Topic 1 - FS Industry Flashcards
What is a medium of exchange?
Where money can be exchanged for good and services
What is a unit of account?
Where the value of goods and services can be measured and compared
What is a store of value
Money received that can be stored until required
What is inflation?
An increase in prices of goods and services
What is intermediation?
The middleman between a surplus party and a deficit party
What is a financial intermediary?
An entity that acts as a middle person between 2 parties in a financial transaction. e.g. banks & building societies
Surplus party?
Individual/firm who have enough funds to release and lend in order to increase value in future
Deficit party?
Individual/firm who don’t have sufficient funds to meet spending needs
Disintermediation?
Where lender and borrower interact directly without an intermediary e.g. crowdfunding
What are the 4 elements of intermediation? Why they are needed
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
Risk management
Avoiding risk by pooling to minimise financial loss
Product sales intermediaries?
Brokers/advisors who find customers products and services from banks and insurance companies
Retail banks
Banks that cater to customers and small businesses
Wholesale banks
Banks that provide funding for financial institutions and large corporate clients
Life assurance
Insurance that provides payment as a lump sum or as an income in the event of a death to a policyholder