Topic 1 An Introduction To The Financial Services Industry Flashcards
What are the 2 main functions of Money?
- Medium of Exchange for good/services
- Unit of Account common denomination for products to be measured
What properties does money need to have to be acceptable as a medium of Exchange?
- Portable
- Divisible
- Acceptable to all parties
- Sufficient in quantity
What does store of value mean?
Money can be saved for future transactions
Sustained increase of good and services over time is called?
Inflation
What is Intermediation?
Intermediary borrowing funds from depositor and lending it to borrower
What is Disintermediation?
Where a borrow and a depositor interact direct
What are the 4 elements of intermediation?
- Maturity Transformation
- Risk Transformation
- Location
- Aggregation
Paying into an insurance premium is a example of what?
Risk Management
What does a Product Service Intermediary do?
Bring together potentially borrows and the provider of financial products (e.g a bank)
“To promote the good of the people in the UK by maintaining monetary and Financial stability” is the role of who?
The Bank of England
Roles of the Bank Of England
- Maintaining Economic Stability
- Issuer of Bank Notes
- Banker to the Banks
- Banker to the Government
- Advisor to the Government
- Foreign Exchange Market
- Lender of the last resort
What roles did the Bank of England use to perform?
- Gild-Edged Securities
- Regulator
What is a Proprietary Organisation?
- Limited Company
- Owned by shareholders
- Distribute profits as dividends
- Shareholders contribute decisions about the companies’ running
What is a Mutual Organisation?
- Not a company
- owned by members
- Managed by AGM meetings
Building Societies, Friendly Society and Credit Unions are examples of what?
Mutual Organisations
What is Demutualisation?
Process of a Building Society changing status to a bank
What is a Credit Union?
- Mutual Organisation
- Voluntarily run
- Members must buy £1 in shares to join
- Regulated by the FCA
- Protected by FSCS
What do Credit Unions offer?
- Loans and savings to members
- Offer yearly dividend to members
- loans have 1-3% interest on the reducing balance
- Lending to member cover by Life Assurance
What type of bank is responsible for individuals and small businesses?
Retail Banks
Interbank Market and Financial Institutions use what type of banking?
Wholesale Banking
Can Building Societies trade on the wholesale market?
Yes but are limited to 50% of their liabilities
What was LIBOR?
- Reference Point for corporate lending
- Calculated from information submitted from bank to bank
What is SONIA?
- Replacement to LIBOR
- Based on actual transaction
- Average of interest rates banks lend to each other at
What prompted the move to SONIA?
LIBOR Scandal 2012
Can Credit Unions pay interest to members?
Yes if they have savings of £50,000 or assets of 5%
What administrators SONIA?
Bank of England
The Financial Services and Markets Act 2023 allows Credit Unions to offer more products what are these?
- Hire Purchase Agreements
- Conditional Sales Agreements
- Insurance
How much is value is used by financial institutions through Sonia each year
£30 Trillion
What are Swap Transactions?
Is where financial institutions swap different forms of cash flows or liabilities for another
What is a Floating Rate Note?
Where the interest rate on a fixed interest security is variable from the benchmark (Sonia)
What is a Central Bank Digital Currency (CBDC)?
A digital form of the pound that could potentially be used
