per cent, his real income has:
fallen by 1 per cent.
risen by 1 per cent.
risen by 2 per cent.
risen by 3 per cent.
risen by 1 per cent Feedback: The rise in real income is the actual rise less the rate of inflation (2 per cent actual rise less 1 per cent inflation).
The Lloyds Banking Group was required to undergo a divestment process. This meant Lloyds:
borrowed money from the government.
increased the amount of capital it held.
reduced the value of its shares.
sold off part of its business.
sold off part of its business.
Feedback: Divestment involved Lloyds disposing of part of its business by creating the TSB brand and floating it on the stock market as a new bank. The EU felt that Lloyds had too many customers so it was forced to sell part of its business to increase competition.
The cost to the financial services sector of compensating victims of mis-selling has been highest in relation to which of the following products?
Current accounts
Life assurance
Payment protection insurance
Personal pensions
Payment Protection Insurance
Feedback: The costs involved in compensating victims of mis-selling have been greatest in relation to payment protection insurance (PPI).
Expanding economic growth while reducing greenhouse gas emissions is known as:
green finance.
Green Finance Taskforce
green investment.
green standards
Green Finance Feedback: This is known as green finance. UK’s Green Investment Bank offers finance for projects that are both commercial and green.
With reference to the marketing mix, which of the following Ps is exclusive to businesses operating in the service sector?
Price.
Process
Product
Profit
Process
Feedback: Process is one of the three additional ‘Ps’ for companies operating in the service sector. The other two are People and Physical evidence. Price and Product are two of the four ‘Ps’ that apply to businesses in ALL sectors. Profit is not one of the four ‘Ps.
The term ‘price elasticity’ refers to:
changes in price caused by external factors.
how price changes affect demand for a product.
offering different prices to different customers. the need to be competitive based on price.
the need to be competitive based on price.
how price changes affect demand for a product.
Feedback: ‘Price elasticity’ refers to the potential change in demand caused by a change in price. Providers need to consider how any change in price will affect customers’ desire for the product.
Which of the following characteristics is a key feature of relationship marketing in banking?
A focus on competitive pricing.
A focus on customer retention
A higher emphasis on sales targets.
A lower emphasis on customer service.
A focus on customer retention
Feedback: Relationship marketing focuses on securing long-term relationships with customers and therefore has a high emphasis on customer service. A higher emphasis on sales targets is a feature of transactional selling. A focus on competitive pricing is not a characteristic of relationship marketing.
Major UK banks compete for current accounts mainly on:
convenience.
desirability.
price.
product features
product features
Feedback: Many current accounts are offered free of charge and with similar levels of convenience, so it is the product features that determine the attractiveness to customers. ‘Desirability’ is a term normally associated with luxury or premium products. It would not be applied to bank current accounts. Many current accounts are offered free of charge, so it is the product features that determine the attractiveness to customers.
Which of the following is a disadvantage of relationship marketing?
Impersonal approach.
Increased costs
It will make the customer feel undervalued.
Poor customer opinion of the bank
increased costs
Feedback: Building relationships can have increased human and technological costs. Impersonal approach, customers feeling undervalued and poor opinion of the bank are all disadvantages of transactional selling.
What term is used to describe the type of market segment determined by customers’ loyalty to a product or service?
Aspirational.
Behavioural
Demographic
Metamorphic
Behavioural
Feedback: The term used to describe segmentation based on customers’ loyalty is ‘behavioural’.
How often must banks send customers with packaged current accounts an explanation of how to claim each of the benefits included with their account? Every:
3 months.
6 months.
9 months.
12 months.
12 months.
Feedback: Under FCA regulations, an explanation of how to claim the benefits included with a packaged account must be provided annually.
A customer transferring a credit card balance of £1,000 to another provider to take advantage of an interest-free period will typically incur a fee of:
1%
2%
3%
4%
3%
Feedback: The fee is likely to be around 3% of the balance transferred
Which of the following is true of payday lenders?
They adversely affect a person’s credit score
They generally require a house as security
They have very competitive interest rates.
Using a payday lender will not affect a person’s credit score.
They adversely affect a person’s credit score
Feedback : Using a payday lender generally has an adverse effect on the borrower’s credit score. Payday loans are unsecured and lenders charge high levels of interest
Why have credit unions become an attractive and useful alternative to traditional banks for some customers? Because credit unions:
are not regulated.
have a strong ethical philosophy.
have a weak Corporate Social Responsibility policy.
have more assets than traditional banks.
have a strong ethical philosophy.
Feedback: They usually have a strong ethical philosophy. Credit unions are regulated in the same way as banks and do not usually have a weak Corporate Social Responsibility policy. Credit unions are more locally focused and do not have more assets than banks.
Which of the following provides the most direct competition to traditional banks in consumer-based financial services?
Challenger banks
Credit unions.
Friendly societies.
Peer-to-peer organisations.
Challenger banks
Feedback: Credit Unions, Friendly societies and peer-to-peer organisations have not provided direct competition against traditional banks.
hich of the following is true of peer-to-peer lenders?
Access to services is only available via branches.
Depositors’ money is not guaranteed by the FSCS.
They are run, managed and funded by the major banks.
They only offer savings accounts.
Depositors’ money is not guaranteed by the FSCS.
Feedback: Depositors’ money is not guaranteed by the FSCS. Access to peer-to-peer lenders is via an online marketplace. They are separate to the banks and compete against them. They offer lending and deposit services.
Which of the following is true in a competitive market?
Customers will never have to complain
High pricing can be easily sustained.
Products should suit customer needs.
Switching between providers will be rare.
Products should suit customer needs.
Feedback: In competitive markets products should suit customer needs. Irrespective of the market conditions, some customers will inevitably complain. Pricing is likely to be lower in competitive markets. In competitive markets switching is likely to be more commonplace.
Under the Current Account Switch Service, for how many months after the switch will payments be redirected from the old account to the new account?
6 months
7 months
12 months
13 months
13 months
Feedback: Payments will be redirected for 13 months after the old account is closed.
An increase in the number of challenger banks should cause providers to:
increase customer retention.
increase prices.
open new branches
increase customer retention
Feedback: An increase in the number of challenger banks should cause providers to increase customer retention. When there is increasing competition, providers have to advertise more in order to achieve differentiation. In competitive markets it is difficult for providers to justify price increases. The trend is to move away from branches and towards use of online, mobile and telephone based channels.
Major financial services providers have responded positively to increasing competition in the market. As a result, they have attempted to attract new customers mostly through which of the following?
Loyalty schemes.
Offers for people who switch their account.
Online banking for every customer.
Using call centres for all types of business.
Offers for people who switch their account
Feedback: Providers attract new customers by offering deals for people to switch their accounts. Loyalty schemes are aimed at retaining existing customers rather than attracting new customers. Major providers have offered online banking for many years now. Use of call centres is unlikely to attract new customers.
Which of the following is the most important element of a sustainable financial system? Ensuring that the system:
can be accessed easily
is simple to maintain.
solves customer queries.
will not fail.
will not fail
Systemic risk is highest under which of the following circumstances?
When large providers work closely with each other.
When providers are reluctant to work with each other
When providers focus on a local market.
When providers focus on short-term objectives.
When large providers work closely with each other.
Feedback:
When large providers work closely with each other, it creates systemic risk.
Financial sustainability can be said to focus on three key elements. These are:
bank, regulatory and policy.
capital, liquidity and reserves.
customers, staff and suppliers.
environmental, social and economic.
environmental, social and economic.
A provider’s reputation is partly affected by:
changing regulations.
corporate behaviour.
government spending
increasing competition.
corporate behaviour.
Reports that are not influenced by media bias are
incomplete.
misleading.
objective.
one sided.
Objective
Feedback: Reports that are not influenced by media bias are objective. Incomplete, misleading and one-sided reports are influenced by media bias.
Financial services providers attempt to manage how they are reported in the media through:
direct sales.
human resources
newspaper management.
public relations
Public relations
Feedback: The media is managed by the public relations (PR) department.
The media plays an important role in acting as a watchdog for consumers. In performing this role, the media mostly:
encourages financial exclusion
helps banks to undertake segmentation
implements fines for poor service.
reports examples of bad practice.
Reports examples of bad practice
Which of the following is an external influence that has had the greatest impact on the financial services industry in recent years?
Changing regulation.
Closing branches.
Making staff redundant.
Reducing bank budgets.
Changing regulation.
Feedback: Closing branches, making staff redundant and reducing bank budgets are internal influences (driven by the desire to reduce costs).
Which of the following is an economic factor which impacts on the financial services industry and its customers?
Advertising.
Increasing competition.
Interest rates.
Technological advancements
Interest rates
Which of the following is an external factor that has influenced new ways of operating and delivering products?
Changes in management
Company policy.
New staff
Technology.
Technology
Feedback: Technology, which is an external factor has influenced new ways for providers to operate and deliver their products Changes in management, company policy and new staff are internal factors.
When undertaking PESTEL analysis, changes in demographics are part of which of the following?
The economic environment.
The political environment.
The social environment.
The technological environment.
the social environment
Direct selling refers to sales that happen directly between the consumer and the provider:
through a mobile phone only
through the internet only.
when there is personal face-to-face contact.
without the intervention of an intermediary.
Without the intervention of an intermediary
Which of the following creates uncertainty as to the future purchasing power of money?
Inflation
Interest
Risk
Unemployment.
Inflation
What is the most likely impact on financial services providers of high unemployment?
Falling demand for financial support.
Greater demand for investment services.
Increasing demand for mortgages.
Increasing levels of bad debts.
Increasing levels of bad debts
Feedback: High unemployment will increase levels of bad debts. Demand for financial support is likely to increase. There is likely to be less demand for investment services and savings products.
Changes in financial services regulation have directly affected providers mostly by:
closing branches.
increasing costs
increasing profits.
reducing staff.
Increasing costs
Feedback: Changes in financial services regulation have directly affected providers mostly by increasing their costs which impacted their profits. Closing branches and reducing staff are not direct consequences of regulation.
Which of the following is an example of how the UK government has had a direct impact on the financial services industry?
Decreased regulation.
Some providers have been partly nationalised.
The government runs the UK banking system.
The prime minister is responsible for banking conduct.
Some providers have been partly nationalised
Feedback: Due to the financial crisis some providers were partly nationalised. Decreased regulation is not why the political environment has directly impacted on the financial services industry. The government does not run the UK banking system and the prime minister is not responsible for banking conduct.
Increasing risk is most likely to lead to an increased demand for which of the following?
Insurance products.
Investment products.
Lending products.
Savings products.
Insurance products
Feedback: Increasing risk and uncertainty is most likely to lead to an increased demand for insurance products.
Which of the following is a useful tool for financial organisations to describe what they are offering?
Brand awareness.
Loss leaders.
Marketing mix.
PESTEL analysis.
marketing mix
Feedback: The tool used to ensure that customer offerings are clear and relevant is the marketing mix.
Which of the following is an example of a promotion to communicate messages that reinforce customer relationships?
Advertising
Marketing
Segmentation.
Sustainability
Advertising
Feedback: Advertising is an example of a promotion to communicate messages that reinforce customer relationships. Marketing is much broader than just advertising. Segmentation is about breaking down markets into smaller groups that share common characteristics. Sustainability is not a promotional tool.
Which of the following is primarily used to distinguish one organisation from another, and to convey a message to the market about an organisation’s values?
Branding
Loyalty
Packaging
Selling
Branding
Feedback: Branding is used to distinguish organisations and to convey messages about their values (including trust).
Transactional selling focuses on which of the following?
Customer benefits
Customer contact.
Long timescales.
Sales targets.
Sales targets
Feedback: Transactional selling focuses on sales targets. A focus on customer benefits, customer contact and long timescales suggests a relationship focus rather than transactional.
When implementing a relationship management approach, financial services providers should focus on which of the following?
Attracting new customers.
Customer retention.
Product features.
The short term
Customer retention
Feedback: With relationship management, customer retention and existing customers are the focus, not new customers. Customers should be the focus in relationship management, not products. A long-term focus is appropriate for relationship management not short term.
Which of the following could an insurance company use as a source of primary market research?
Feedback from its customers.
Its claims history data.
MINTEL information.
Trade publications
Feedback from its customers
Feedback: Customer feedback is a form of primary research. It may be obtained through surveys or focus groups, for example. Claims history data is a form of internal secondary data. MINTEL and trade publications are forms of secondary market research.
The Nectar points offered by Sainsbury’s Bank, and the Freedom points offered by Barclays, are both components of a:
community programme.
premium banking service.
private banking service.
rewards programme.
rewards programme
Feedback: Nectar and Freedom both promote brand loyalty as part of a rewards programme
Which of the following is the key to effective market segmentation and to meeting the needs and wants of customers? Achieving:
differentiation
disintermediation.
profitability.
sustainability.
Differentiation
Feedback: Differentiation is the key to effective market segmentation and to meeting the needs and wants of customers.
Which of the following is a source of external secondary data for a UK bank?
Bank of England.
Focus groups
Market research
Mystery shoppers.
Bank Of England
Feedback: Correct. The Bank of England is a source of external secondary data. Focus groups, market research and mystery shoppers are internal data.
The principle of market segmentation is that:
all customers can find a product for their needs.
every customer is unique and needs to be treated differently.
new products should be developed when the organisation wants.
new products should suit specific types of customers.
New products should suit specific types of customers
Feedback: New products should suit specific types of customers. The organisation might decide that it does not want to target all segments so therefor not all customers may find a product that meets their needs. Most customers can be grouped together with others who share broadly similar features and characteristics. New products should be developed when there is customer demand.
Which of the following is an example of a large public limited company?
A bank
A credit union
A friendly society
a bank
The government department that has overall responsibility for financial stability in the UK is:
HM Revenue & Customs
The Bank of England
HM Treasury
HM Treasury
