topic 2

Question 1

Bad competition

Answer 1

where there is a small number of large, powerful providers on the market that only aim to maximise their sales, which may result in mis-selling and a lack of differentiation in products.

Question 2

Barriers to entry

Answer 2

The features of the market that make it difficult for new firms to enter and compete.

Question 3

Barriers to expansion

Answer 3

the features of the market that make it difficult for new firms to grow

Question 4

Challenger banks

Answer 4

Any new bank that challenges the ‘big four’. For example, Virgin Money, Metro Bank, Monzo Bank and Starling Bank

Question 5

Competition

Answer 5

The number and size of sellers supplying products to a particular market

Question 6

Competition and Markets Authority
(CMA)

Answer 6

The body responsible for strengthening business competition and preventing and reducing anti-competitive activities.

Question 7

Competitive market

Answer 7

A market where there is a large number of sellers and where no one of these is so big that it can dominate the market

Question 8

Concentration ratio

Answer 8

The percentage of a particular market accounted for by a certain number of firms

Question 9

Customer inertia

Answer 9

The idea that customers are reluctant to change their financial services provider and therefore tend not to challenge poor service

Question 10

Effective competition

Answer 10

When the providers on the market compete to provide the best product, rather than taking advantage of lack of customer awareness or poor regulation

Question 11

Financial Conduct Authority (FCA)

Answer 11

The organisation that regulates financial firms providing services to consumers, and maintains the integrity of the UK’s financial markets

Question 12

Genuine competition

Answer 12

Where there are several providers, who are independent of each other, that design a range of clearly differentiated products for consumers to choose from

Question 13

Good competition

Answer 13

Where there are a good number of providers on the market so that consumers have a variety of firms to choose from

Question 14

Market share

Answer 14

The sales that a company makes as a proportion of the total market for the products and services it provides, or the sales of a specific product as a proportion of the total market for that product

Question 15

Oligopoly

Answer 15

A market dominated by a few large firms, eg the financial services sector

Question 16

Payment protection insurance (PPI)

Answer 16

An insurance product intended to ensure repayment of loans should a borrower face unexpected events that prevent them from repaying the debt

Question 17

Pressure group

Answer 17

A group who act together to try to bring about change. In the case of financial services, they try to pressure financial services providers into making changes to the way they develop, market and deliver their products

Question 18

Transparency

Answer 18

When customers are given full information on the products available, the terms and conditions are clearly explained, and customers understand what they are buying and the financial implications involved

Question 19

Wasteful competition

Answer 19

Where providers spend huge amounts of money on designing, branding and marketing a product that is only slightly different from those of its competitors

Question 20

Which of the following has the largest amount of influence in the retail banking sector?

Answer 20

commercial banks

Question 21

A benefit of effective competition is that:

Answer 21

customers have more choice

Question 22

the Financial Services Consumer Panel aims to:

Answer 22

represent the interests of consumers and aid effective regulation

Question 23

A market which is dominated by a small number of very large firms is called

Answer 23

an oligopoly

Question 24

An example of wasteful competition is

Answer 24

developing and marketing a product almost identical to that offered by competitors

Question 25

An example of a ‘challenger bank’ is:

Answer 25

metro bank

Question 26

The Current Account Switch Service enables clients to switch their current account provider in just

Answer 26

7 days

Question 27

In relation to competition, the FCA sees its role as being

Answer 27

to protect and promote competition in general

Question 28

The Competition and Markets Authority (CMA) investigates mergers that could

Answer 28

restrict competition

Question 29

When choosing a pension scheme, it is most sensible to discuss the decision with

Answer 29

an independent financial adviser

Question 30

Competition is always good for the consumer.

Answer 30

false

Question 31

The financial services sector, and particularly the banking sector, is highly concentrated.

Answer 31

true