Unit 3 Topic 6

Question 1

What is bank liquidity?

Answer 1

The amount of cash banks are required to hold in relation to the amount they
have in customer deposits.

Question 2

What is the bank rate? When do FSP’s take it into account?

Answer 2

The interest rate that the Bank of England uses when it lends money to other
banks.
Financial services providers take account of the Bank rate when they
decide how to set interest rates on their own products.

Question 3

What is a commodity?

Answer 3

Goods that share the same characteristics wherever they are produced and
whoever produces them – unlike a manufactured product, where different
manufacturers can add specific features.

Question 4

Give some examples of commodities

Answer 4

Examples include raw materials such
as iron ore, gold and silver, or agricultural produce such as wheat and rice.

Question 5

What is a key difference between bonds and shares?

Answer 5

bondholders do not own a share in the company that they have that bond with.

Question 6

What is a corporate bond?

Answer 6

A product that companies can use to borrow money over periods of five years
or more.

Question 7

What is this refering to?
Any action or project in which a company goes beyond the interests of its
shareholders and senior management in order to benefit other stakeholder
groups, normally with either a social or an environmental purpose. Also
known as citizenship or sustainable responsible business.

Answer 7

Corportate social responsibility

Question 8

What is an emerging market?

Answer 8

A nation in the process of rapid economic growth and involvement in
international trade.

Question 9

How might a brand present or conduct itsself in order to be labelled as an ‘ethical brand’?
What might this mean in financial services terms?

Answer 9

Having a sustainable, socially responsible approach to production and marketing - this may include limiting the impact
on the environment or not exploiting workers.

In financial services terms it
can mean a product that is not targeted at unsuitable customers.

Question 10

Who are the European comission?

Answer 10

The executive body of the European Union responsible for proposing
legislation, implementing decisions, upholding the Union’s treaties and day-
to-day running of the EU.

Question 11

What is a gilt?

Answer 11

A bond issued by the UK government – it is a way for the government to
borrow money.

Question 12

What are most gilts issued with? When can they be traded?

Answer 12

A redemption date

Between their issue and the
redemption date

Question 13

Define globalisation

Answer 13

The integration of economies, industries, markets, cultures and policy-making
around the world.

Question 14

What is GDP (gross domestic product)?

Answer 14

The value of all the goods and services produced within a country over a year.

Question 15

What i the international monetary fund?

Answer 15

An international body of 190 countries that aims to promote international co-
operation on exchange rates and other economic matters.

Question 16

What body is this refering to? The Bank of England committee responsible for keeping inflation under
control by the manipulation of interest rates.

Answer 16

Monetary Policy Committee

Question 17

What is offshoring?

Answer 17

The practice of moving some of a company’s operational functions to
overseas locations.

Question 18

What is outsourcing?

Answer 18

The process of one provider paying another to carry out certain functions that
it would normally do itself.

Question 19

What is this refering to?
The project that resulted in an agreement between the government and the
main banks to pay lower bonuses to their employees and make more money
available for business loans.

Answer 19

Project Merlin

Question 20

Define protectionism

Answer 20

Government policies designed to protect a country’s own businesses and
workforce.

Question 21

What is public sector debt?

Answer 21

The amount the government has to borrow to bridge the gap between the
income it receives (eg from taxation) and the amount it spends (eg on services
such as the NHS).

Question 22

What is reshoring?

Answer 22

The term given to bringing back functions that were once offshored.

Question 23

What type of mortgage is this refering to?
A type of mortgage that is normally taken out by those with low credit ratings
and is therefore more likely than the average mortgage not to be repaid.

Answer 23

Sub-prime mortgage

Question 24

Why is the phrase ‘too big to fail’ significant?
(giving major Mr Birling vibes here)

Answer 24

A phrase used frequently during the 2007–08 financial crisis. It expresses the
idea that the consequences of one or more of the big banks failing would be
so economically disastrous that no government could allow it to happen.

Question 25

What is toxic debt?

Answer 25

Debt that has a low chance of being repaid with interest.