RO1: Chapter 1

Question 1

What is a GILT?

Answer 1

Loan from bondholder to government

Question 2

What is a conventional GILT?

Answer 2

Pays fixed interest rate at set intervals (Monthly etc)

Question 3

Who are GILT’s issued through?

Answer 3

UK Debt Management Office (agency of the HM Treasury)

Question 4

What is the purpose of Insurance?

Answer 4

To protect assets from damage or loss.

Question 5

What can Insurance protect?

Answer 5

• Physical assets (Vehicles, land, equipment etc)
• Earnings
• Profit potential
• Financial transactions

Question 6

What does pooled mean?

Answer 6

When money is combined together, for example on Insurance products premiums paid are ‘pooled’ together by the insurer who then invest the money.

Question 7

What is a Reinsurance company used for?

Answer 7

When risks are too high for a Insurance company they use a Reinsurance company who take a proportion of the premium being paid on the policy to insure the higher risks.

Question 8

Who is one of the most well known Reinsurance companies?

Answer 8

Lloyds of London

Question 9

What are the four key components to the UK financial services structure?

Answer 9

• Financial Infrastructure = Payment, settlement, clearing and trading systems
• Financial Markets = On-exchange market (Trade investments via trading floor) & Over the counter market (No physical exchanges)
• Financial Firms = Banks, Pension funds and Insurance firms
• Financial Sector Authorities = BoE, PRA, FCA & HM Treasury

Question 10

What is a Friendly Society?

Answer 10

This is a mutual association which is exempt from tax on products.

Question 11

How can a Friendly Society extend their services? (offer more products etc)

Answer 11

They can apply for corporate status which allows them to provide services on more products such as Unit trusts & OEIC’s.

Question 12

What is High Taxation?

Answer 12

This reduces consumers with the ability to spend their money and businesses to invest their money which slows down economic growth.

Question 13

What is Low Taxation?

Answer 13

This leaves more money available for expenditure and commercial investment which stimulates economic activity.

Question 14

What are Tax Concessions?

Answer 14

This is where the Government can reduce the amount of tax payable.

Question 15

What is the aim of Taxation?

Answer 15

To raise revenue for the Government.

Question 16

What is Economic policy?

Answer 16

This is actions taken by the Government to control the country’s economy through expenditure, borrowing and interest rates (also known as Fiscal policy)

Question 17

Who is Economic policy responsible for?

Answer 17

Chancellor of the Exchequer.

Question 18

What is Monetary policy?

Answer 18

Actions which involve interest rates and money supply into the country’s economy.

Question 19

Who controls interest rates?

Answer 19

Monetary Policy Committee.

Question 20

What is the current inflation target which needs to be met by the Chancellor of the Exchequer?

Answer 20

2% of Consumer Inflation Price.

Question 21

Who is the FCA?

Answer 21

Financial Conduct Authority

Question 22

Who is the PRA?

Answer 22

Prudential Regulation Authority

Question 23

Who is the BoE?

Answer 23

Bank of England.

Question 24

Who are the PRC?

Answer 24

Prudential Regulation Committee

Question 25

Who are the FPC?

Answer 25

Financial Policy Committee

Question 26

What do banks do with the money they receive into current accounts?

Answer 26

They place it into long term investments and some is lent bank to customers in the form of a loan

Question 27

Apart from physical assets, what else can be insured?

Answer 27

Earnings, profit potential and financial transactions

Question 28

How can changes in tax rates be used to manipulate the economy?

Answer 28

By changing the tax benefits of certain investments the Government can encourage people to save money or create more money for expenditure which stimulates the economy.

Question 29

What is quantitative easing?

Answer 29

This involves a bank buying back GILT’s and corporate bonds etc and thereby injecting more money into the system to stabilise banking and financial sector.

Question 30

What core services are offered by banks?

Answer 30

• Current accounts
• Deposit accounts (also known as savings accounts)
• Mortgages and Loans