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

Question 1

What are exogenous shocks

Answer 1

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

Question 2

What is pure risk

Answer 2

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

Question 3

What is speculative risk

Answer 3

When it can have ups and downs - Shares/stocks

Question 4

Can risk ever be eliminated

Answer 4

NO

Question 5

What is expected loss

Answer 5

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

Question 6

What is unexpected loss

Answer 6

When the actual loss, is bigger than the expected loss

Question 7

What is catastrophic loss

Answer 7

A loss in excess of the unexpected loss that is unlikely

Question 8

What is the standard living of people

Answer 8

A change in real incomes

A change in real interest rates

Question 9

What type of annuity will have the smallest starting salary

Answer 9

RPI linked annuity’s

Question 10

What is a particular problem for pensions

Answer 10

Stock market volatility

Question 11

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

Answer 11

Put money into a savings account

Try and pay of as many debts

Question 12

What are ways loan forbearance is done

Answer 12

Extending the term of the mortgage

giving the person a payment holiday

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

Question 13

Advantages to loan forbearance

Answer 13

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

Question 14

What is a loan given by most credit unions

Answer 14

Payment Waiver

Question 15

What is a payment waiver

Answer 15

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

New PPI basically

Question 16

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

Answer 16

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

Question 17

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

Answer 17

RbS

LLOYD’S

Question 18

Why are the government holding RBS shares still

Answer 18

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

Question 19

Who enforced divestments on banks in 2009 and what banks

Answer 19

European Union’s Competition Commissioner

Lloyds and rbs

Question 20

What is divestment

Answer 20

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

Question 21

What was project rainbow

Answer 21

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

Question 22

What was project Verde

Answer 22

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

Question 23

What are the biggest challenger banks

Answer 23

Atom
Monzo
Tandem
Starling

Question 24

Whats the point of ring fencing

Answer 24

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

Question 25

Are building society's ring-fenced

Answer 25

NO

Question 26

Who decides what should be ring-fenced

Answer 26

HM Treasury

Question 27

Who is required to ensure banks stay ring-fenced

Answer 27

PRA

Question 28

What is "Electrifying the fence"

Answer 28

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

Question 29

Arguments in favour of ring fencing

Answer 29

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

Question 30

Arguments against ring fencing

Answer 30

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

Question 31

What is regulatory risk

Answer 31

The risk of increasing regulations

Question 32

Examples of the costs of regulations

Answer 32

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

Question 33

How do regulations effect customers

Answer 33

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

Question 34

How much will the 2020 aussie Forrest fires cost

Answer 34

100bn australian bucks

Question 35

2 ways of dealing with catastrophic loss

Answer 35

In advance take steps to eliminate the financial impact preparation is the more realistic approach - disaster recovery planning to save info

Question 36

Whats the best way to counter risk via the weather

Answer 36

INSURANCE

Question 37

Have floods been more frequent in recent times

Answer 37

YES

Question 38

How many houses are in risk of flooding in the uk

Answer 38

5 Million

Question 39

Whats a catastrophe bond

Answer 39

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

Question 40

What is the Murabaha method

Answer 40

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.

Question 41

What is the ijara method

Answer 41

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

Question 42

Example of 2 sharia law compliant banks in uk

Answer 42

Al Rayan Bank Qatar Islamic Bank.

Question 43

What is Gharar

Answer 43

Uncertainty in business

Question 44

What did the pope talk bad about, and good about

Answer 44

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

Question 45

What is sunnah

Answer 45

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

Question 46

Who must also be responsible for financial decisions

Answer 46

The individual themselves

Question 47

What is green finance

Answer 47

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

Question 48

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

Answer 48

Establish a green taskforce Deliver ambitious proposals to increase green investment Develop green standards to promote investments in sustainable projects

Question 49

What is cyber terrorism

Answer 49

Hackers attacking computer network to give viruses and cause major distruption

Question 50

How can you counter cyber terrorism

Answer 50

strong virus protection firewalls Specialists and staff trained accordingly

Question 51

Can you buy terrorist insurances

Answer 51

No

Question 52

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

Answer 52

the fca