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CISI Intro To Securities And Investment > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

Two types of factors affecting economic growth

A

Demand side and supply side factors

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2
Q

What are economic systems

A

The means by which countries determine how they will use resources

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3
Q

Types of economic systems

A

State controlled, market, mixed economy

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4
Q

What are state economies also called and pros/cons

A

Planned economies as resource use planned in advance instead of responding to market forces. Perceived advantage of low inequality and unemployment but often leads to lack of individual choice

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5
Q

What are market economies and how do they work

A

Forces of supply and demand determine how resources are allocated. Supply demand determine prices and attract/repel producers from market

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6
Q

What are mixed economies and how do they work

A

Combines a market economy with some element of state control. Government provides welfare and key areas such as education to cushion vulnerable from market failiures

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7
Q

What is meant by an open economy

A

Relates to a countries economic relationship with outside countries. Open economies have few barriers to trade and fx

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8
Q

What is protectionism and who promotes free trade

A

Protectionism is when a country prevents others from trading freely to protect its domestic market. The WTO (world trade organisation) oversees this

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9
Q

What is fiscal policy

A

Involves making adjustments using government spending and taxation

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10
Q

What is monetary policy

A

Adjustments to interest rate or money supply

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11
Q

What is macroeconomic policy

A

Policy by government to influence performance or behaviour of the economy

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12
Q

Four stages of economic cycle

A

Peak (max gdp), contraction (declining gdp), trough (min gdp) and expansion (growing gdp)

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13
Q

What are 3 types of government budget

A

Balanced (income=expenses), deficit (expenses exceed income) and surplus

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14
Q

What is PSBR

A

Public sector borrowing requirement for when government has budget deficit

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15
Q

How does fiscal policy effect business

A

Affects demand so need to take this into consideration when planning future outputs. Increased taxation may increase costs

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16
Q

Impacts of high interest rates

A

Saving encouraged, less disposable income, deter borrowing, lose confidence in economy, demands for higher wages, imports cheaper, lower demand

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17
Q

What is role of central banks

A

Control level of economic activity through monetary and fiscal policy

18
Q

What are responsibilities of central banks

A

Banker to government, manage national debt, regulation, lender in last resort, set interest rate, control money supply, hold reserves, depositors protection scheme

19
Q

Role of Bank of England

A

Monetary and financial stability

20
Q

What does monetary policy committee do?

A

Makes interest rate decisions and ensure inflation is kept within government limits by setting the base rate

21
Q

What is quantitive easing?

A

When very low interest banks base rate to reduce cost of borrowing and inject cash into economy to stimulate demand

22
Q

What is the FPC and what do they do?

A

Financial policy committee who monitor stability/resilience of UK economy and tackles these risks. Guides PRA

23
Q

What is the PRA

A

Prudential Regulation Authority is responsible for supervision of banks and key firms

24
Q

What is the DMO

A

Debt management office oversees national debt

25
Q

What is FSCS

A

Financial services compensation scheme provides depositors protection

26
Q

Negative impacts of high inflation

A

Real value of salaries eroded, increased prices, fixed income suffers (pensioners), exports less competitive, real value of future investments hard to asses

27
Q

Positive impacts of high inflation

A

Real value of debt falls (national debt and borrowers) rising house prices cause feel good factor increasing spending

28
Q

What is the CPI, CPIH and RPI

A

Consumer price index, CPI including housing costs, retail price index

29
Q

What is GDP and what is it measuring

A

Measures countries output and economic activity on an expenditure basis

30
Q

What is balance of payments

A

Summary of all transactions between UK and rest of world. Imports greater than exports is deficit. Exports over imports is surplus.

31
Q

What is public sector net debt

A

Government debt

32
Q

What is PSNCR

A

Public sector net cash requirement is the budget deficit

33
Q

What is impact of increasing PSNCR

A

Excessive government spending have potential to increase rate of inflation

34
Q

What is the impact of high unemployment

A

Caused by low demand and negatively impacts government finances. Increased social security payments and less tax income

35
Q

What are the two FX rate systems

A

Fixed rate means exchange rate is pegged to a particular currency. Floating rate means exchange rate is determined by supply and demand

36
Q

What are the 3 exchange rate regimes

A

Target zone (rate managed within a band), Crawling peg (upper and lower bands gradually widening), Managed Float (floating rate with occasional intervention)

37
Q

What is Capital account

A

Calculation of total value of goods in and out of country. Trade balance of visible and invisible balances

38
Q

What is the capital account

A

Records international capital transactions related to investment in business and stocks

39
Q

What is trade balance

A

Visible balance is balance between imports and exports on goods. Invisible is balance between imported and exported services. Can be in surplus or deficit

40
Q

When are balance of payments balanced?

A

Current account = capital account +/- balancing item +/- change in central bank fx reserves.

41
Q

Impact of exchange rate on exports

A

Value of currency rising causes exports to be less competitive. Value falling makes exports more competitive as exports are cheaper in foreign markets

CISI Intro To Securities And Investment (2 decks)

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