Topic 1

Question 1

A bank is a proprietary organisation which means

Answer 1

It is owned by shareholders and aims to make a profit

Question 2

Retail banks provide to individuals / small to medium businesses, what 4 things do they do

Answer 2

Money transmission (methods to pay and receive money)
Savings and investment
Lending
Insurance

Question 3

Investment/wholesale banks do not accept deposits, they raise funds on financial markets to then provide special services to large businesses and governments, what are the 4 main services

Answer 3

Lend large amounts to large companies
Help raise funds from investors by issuing shares and bonds on markets
Advise on mergers and takeovers
Deal in financial markets personally to make profit

Question 4

Why did building societies make losses during financial crisis

Answer 4

Due to investments in property and subsequent exposure to falling property prices

Question 5

What is an insurance company

Answer 5

Main provider to individuals and companies, some belong to large groups which provide other services, many are owned by banks and financial services groups

Question 6

What is the Lloyds Insurance Market

Answer 6

In the City of London, made up of syndicates of members, who employ specialists (underwriters) to accept insurance risk and divide it out between them

Question 7

What is the philosophy of a credit union

Answer 7

To behave ethically, promote economic and social well being of members, promote responsible lending and encourage saving

Question 8

What is a friendly society

Answer 8

A mutual organisation which offers a range of financial products, First form from people group together to contribute to a mutual fund to receive benefits in times of need, limited to a geographical area

Question 9

What is the pension fund

Answer 9

Specialise in investing pension contributions to provide income on retirement, use the long term savings of millions of people to invest in range of assets on financial markets to make the best return

Question 10

The Bank of England is the U.K.’s central-bank it focuses on public benefit and not profit, what are the 5 important functions

Answer 10

Achieving monetary stability (stable prices, confidence in currency, high economic growth without high inflation)
Achieving financial stability using regulators
Acting as bank to bank
Issuing bank notes
Managing UKs gold and foreign exchange reserves

Question 11

What are the 2 objectives of the financial policy committee

Answer 11

Identifying, monitoring and taking action to remove and reduce systemic risk to protect and enhance the resilience of the U.K.’s financial system
Supporting the government economic policy

Question 12

What are the two objectives of the Prudential regulation authority

Answer 12

Promoting the safety and soundness of firms by requiring them to behave prudently to minimise impact on stability should provider fail
Contribute to the protection of insurance holders

Question 13

The financial conduct authority is is not part of the Bank of England what is its five objectives

Answer 13

Secure appropriate degree of protection for consumers
Protect and enhance integrity of financial system
Promote affective competition in consumer interest
Fight financial crime and corrupt/unethical banking
Granting credit licenses

Question 14

The H M Treasury is responsible for law making and general framework of regulation what is its overall responsibility

Answer 14

Financial stability, dealing with consumer issues, counter money laundering and terrorist finance

Question 15

What are the three responsibilities of the competition and markets authority

Answer 15

Promote competition
Investigate mergers and anti-competitive activities and breaches of competition laws
Prosecuting businesses that operate cartels

Question 16

Name the key three trade associations in financial services

Answer 16

The British bankers Association
the building society Association
the Association of British insurers

Question 17

Name the five current trends in the financial sector

Answer 17

Temporary public ownership 
Increased concentration 
Competition 
Divestment
Ring fencing and retail banking

Question 18

What company manages the shareholdings of the nationalised failing banks

Answer 18

Do UK financial investments

Question 19

What is an oligopoly

Answer 19

A market dominated by a few large firms

Question 20

What is divestment

Answer 20

With failing banks had to sell some of the branches and assets in return for being rescued

Question 21

What is financial intermediation

Answer 21

Bringing people together who need to save and people who need to borrow, the core work of institutions

Question 22

A person who uses a financial intermediary is called an end customer or counterparty, what are the five main counterparties

Answer 22

The personal sector 
The retail sector 
The commercial and corporate sectors 
The public sector 
The financial sector

Question 23

What four key sources to banks obtain funds from

Answer 23

Customer deposits
Short-term money markets
Long-term capital markets (bonds and equity)
Sale of assets

Question 24

What four key applications do banks use funds for

Answer 24

Lending money
Trading on financial markets
Purchasing physical assets
Paying their operational costs

Question 25

What is a peer-to-peer lender

Answer 25

Online market places putting borrowers directly in touch with lenders, borrowers enter into legally binding contracts and both sides charge a fee, not protected by FSCS but regulated by the FCA

Risk reduced by strict credit score

Question 26

A financial intermediation is an organisation which takes provides financial services, what are the 4 main functions

Answer 26

Provide methods for making payments
Safe store for savings
Lend money
Insure against financial consequences of risks