Topic 3 Financial services in the wider economy

Question 1

1. Which two groups of people are linked by financial intermediation?

Answer 1

Financial intermediation links the surplus sector and the deficit sector.

Question 2

2. How does the ownership of a bank differ from that of a building society?

Answer 2

 A bank is a proprietary organisation owned by its shareholders;
 A building society is a mutual owned by its members.

Question 3

3. Describe in one sentence how credit unions operate.

Answer 3

Credit unions are financial co-operatives run for the benefit of their members, who are all linked in a particular way.

Question 4

4. Briefly explain the main difference between retail and wholesale banking

Answer 4

 Retail banking is primarily concerned with the more common services provided to personal and corporate customers, such as deposits, loans and payment systems.
 Wholesale banking refers to the process of raising money through the wholesale money markets in which financial institutions and other large companies buy and sell financial assets.

Question 5

5. What level of funding can building societies raise on the wholesale markets?

Answer 5

Building societies are permitted to raise up to a total of 50% of their liabilities on the wholesale markets, although the Treasury now has the facility to raise this to 75% without further primary legislation.