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Libf UNIT 4 > Topic šest - The impact of change and uncertainty on financial products > Flashcards

Topic šest - The impact of change and uncertainty on financial products Flashcards

1
Q

What are exogenous shocks

A

Big events that happen, and have a big long lasting impact - Covid-19

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2
Q

What is pure risk

A

When it only has downsides - a family with volcano insurance may face the risk of being volcano’d

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3
Q

What is speculative risk

A

When it can have ups and downs - Shares/stocks

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4
Q

Can risk ever be eliminated

A

NO

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5
Q

What is expected loss

A

the average amount of loss you’re expecting to make - Providers use past data to calculate risk on whether people make repayments

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6
Q

What is unexpected loss

A

When the actual loss, is bigger than the expected loss

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7
Q

What is catastrophic loss

A

A loss in excess of the unexpected loss that is unlikely

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8
Q

What is the standard living of people

A

A change in real incomes

A change in real interest rates

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9
Q

What type of annuity will have the smallest starting salary

A

RPI linked annuity’s

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10
Q

What is a particular problem for pensions

A

Stock market volatility

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11
Q

What do people who think they are going to be unemployed do

A

Put money into a savings account

Try and pay of as many debts

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12
Q

What are ways loan forbearance is done

A

Extending the term of the mortgage

giving the person a payment holiday

Allowing them to owe more as long as they pay some back

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13
Q

Advantages to loan forbearance

A

Provider can keep the asset of the loan

Doesn’t have to write the debt off

Avoids bad publicity of kicking family’s out of their houses

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14
Q

What is a loan given by most credit unions

A

Payment Waiver

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15
Q

What is a payment waiver

A

Protects customers if they are unable to make repayments due to being absent from work for illness reasons

New PPI basically

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16
Q

Ways providers are re-making credit products to meet the needs of those who can pay it back

A

Make the LTV lower - need 20% deposit instead of 0% pre crisis

Make the loans more relative to peoples incomes

Customers advised to pay more than the minimum amount on credit cards per month

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17
Q

What 2 big banks did the government take public shares in after the crisis

A

RbS

LLOYD’S

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18
Q

Why are the government holding RBS shares still

A

As they aren’t worth a lot and want to make money on them

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19
Q

Who enforced divestments on banks in 2009 and what banks

A

European Union’s Competition Commissioner

Lloyds and rbs

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20
Q

What is divestment

A

When banks have to sell part of themselves to make them smaller and increase competition

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21
Q

What was project rainbow

A

Required RBS to dispose of over 300 branches and stop other interests like churchill insurance

In the END RBS sold of its direct line stake

22
Q

What was project Verde

A

Required Lloyds to shut branches, they converted 631 branches to TSB

TSB was put on the market

By 2017 government had sold of all it’s lloyds shares

23
Q

What are the biggest challenger banks

A

Atom
Monzo
Tandem
Starling

24
Q

Whats the point of ring fencing

A

To protect peoples deposits from losses made by a banks trading department

25
Q

Are building society’s ring-fenced

A

NO

26
Q

Who decides what should be ring-fenced

A

HM Treasury

27
Q

Who is required to ensure banks stay ring-fenced

A

PRA

28
Q

What is “Electrifying the fence”

A

The pra can force a banking group to completely separate wholesale and retail banking

29
Q

Arguments in favour of ring fencing

A

A “too big to fail bank” can still default in the investment side

The services of banking must always be available

larger banks are hard to regulate, so ringfencing makes it easier

can rescue banks bad reputations

30
Q

Arguments against ring fencing

A

The problem in banks wasn’t the size but the interconnectivity

less funding available to retail banks

Retail banks also played their part in the crisis

Larger banks are more disadvantaged and can feel targeted

31
Q

What is regulatory risk

A

The risk of increasing regulations

32
Q

Examples of the costs of regulations

A

Compensating the mis-selling of financial products

The administration costs

The cost of complying with BCOBS and standards of lending practice

The direct cost of getting staff compliment with regulations

33
Q

How do regulations effect customers

A

Higher fees on products

May stop giving loans to small businesses and poor people as it costs them too much

34
Q

How much will the 2020 aussie Forrest fires cost

A

100bn australian bucks

35
Q

2 ways of dealing with catastrophic loss

A

In advance take steps to eliminate the financial impact

preparation is the more realistic approach - disaster recovery planning to save info

36
Q

Whats the best way to counter risk via the weather

A

INSURANCE

37
Q

Have floods been more frequent in recent times

A

YES

38
Q

How many houses are in risk of flooding in the uk

A

5 Million

39
Q

Whats a catastrophe bond

A

People buy a bond and if the catastrophe doesn’t happen they receive money - a tornado bond will not pay out if a tornado happens

40
Q

What is the Murabaha method

A

a Sharia- compliant lender may buy the house from the seller and then resell it to the buyer at a profit

1the buyer will repay in instalments

but no penalties will be charged for late payment.

41
Q

What is the ijara method

A

The bank buys the property and leases it to the customer until they own the house

42
Q

Example of 2 sharia law compliant banks in uk

A

Al Rayan Bank

Qatar Islamic Bank.

43
Q

What is Gharar

A

Uncertainty in business

44
Q

What did the pope talk bad about, and good about

A

Bad - payday loans (Had indirectly invested in them making him look like a knob)

Good - Credit unions

45
Q

What is sunnah

A

An act that is rewarding, profit Muhammad did things that were sunnah

46
Q

Who must also be responsible for financial decisions

A

The individual themselves

47
Q

What is green finance

A

describes investment into sustainable projects and policies that aid the growth of a green economy

48
Q

What did the government announce in 2017 to speed up the growth of green finance

A

Establish a green taskforce

Deliver ambitious proposals to increase green investment

Develop green standards to promote investments in sustainable projects

49
Q

What is cyber terrorism

A

Hackers attacking computer network to give viruses and cause major distruption

50
Q

How can you counter cyber terrorism

A

strong virus protection
firewalls
Specialists and staff trained accordingly

51
Q

Can you buy terrorist insurances

A

No

52
Q

Who is in charge of going against money laundering and financial crime

A

the fca

Libf UNIT 4 (18 decks)

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