Unit 2 - 1. The Financial Services Industry

Question 1

Differences between equities and bonds

Unit 2 - 1. The Financial Services Industry

Answer 1

Bond Investors:

• lend money to the issuer in return for an agreed rate of return
• have an agreed date on which the principal loaned will be repaid
• will be paid ahead of shareholders if the issuer becomes insolvent
• may have legal recourse against the issuer of the bond if the interest on the bond or principal is not paid/re-paid

Equity Investors:

• purchase a small portion, or share, of a company
• cannot be certain the value of the company will increase
• cannot be certain of the amount of dividend payments that will be paid
• can suffer total loss of investment if the company collapses
• are repaid after bondholders
• may have voting rights to influence the company

Question 2

Registered vs Bearer

Unit 2 - 1. The Financial Services Industry

Answer 2

Bearer certificates mean that the person that bears them has title to them. Bearer securities are easier to transfer as there is no register and they can simply be handed over.

Registered certificates require that the holder’s ownership is recorded in a register as the owner (or title holder) of the investment.

Question 3

Differences between retail and professional business

Unit 2 - 1. The Financial Services Industry

Answer 3

Professional sector = wholesale sector (B2B)

Wholesale Services
- equity markets
- bond markets
- foreign exchange
- derivatives
- insurance markets
- fund management
- investment banking
custodian banking

Retail Services

• retail banking
• insurance
• pensions
• investment services
• financial planning and advice