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 12

Define globalisation

Answer 12

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

Question 13

What is GDP (gross domestic product)?

Answer 13

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

Question 14

What i the international monetary fund?

Answer 14

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

Question 15

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

Answer 15

Monetary Policy Committee

Question 16

What is offshoring?

Answer 16

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

Question 17

What is outsourcing?

Answer 17

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

Question 18

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 18

Project Merlin

Question 19

Define protectionism

Answer 19

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

Question 20

What is public sector debt?

Answer 20

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 21

What is reshoring?

Answer 21

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

Question 22

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 22

Sub-prime mortgage

Question 23

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

Answer 23

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 24

What is toxic debt?

Answer 24

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

Question 25

What are the main factors driving globalisation?

Answer 25

Advances in communication technology, ease of travel, international trade, and multinational corporations.

Question 26

How does globalisation affect financial services?

Answer 26

It allows financial institutions to operate internationally, leading to increased competition, access to diverse markets, and potential risks from global economic crises.

Question 27

Why do some people oppose globalisation?

Answer 27

Critics argue that it undermines local cultures, increases economic inequality, and leads to job losses due to outsourcing.

Question 28

How did the 2007–08 financial crisis highlight the risks of globalisation?

Answer 28

The subprime mortgage crisis in the US led to a global banking crisis, demonstrating how interconnected financial systems can spread economic instability worldwide. (domino effect basiclally)

Question 29

What is the global economy?

Answer 29

The global economy is the sum of economic activities across all countries, interconnected through trade, investment, and financial markets.

Question 30

How do exchange rates affect the economy?

Answer 30

A strong currency makes exports more expensive but reduces import costs, while a weak currency does the opposite.

Question 31

How does an economic downturn affect savings and borrowing?

Answer 31

People save more and borrow less, while banks tighten lending standards to reduce financial risk.

Question 32

Why do investors look for safe assets during a recession?

Answer 32

They seek low-risk investments like government bonds and savings accounts to protect their capital.

Question 33

What happens to employment during a global recession?

Answer 33

Unemployment rises as businesses cut costs, reduce hiring, and some industries shrink.

Question 34

How do financial crises affect individuals and businesses?

Answer 34

They lead to job losses, lower investment returns, and reduced access to credit.

Question 35

How do wars impact personal finance?

Answer 35

Wars can lead to higher taxes, inflation, and increased government borrowing, affecting individuals and businesses.

Question 36

What are the financial effects of climate change and natural disasters?

Answer 36

They increase insurance costs, disrupt supply chains, and lead to higher food and energy prices.

Question 37

How do financial scandals impact consumers?

Answer 37

Scandals erode trust in financial institutions, leading to stricter regulations and sometimes financial losses for investors.

Question 38

Why is ethical behavior important in financial services?

Answer 38

Ethical practices build consumer trust, prevent fraud, and ensure long-term financial stability.