Unit 1: Introduction to the Financial Services Environment and Products - Topic 1 - Introducing the financial services industry Flashcards

Topic 1 Introducing the financial services industry

1
Q

What are the 4 main properties money must have to be a medium of exchange?

A

„ 1) sufficient in quantity
„ 2) generally acceptable to all parties in all transactions
„ 3) divisible into small units
„ 4) portable

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2
Q

What is inflation?

A

A sustained increase in the general level of prices of goods and services.

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3
Q

What are the 3 main elements of money?

A

„ 1) a medium of exchange – it can be exchanged for goods and services;
„ 2) a unit of account – a common denominator against which the value of goods and services can be measured; and
„ 3) a store of value – money received as payment today can be stored until required.

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4
Q

What is a financial intermediary?

A

An institution that borrows money from the surplus sector of the economy and lends it to the deficit sector.

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5
Q

What is DISINTERMEDIATION?

A

Involves lenders and borrowers interacting directly rather than through an intermediary. - eg Crowdfunding

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6
Q

What are the four elements of intermediation?

A

1) Geographic location
2) Aggregation
3) Maturity transformation
4) Risk transformation

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7
Q

What’s the definition of insurance?

A

‘a means of shifting the burden of risk by pooling to minimise financial loss’

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8
Q

Give 3 examples of ‘Product sales’ intermediaries

A

1) financial advisers
2) insurance brokers
3) mortgage advisers

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9
Q

What are the 7 main functions of the Bank of England?

A

1) Issuer of banknotes
2) Banker to the government
3) Banker to the banks
4) Adviser to the government
5) Foreign exchange market
6) Lender of last resort
7) Maintaining economic stability

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10
Q

What are Gilt‐edged securities or “Gilts”?

A

They are loans to the Government

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11
Q

The Financial Services Act 2012, effective from 1 April 2013, divided responsibility for financial stability between the Treasury, the Bank of England and what two new regulators?

A

Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA)

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12
Q

What is DEMUTUALISATION?

A

The conversion of the building society to a company.

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13
Q

What does Libor stand for?

A

London interbank offered rate

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14
Q

What is Libor?

A

The average rate of interest charged in the interbank market

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15
Q

What is Libor being replaced by in 2021?

A

Libor is to be replaced by SONIA (the Sterling Overnight Index Average) as the primary interest rate benchmark in sterling markets from 2021.

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16
Q

Which institution issues UK banknotes?

a) The Bank of England.
b) The Treasury.
c) The Royal Mint.

A

a) The Bank of England. The Royal Mint issues coins.

17
Q

What is the key difference between a mutual organisation and a proprietary organisation?

A

A mutual organisation is owned by its members – in the case of a building society, these are savers and borrowers; for a life assurance company they are the policyholders. A proprietary organisation is owned by its shareholders and is a limited company.

18
Q

A financial transaction that is carried out directly between an organisation with surplus funds to lend and one that needs to borrow is an example of:

a) demutualisation.
b) disintermediation.

A

Disintermediation.

19
Q

The setting of Libor is a regulated activity. True or false?

A

True