Week 1

Question 1

Three conditions to be met to be viewed as a bank are:

Answer 1

1) Accept money and collect cheques for their customers, placing them to their customer’s accounts;
2) Honour cheques or orders drawn on them by their customers when presented for payment;
3) Keep current accounts (or something of that nature) and record debits and credits in them.

Question 2

Financial Intermediation Advantages

Answer 2

1) Overcomes differentials in term, amounts and liquidity
2) The lender creates and interest rate margin (the Gross Profit Margin for the lender)
3) Deposits are protected under FSCS
4) Borrower protected under CCA 1974
5) Removes personal issues, especially around non-repayment

Question 3

Financial Intermediation Disadvantages

Answer 3

1) Can be seen as inflexible
2) Can be expensive
3) Can be difficult to access (particularly for vulnerable) – no job, no home address, illiterate etc

Question 4

Commercial Banks

Answer 4

1) Originated in the agricultural industry, meeting the farmers need to meet the costs of seeds etc. before receiving funds from the harvest
2) Further expansion during industrial revolution, meeting similar needs
3) Grew as commercial organisations (companies) owned by shareholders

Question 5

Building Societies, Savings Banks and Credit Unions

Answer 5

1) Grew from the needs of local people to buy homes
2) Owned by the members as a mutual organisation
3) Range of products limited, focused on specialised services
4) Turn of the 21st century saw many mutuals be absorbed by large banks (e.g. Cheltenham & Gloucester), or actually become banks (e.g. Halifax)
5) Largest remaining mutual building society is the Nationwide

Question 6

Commercial Banks

Answer 6

Deposits
Lending
Payments

Question 7

Investment Banks

Answer 7

Underwriting
Share trading
Asset management
Private banking
Derivatives and futures trading

Question 8

Bancassurance

Answer 8

Insurance

Pensions

Question 9

Customer Segmentation and Retail Banking

Answer 9

1) Geographic
2) Psychographic
3) Demographic
4) Behaviouristic

Question 10

Geographic

Answer 10

Based on;

Location
Density of population

Question 11

Demographic

Answer 11

1) Age
2) Sex
3) Family size and life cycle
4) Income
5) Occupation
6) Education
7) Religion
8) Race

Question 12

Psychographic

Answer 12

Based on;

1) Social class
2) Life cycle
3) Personality

Question 13

Behaviouristic

Answer 13

Based upon:-

1) Purchase made
2) Benefits sought
3) User status – have they used service before?
4) Loyalty status – how loyal is the customer?
5) Readiness stage – how likely are they to buy?
6) Attitude to product.

Question 14

UPRAY

Answer 14

U-nderline the key words in the question
P-rinciple. Define and explain the principle being tested
R-elate the principle to the question being asked
A-nswer the question
Y-ou then check A to U.