Chapter 1A - Overview Flashcards Preview

R01 - Financial Services, Regulation and Ethics > Chapter 1A - Overview > Flashcards

Flashcards in Chapter 1A - Overview Deck (15)
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1
Q

What are the four main Financial Services functions?

A

1 - to provide means for savings to be protected, and channelled into Capital Management
2 - to match savers with a need for quick access funds, to borrowers who need long-term funds, whilst the Financial Institution can take a longer-term investment period
3 - to allow individuals and companies to insure against risks they dont want to take, but others are willing to accept in return for regular payment
4 - to allow investors to disperse risk across different investment products

2
Q

How do banks use money deposited in Current Accounts?

A
  • lend it to borrowers

- interest is charged to the borrower which covers bank costs

3
Q

How are Banks and Building Societies owned differently?

A

Banks are owned by Shareholders; building societies are owned mutually by everyone who uses the service

4
Q

How do Banks turn a shareholder profit?

A

They charge interest on loans

5
Q

How do Building Societies pay shareholders?

A

Trick question - they dont have shareholders. This normally means lower interest for borrowers and higher rates of interest paid

6
Q

What is a Gilt?

A

A Gilt is a government derived investment that offers fixed interest for the investor and acts as a loan to the UK Goverment.

7
Q

How often is interest paid on a Gilt?

A

Every six months

8
Q

Does a Gilt holder have a guaranteed return?

A

No, they get back the face value, but that can be less than originally invested.

9
Q

What is the name given to a Gilt which is linked to RPI?

Bonus: why is this done?

A

Index-linked

Bonus: it protects against the impact of inflation.

10
Q

Which Government institution offers Premium Bonds?

A

National Savings and Investments

11
Q

What four things are commonly protected with insurance?

A

1 - Physical Assets
2 - Earnings
3 - Profit Potential
4 - Financial Transactions

12
Q

Briefly explain the principle of insurance

A

Small, regular payments are pooled and invested for profit, and to protect against inflation.

13
Q

What risk transfer occurs when taking an insurance policy?

A

The payment transfers risk from the individual to the insurer.

14
Q

What is the name given to the insurance of crucial earnings in the event of death?

A

Life Assurance

15
Q

What happens when a risk is too large to be covered by just a single insurance policy?

A

It is reinsured