Topic 1 - FS Industry Flashcards

1
Q

What is a medium of exchange?

A

Where money can be exchanged for good and services

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2
Q

What is a unit of account?

A

Where the value of goods and services can be measured and compared

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3
Q

What is a store of value

A

Money received that can be stored until required

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4
Q

What is inflation?

A

An increase in prices of goods and services

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5
Q

What is intermediation?

A

The middleman between a surplus party and a deficit party

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6
Q

What is a financial intermediary?

A

An entity that acts as a middle person between 2 parties in a financial transaction. e.g. banks & building societies

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7
Q

Surplus party?

A

Individual/firm who have enough funds to release and lend in order to increase value in future

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8
Q

Deficit party?

A

Individual/firm who don’t have sufficient funds to meet spending needs

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9
Q

Disintermediation?

A

Where lender and borrower interact directly without an intermediary e.g. crowdfunding

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10
Q

What are the 4 elements of intermediation? Why they are needed

A

Geographic location - locating the right lender for the borrower

Aggregation - making sure the amount meets the needs of borrower

Maturity transformation - making sure the length of term meets the needs of borrower

Risk transformation - intermediaries absorb the loss of lender of borrower defaults on lend

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11
Q

Risk management

A

Avoiding risk by pooling to minimise financial loss

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12
Q

Product sales intermediaries?

A

Brokers/advisors who find customers products and services from banks and insurance companies

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13
Q

Retail banks

A

Banks that cater to customers and small businesses

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14
Q

Wholesale banks

A

Banks that provide funding for financial institutions and large corporate clients

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15
Q

Life assurance

A

Insurance that provides payment as a lump sum or as an income in the event of a death to a policyholder

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16
Q

General insurance

A

Protect policy holders e.g. car, travel, household

17
Q

Bank of England

A

Is a central bank that maintains the economy and regulates the supply of money.

18
Q

Main functions of the Bank of England

A
  • Issuer of bank notes
  • Banker to government
  • Banker to the banks
  • Advisor to the government
  • Foreign exchange market
  • Lender of last resort
  • Maintain economic stability
19
Q

What is liquidity?

A

Assets that can quickly be made available to meet liabilities

20
Q

Gilt-edged securities

A

Loans to the government at different rates and periods

21
Q

CBDC?

A

Central Bank Digital Currency - digital version of the £

22
Q

Proprietary organisations?

A

A limited company owned by the shareholders

23
Q

Mutual organisations?

A

Company owned by its members e.g. savers and borrowers of a building society and the policy holders of a life assurance

24
Q

Demutualisation?

A

Converting to a bank and limited company e.g. building society into a bank

25
Q

What is a credit union?

A

A mutual organisation run for the benefit of its members

Offer savings and loans to members and should have at least £50k or 5% of total assets in reserve to pay interest to members

26
Q

Interbank Market

A

Large market that recycles surplus cash held by banks directly to other banks or through specialist money brokers

27
Q

What is LIBOR?

A

(London Interbank Offered Rate)

The rate of interest charged in the interbank market usually plus a specific margin.

28
Q

What is SONIA

A

(Sterling Overnight Index Average)

As a result of LIBOR scandal (2012) Bank of England have shifted towards SONIA (2016)

It is based on actual transactions and the average of interest rates that banks pay to borrow sterling overnight from other financial institutions