Unit 1 - The UK Financial Services Industry: An Overview Flashcards
How Financial services function within the wider economy.
Financial Services can be said to perform 4 essential functions these are:
1) Providing a vehicle through which savings are protected and channelled into capital management
2) Providing a means by which savers desire for ready access to their capital can match borrowers requirements for long term funds & allowing financial institutions to take positions with longer terms for greater return
3) allowing individuals and companies to insure against risks they do not wish to take but others are prepared to assume in return for payment
4) allowing investors to disperse risk across a number of different investment products
Savings can be:
Deposits with banks and building societies
Purchase of gilts or shares
What are Gilts?
Gilts are investments issued by the UK Debt management office which pay a fixed level of interest over a fixed or variable period of time.
What is NS&I?
NS&I stands for National Savings and Investments, this is a government institution. They are best known as the issuer for premium bonds. Savings and deposits into this institution like Gilts are used to fund Government borrowing.
Both individuals and companies can have protection needs on:
1) physical assets
2) earnings
3) profit potential
4) financial transactions
The capital markets developed to meet what 2 key objectives?
1) enable investors to invest in assets that provide the potential for real growth (growth over and above the general increase in prices)
2) help companies to raise money without necessarily having to borrow it from a bank
What are shares?
The means by which private investors and corporations can buy ownership of a percentage of a company. This means they benefit from an increase in the value of the company and receive a proportion of the distributed profits in the form of a dividend. It also grants them the rights to vote in shareholder meetings on certain key decisions.
What are fixed interest stocks (bonds) ?
Allow private investors and corporations to lend a company money, subject to certain predefined terms, in exchange for an interest payment.
What are the 4 key components within the financial sector?
1) financial infrastructure - payment, settlement, clearing and trading systems
2) financial markets - both on-exchange and over the counter
3) financial firms - banks, pension funds, insurance funds etc
4) financial sector authorities - Bank of England, PRA, FCA and HM Treasury
What are the 3 European Supervisory Authorities (ESAs?)
1) the European Banking Authority
2) the European Securities and Markets Authority
3) the European Insurance and Occupational Pensions Authority
What is the role of the European Central Bank?
To coordinate and control monetary policy and interest rates in the EU states using the common euro currency.
What is the Financial Action Task Force?
Sets international standards on anti-money laundering
The Key legal instruments governing the regulation and conduct of business of the financial services industry are:
Financial Services and Markets Act 2000
Financial Services Act 2012
Bank of England and Financial Services Act 2016
What is fiscal policy?
The control of taxation, borrowing and government spending
What is monetary policy?
Actions involving interest rates and the money supply
