The Financial Services Sector

Question 1

What are the 3 core functions of the financial services sector?

Answer 1

Investment chain, risk and payment systems.

Question 2

What is the purpose of equity markets?

Answer 2

To facilitate the trading of shares in quoted companies.

Question 3

What is Global Market Capitalization?

Answer 3

The total value of the shares quoted on the world’s stock exchanges.

Question 4

Name 3 stock exchanges

Answer 4

LSE, NYSE, Euronext, SIX Swiss, Deutsche Borse and Nasdaq.

Question 5

What is rival to traditional stock exchanges?

Answer 5

Multilateral trading facilities.

Question 6

Who is the main issuer of bonds?

Answer 6

Governments.

Question 7

What types of bonds are there?

Answer 7

Domestic and international.

Question 8

Which country has the largest bond market?

Answer 8

The US.

Question 9

Which is the largest market?

Answer 9

FX.

Question 10

What is the purpose of the FX market?

Answer 10

To allow parties to deal with their inflows and outflows denominated in different currencies.

Question 11

What type of market is the FX market?

Answer 11

An over the counter market.

Question 12

Define an OTC Market.

Answer 12

There is no central exchange, parties deal with one another directly.

Question 13

Who is the FX market provided by?

Answer 13

Major banks.

Question 14

What types of products are traded on the derivatives market?

Answer 14

Indices, interest rates, commodities, currencies and credit risk.

Question 15

What type of market is the derivatives market?

Answer 15

An OTC and exchange traded market.

Question 16

What was the growth in the derivatives market a reaction to?

Answer 16

The 2000-02 stock market crash.

Question 17

What are derivatives used to do?

Answer 17

Hedge against risk and for speculation.

Question 18

What is the purpose of insurance markets?

Answer 18

To manage personal and corporate risks and to provide protection against life events.

Question 19

Who are the largest insurance companies?

Answer 19

China Life, Allianz, AXA and Lloyds.

Question 20

What does reinsurance do?

Answer 20

Provides insurance to insurance companies.

Question 21

What is the purpose of investment banks?

Answer 21

To provide advice and arrange finance for those wishing to float on a stock exchange and to carry out mergers and acquisitions.

Question 22

What do custodian banks do?

Answer 22

Look after portfolios of shares and bonds on behalf of others.

Question 23

What is the purpose of a retail bank?

Answer 23

To take deposits from and lend to retail customers.

Question 24

Define financial conglomerate.

Answer 24

A group of companies whose activities consist of services in at least 2 different financial sectors.

Question 25

Who jointly owns savings institutions?

Answer 25

Its members (borrowers).

Question 26

Define demutualization.

Answer 26

When a savings institution transforms itself into a bank and floats on a stock exchange.

Question 27

What is the benefit of P2P or Crowd Funding?

Answer 27

Borrowers receive slightly lower interest rates and lenders receive much higher interest rates. Middle man is cut out.

Question 28

What are the negatives of P2P or Crowd Funding?

Answer 28

Risks can be much higher, immediate withdrawals are not always possible and it may take time for interest rates to be reduced for borrowers.

Question 29

How is the insurance industry a big investor?

Answer 29

The premium income provided by its clients is invested into equities and bonds.

Question 30

What is the main purpose of insurance companies?

Answer 30

Managing risk effectively.

Question 31

What are the 2 types of retirement schemes available?

Answer 31

Employer provided or self-directed.

Question 32

What do fund managers do?

Answer 32

Run portfolios of investments for others. Buy and sell shares, bonds etc in order to increase their clients portfolio.

Question 33

What are the 2 types of fund managers?

Answer 33

Institutional and Private Client.

Question 34

What do stock brokers do?

Answer 34

Arrange stock market trades on behalf of others.

Question 35

What are the different types of broking services available?

Answer 35

Execution only, Robo-advisors, discretionary (fully managed) and institutional.

Question 36

What is a sovereign wealth fund?

Answer 36

An investment fund that is state owned but not always publicly owned.

Question 37

What types of investments do SWF focus on?

Answer 37

Investments abroad and a diverse portfolio that allows for risks to be managed effectively.

Question 38

What is the body who created the Santiago Principles called?

Answer 38

The International Group of SWF.