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UK Regulation > The UK Financial Services Sector (2/80) > Flashcards

The UK Financial Services Sector (2/80) Flashcards

1
Q

What are the key aims of a government’s economic policy?

A

Achieve sustainable growth
Control inflation
Full employment
Manage the balance of payments

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2
Q

What are the two types of Taxation?

A

Direct Taxation - Tax on incomes/companies etc

Indirect Taxation - Tax on products or services (i.e VAT)

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3
Q

What is the official term for the UK Government’s budget deficit?

A

Public Sector Net Cash Requirement (PSNCR)

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4
Q

What are the ways a government can intervene in the economy?

A

• spending more money and financing this expenditure by borrowing (issuing gilts to investors)
• collecting more in taxes without increasing spending (ie, increase tax levels/lower threshold levels)
• collecting more in taxes in order to increase spending, thus diverting income from one part of the
economy to another.

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5
Q

What are ways a government can intervene in the employment market?

A
  • increased government spending on capital projects, on which people are employed to work
  • government-funded training schemes
  • taxation of companies on the basis of the numbers and pay levels of employees.
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6
Q

What is Monetary Policy?

A

Monetary policy is concerned with changes in the amount of money in circulation (the money supply)
and with changes in the price of money – interest rates.

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7
Q

What is the institution which sets Interest rates in the UK?

A

The Monetary Policy Committee (MPC) of the Bank of England

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8
Q

What is the UK’s inflation target?

A

Within 1% variation of 2% inflataion based on the CPI

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9
Q

How many times does the MPC meet per year?

A

Eight times

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10
Q

What standards must a company typically meet prior to listing securities on the LSE?

A

• their size
• the number of securities they are introducing to the market
• the information they give potential investors, so that they can decide whether to invest or not
• on an ongoing basis, the information they must disclose to the marketplace about themselves and
the securities.

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11
Q

What is the balance of payments?

A

The balance of payments in an economy measures the payments between that country and others.

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12
Q

Which accounts are used to measure the UK’s balance of payments?

A
  • the current account, and

* the capital and financial account.

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13
Q

What does the current account measure?

A

The current account measures flows in relation to trade in goods and services, income from investment
and as compensation of employees, and current transfers (eg, private sector gifts to people overseas,
or government aid to abroad)

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14
Q

What does the capital and financial account measure?

A

The capital and financial account measures flows in such things as overseas investment in the UK, UK
private-sector investment abroad, foreign currency borrowing by, and deposits with, UK banks, and
changes in official reserves.

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15
Q

If Sterling falls agianst other currencies what does this do for the balanmce of payments?

A

This tends to make foreign goods and services more expensive for UK buyers and so encourages them to reduce imports and buy British instead. In addition, it makes UK goods and services cheaper for overseas customers, helping UK exports. Both these factors will help to restore a positive current account balance.

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16
Q

What is the effect on the currency of rising interest rates?

A

Currency appreciation

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17
Q

What is the Lamfalussy Process?

A

The Lamfalussy Process is a new decision-making procedure for the adoption of EU legislation affecting
the securities markets, which was endorsed by the Stockholm European Council in March 2001.

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18
Q

What are the four levels of the Lamfalussy Process?

A

Level 1: Framework Acts (Regulation and Directives)
Level 2: Delegated Acts and Implementing Acts (by ESAs)
Level 3: Guidelines and Recommendations by ESMA
Level 4: Supervision of the Member States

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19
Q

What the the three ESAs (European Supervisory Authorities)?

A

European Insurance and Occupational Pensions Authority (EIOPA)

The European Banking Authority (EBA)

European Securities and Markets Authority (ESMA)

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20
Q

What is the key role of ESMA in securities legislation?

A

The development of a single rulebook across Europe

21
Q

Who is ESMA accountable to?

A

Committee of Economic and Monetary Affairs
(ECON), as well as the Council of the EU and the
European Commission (EC)

22
Q

What is the main task of the ECB?

A

To maintain the euro’s purchasing power and thus price stability in the euro area

23
Q

What is the European System of Central Banks (ESCB)?

A

The ESCB is comprised of:
• the ECB, and
• the national central banks (NCBs) of all 28 EU member states (not necessarily just those who have adopted the Euro)

24
Q

What are the key activities of the ECB?

A
  • defining eurosystem policies
  • deciding, coordinating and monitoring the monetary policy operations
  • adopting legal acts
  • authorising the issuance of bank notes
  • interventions in the foreign exchange (FX) markets
  • international and European cooperation.
25
Q

How many regulators of depository institutions does the US have?

A

There are 5 federal regulators of depository institutions

26
Q

What is the meission of US SEC?

A

To protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation

27
Q

What is the core concept underpinning SEC regulation?

A

All investors, whether large institutions or private individuals, should have access to certain basic facts about an investment, prior to buying it, and so long as they hold it

28
Q

Who does the SEC oversee?

A

The key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisers and mutual funds.

29
Q

What is Sarbannes Oxley?

A

This Act mandated a number of reforms to enhance corporate responsibility, enhance financial
disclosures and combat corporate and accounting fraud, and created the Public Company Accounting
Oversight Board (PCAOB), to oversee the activities of the auditing profession.

30
Q

What is the role of Federal Reserve Banks?

A

Reserve banks hold the cash reserves of depository institutions and make loans to them.

They move currency and coin into and out of circulation, and collect and process millions of cheques
each day.

They provide cheque accounts for the Treasury, issue and redeem government securities, and
act in other ways as fiscal agents for the US government.

They supervise and examine member banks for safety and soundness.

31
Q

What is the Office of the Comptroller of the Currency (OCC)?

A

The OCC charters, regulates and supervises all national banks. It also supervises the federal branches and agencies of foreign banks.

32
Q

What is FINRA?

A

The Financial Industry Regulatory Authority (FINRA) is the largest independent regulator for all securities
firms doing business in the US.

It performs market regulation under contract for the National Association of Securities Dealers
Automated Quotation (NASDAQ) Stock Market, the NYSE MKT LLC (formerly known as the American
Stock Exchange), the International Securities Exchange (ISE) and the Chicago Climate Exchange (CCX).
33
Q

What is the Commodity Futures Trading Commission (CFTC)?

A

The US Commodity Futures Trading Commission (CFTC) is an independent agency of the US government that regulates the derivatives markets.

34
Q

What are the main regulatory bodies in China?

A
  • The China Securities Regulatory Commission (CSRC)
  • The China Banking Regulatory Commission (CBRC)
  • The China Insurance Regulatory Commission (CIRC)
  • The People’s Bank of China (PBOC).
35
Q

What are the main regulatory bodies in Japan?

A

• Financial Services Agency (FSA), which includes planning, supervisory and inspection functions.
• Self-regulatory organisations (SROs), such as the various Japanese securities exchanges and the
Japan Securities Dealers’ Association (JSDA).

36
Q

What are the main regulatory bodies in Singapore?

A
  • Monetary Authority of Singapore (MAS)
    • Singapore Exchange (SGX)
    • Securities Industry Council (SIC).
37
Q

Who are the consitutient members of the UK’s Monetary Policy Committee?

A

The MPC is made up of nine members – the governor, the two deputy governors, the bank’s chief economist, the executive director for markets and four external members appointed directly by the Chancellor

38
Q

Does the Treasury have a role in the UK’s Monetary Policy Committee?

A

A representative from the Treasury also sits with the committee at its meetings. The Treasury representative can discuss policy issues but is not allowed to vote.

39
Q

What are the BoE’s objkectives in the money markets?

A

• implement monetary policy by maintaining overnight market interest rates in line with the bank
rate, so that there is a flat risk-free money market yield curve to the next MPC decision date, and very
little day-to-day or intra-day volatility in market interest rates at maturities up to that horizon
• reduce the cost of disruption to the liquidity and payment services supplied by commercial banks

40
Q

What are the Operational Standing Facilities?

A

Operational standing deposit and (collateralised) lending facilities are available to eligible UK banks and
building societies. They may be used on demand. In normal circumstances, the lending/deposit rates are
25 basis points (bps) higher than base rate and 25bps below base rate respectively.

41
Q

What is the Discount Window Facility (DWF)?

A

This is a facility to provide liquidity insurance to the banking system. Eligible banks and building
societies may borrow gilts (UK Government debt), for up to 30 days, against a wide range of collateral, in
return for a fee, which will vary with the collateral used and the total size of borrowings. The purpose of
the DWF is to provide liquidity insurance to the banking system.

42
Q

What happens in Quantitative Easing?

A

A central bank buys government bonds, from banks and non-banks, on the open market. The seller of the government bonds lodges the proceeds of the sale with its own counterparty bank, increasing the size of its deposit holdings; that counterparty bank, in turn increases its deposits at the central bank (so-called ‘reserves’).

43
Q

What the the key definitions of money?

A

• M0 is the measure of notes and coin in circulation outside the BoE, plus operational deposits at the
BoE. (This is, therefore, quite a narrow definition of money.)
• M4 is the measure of notes and coin in circulation with the public, plus sterling deposits held with
UK banks and building societies by the rest of the private sector. (This is thus a broader definition.)

44
Q

What is the relation between Money Supply and Inflation (Fisher Equation)?

A

MV = PT

M = Money supply
V = Velocity of circulation
P = Price level
T = Transactions or output
45
Q

How does Monetary Theory suggets interest rates are connected to loans from the Central Bank?

A

Monetary economic theory states that interest rates are largely determined by the demand and supply
of loanable funds. If the money supply increases, and there is no increase in the demand for money (eg,
for investment purposes), this increases the amount of loanable funds available (eg, for savings). As
there is more money available for savings, this acts to depress interest rates.

46
Q

What is National Income?

A

UK national income is defined as ‘the sum of all incomes of residents in the UK which arise as a result of economic activity, from the production of goods and services.

47
Q

What is GDP?

A

The term gross domestic product (GDP) refers to the total value of income/production from economic activity within the UK.

48
Q

What is the difference between GDP and GNP?

A

The difference between these items is net property income from abroad. The sum of gross domestic
product, plus net property income from abroad, is the gross national product (GNP).

49
Q

What is the equation for GDP?

A

Consumer Expenditure + Investment + Gov Spending + Balance of Payments

UK Regulation (10 decks)

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