TOPIC 1

Question 1

what is inflation?

Answer 1

a sustained increase in the general level of prices of goods and services

Question 2

list 4 properties money must have or be?

Answer 2

1. sufficient in quantity
2. generally acceptable to all parties in all transactions
3. divisible into small units
4. portable

Question 3

list 3 things that a financial services organization can offer:

Answer 3

1. convince (eg current accounts that enable people to make and receive payments)
2. a means of achieving otherwise difficult objectives (eg a mortgage)
3. protection from risk (eg insurance to protect people from the financial consequence of adverse life events)

Question 4

what is money?

Answer 4

1. a medium of exchange - it can be exchanged for goods and services
2. a unit of account - a common denominator against which the value of goods and services can be measured
3. a store of value - money received as payment today can be stored until required

Question 5

what is intermediation?

Answer 5

a financial institution that lends money from the surplus sector to the deficit sector

Question 6

what is a financial intermediary?

Answer 6

an entity that acts as the middleman between two parties in a financial transaction. banks and building societies are best known.

Question 7

what is disintermediation?

Answer 7

lenders and borrowers interacting directly rather than through an intermediary. eg crowdfunding

Question 8

list 4 elements of intermediation:

Answer 8

1. Geographic location
2. Aggregation
3. Maturity Transformation
4. Risk Transformation

Question 9

what does geographic location mean in the elements of intermediation?

Answer 9

physical problem of lenders and borrowers finding each other. eg a high street branch connects the two.

Question 10

what does aggregation mean in the elements of intermediation?

Answer 10

The lender might not have enough funds to satisfy the borrowers required amount. intermediaries can overcome any size difference between lenders and borrowers.

Question 11

what does maturity transformation mean in the elements of intermediation?

Answer 11

The borrower may need the funds for longer than the lender is willing to lend, intermediaries are able to overcome the mismatch by offering a wide range of products and services.

Question 12

what does risk transformation mean in the elements of intermediation?

Answer 12

intermediaries enable s lenders to spread the risk of lending over a wide variety of borrowers so that if a few fail to repay, the intermediary can absorb the loss.

Question 13

list 3 examples of ‘product sales’ intermediary:

Answer 13

1. financial advisors
2. mortgage advisors
3. insurance brokers

Question 14

list 7 financial services group

Answer 14

1. retail banking
2. mortgage services
3. credit card services
4. wealth management services
5. financial assets management
6. investment banking
7. insurance services

Question 15

list 7 roles of the Bank of England:

Answer 15

1. issuer of bank notes
2. Banker to the government
3. Banker to banks
4. Advisor to the government
5. Foreign exchange markets - manages the official reserves of gold and foreign exchange currencies
6. lender of last resort
7. Maintaining the economic stability

Question 16

What is liquidity?

Answer 16

Assets (eg cash) that can be quickly made available to meet an institutions liabilities without affecting the market price of those assets.

Question 17

from the 1st April 2013, name 2 new regulators responsible for financial stability other than the Bank of England and the Treasury:

Answer 17

the Financial Conduct Authority (FCA) & the Prudential Regulation Authority (PRA)

Question 18

What is the difference between a proprietary and mutual organization?

Answer 18

a mutual organization is owned by its members, whereas a proprietary one is owned by it’s shareholders as a limited company.

Question 19

what are gilt-edge securities (gilts) ?

Answer 19

a loan to the government

Question 20

what is the interbank market?

Answer 20

a very large market which recycles surplus cash held by banks, wither directly between banks or more usually through the services of specialist money brokers.

Question 21

what does LIBOR mean?

Answer 21

London Interbank offered rate

Question 22

what is LIBOR?

Answer 22

a reference rate for the majority of cooperate lending.