topic 6 key words

Question 1

Annuity

Answer 1

A product where the customer pays a lump sum (the proceeds of a pension fund on retirement) and, in return, receives an agreed set annual amount for the rest of their life.

Question 2

Catastrophe bonds

Answer 2

Bonds purchased by investors who receive a good rate of interest as long as the catastrophe the bond covers does not happen. If it does occur, then they lose their capital and the insurance company does not
have to pay them back what they invested; this helps the insurer to lessen its exposure to the disaster.

Question 3

Catastrophic loss

Answer 3

A loss in excess of unexpected loss, which is unlikely but that could conceivably happen.

Question 4

Cyberterrorism

Answer 4

A situation where terrorists deliberately attack computer networks by uploading viruses that cause links and files to malfunction and data to be deleted

Question 5

Exogenous shocks

Answer 5

A significant event that happens without warning and that has large and lasting effects on political, economic, and social systems, eg the Coronavirus (Covid-19) pandemic.

Question 6

Index-linked

Answer 6

Rising in line with inflation.

Question 7

Loan to value (LTV)

Answer 7

The ratio of the size of the loan to the value of the property.

Question 8

Money laundering
officer

Answer 8

An employee of a financial provider who must be informed of suspicious activity in the business that might be linked to money
laundering or terrorist financing, and if necessary report it

Question 9

Mortgage equity
withdrawal

Answer 9

Additional borrowing based on the difference between the value of a house and the outstanding mortgage (ie if the house is valued at more than the amount the owner has to repay on the mortgage).

Question 10

Mortgage
forbearance

Answer 10

When a lender does not seek to repossess a property as soon as the borrower misses a few monthly payments, instead allowing the
customer to stop paying or make reduced payments for a set period.

Question 11

Negative real
interest rate

Answer 11

Where the nominal interest rate is lower than the rate of inflation.

Question 12

Nominal interest rate

Answer 12

The actual rate of interest received by a saver.

Question 13

Pure risk

Answer 13

Where risk can only have a downside, eg loss of or damage to possessions

Question 14

Real income

Answer 14

The value of people’s income in terms of goods and services, ie the purchasing power of the income or what people can buy with the income.

Question 15

Real interest rate

Answer 15

The difference between the nominal interest rate received by the saver and the rate of inflation.

Question 16

Speculative risk

Answer 16

Where risk can have either a good or a bad outcome, eg a financial loss or a financial gain.

Question 17

Unexpected loss

Answer 17

The amount by which the actual loss might exceed the expected loss.