Topic 1 - The Financial Services Industry

Question 1

In what market do banks use to recycle funds and raise capital quickly?

Answer 1

Interbank Market

Question 2

How is Sonia Calculated

Answer 2

Sterling Overnight Index Average, based on actual transactions and reflects the actual interest rates banks borrow sterling overnight from other institutions

Question 3

Where do Finance Houses Raise most of their capital?

Answer 3

Wholesale Market

Question 4

What are the 4 main reasons for Financial Intermediation?

Answer 4

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

Question 5

How does a mutual organisation differ from a proprietary organisation?

Answer 5

A mutual organisation is owned by its members whereas a proprietary organisation will have shareholders which receive a proportion of profits

Question 6

What are some of the key functions of the Bank of England?

Answer 6

1. Adviser to the Government
2. Issues Banknotes
3. Sets the Bank Rate

Question 7

What percentage of a building society’s liability can be raised on the interbank market?

Answer 7

50%

Question 8

What is the benchmark for businesses to calculate interest paid on swap transactions and sterling floating rate notes?

Answer 8

SONIA

Question 9

Who issues UK Gilts?

Answer 9

The UK Debt Management Office

Question 10

When can a credit Union begin to pay interest on loans?

Answer 10

When it has over £50,000 in savings or 5% or more of its assets in reserve

Question 11

Why would currency be accepted as legal tender?

A) it is issued by a high-street bank
B) It has been approved by the Treasury
C) It is backed by the Government and the Central Bank

Answer 11

C) It has been backed by the Government and the Central Bank

Question 12

Which of these organisations is NOT part of the European Supervisory Authority?

A) European Banking Authority
B) European Systemic Risk Board
C) European Insurance and Occupational Pensions Authority

Answer 12

B) European Systemic Risk Board