Chapter 1

Question 1

provides the link between organizations needing capital and those with capital available for investment.

Answer 1

Financial Services Sector

Question 2

channels money invested to those organizations that need it, and provides execution, payment, advisory, and management services.

Answer 2

Financial Services Sectors

Question 3

3 Core Functions of Financial Services Sector

Answer 3

Investment Chain
Risk
Payment Sytems

Question 4

savers and borrowers are brought together.

Answer 4

The investment chain

Question 5

financial services sector allows other risks to be managed effectively and efficiently through the use of insurance and increasingly through the use of sophisticated derivatives.

Answer 5

Risk

Question 6

provide the practical mechanisms for money to be managed, transmitted and received quickly and reliably.

Answer 6

Payment systems

Question 7

Financial Markets (5)

Answer 7

Equity Markets
Bond Markets
Foreign Exchange Markets
Derivatives Markets
Insurance Markets

Question 8

are the best known of the financial markets and facilitate the trading of shares in quoted companies.

Answer 8

Equity Markets

Question 9

Rivals to traditional stock exchanges have also arisen with the development of technology and communication networks known as …

Answer 9

Multilateral Trading Facilities (MTFs)

Question 10

are larger both in size and value trading

Answer 10

Bond markets

Question 11

are the largest of all financial markets, with average daily turnover in excess of 5 trillion US Dollar

Answer 11

Foreign Exchange Markets

Question 12

The strength of one currency in relation to another and the rate at which one currency is exchanged for another is set by …

Answer 12

Supply and demand

Question 13

an over-the-counter (OTC) market, meaning one where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house.

Answer 13

FOREX

Question 14

releases figures on the composition of the Forex market every three years

Answer 14

Banks for International Settlements (BIS)

Question 15

trade a range of complex products based on underlying instruments, including currencies, indices, interest rates, equities, commodities and credit risk.

Answer 15

Derivative Markets

Question 16

largest of the exchange –traded derivatives markets

Answer 16

Chicago Mercantile Exchange (CME)

Question 17

dominates trading in the OTC derivatives markets worldwide

Answer 17

Europe

Question 18

account for the majority of outstanding derivatives contracts, mostly through interest rate swaps.

Answer 18

Interest rate derivatives contract

Question 19

The next largest segment is.., which are used to speculate on currency movements and to hedge the risks of currency positions.

Answer 19

Forex derivatives

Question 20

specialize in the management of personal risk, corporate risk and protection of life events

Answer 20

Insurance markets

Question 21

Largest insurance markets

Answer 21

US, Japan, China, UK

Question 22

Participants (13)

Answer 22

1 Investment Banks
2 Custodian Banks
3 Retail Commercial Banks
4 Savings Institutions
5 Peer-to-peer (P2P) or Crowd Funding
6 Insurance Companies
7 Investment Schemes
8 Fund Managers
9 Stockbrokers and Managers
10 Private Banks
11 Sovereign Wealth Funds (SWFs)
12 Trade Bodies
13 Third-party Administrators (TPAs)

Question 23

provide advice and arrange finance for companies that want to float on the stock market, raise additional finance by issuing further shares or bonds, or carry out mergers and acquisitions.

Answer 23

Investment banks

Question 24

are banks that specialize in safe custody services, looking after portfolios of shares and bonds on behalf of others, such as fund managers, pension funds and insurance companies.

Answer 24

Custodians

Question 25

have driven down the charges that a custodian can make for its traditional custody services and have resulted in consolidation within the industry.

Answer 25

Cost presssures

Question 26

is now dominated by a small number of global custodians who are often divisions of major banks.

Answer 26

Custody buisness

Question 27

Among the biggest global custodians

Answer 27

Bank of Melon New York and State Street

Question 28

provide services such as taking deposits from, and lending funds to retail customers, as well as providing payment and money transmission services.

Answer 28

Retail/commercial bank

Question 29

started off by specializing in offering savings products to retail customers, but now tend to offer a similar range of services to those offered by banks.

Answer 29

Savings institutions

Question 30

are often described as mutual societies or mutual savings banks.

Answer 30

Savings organization

Question 31

cuts out the banks so that borrowers often receive slightly lower rates, while savers get far improved headline rates, with the P2P firms themselves profiting via a fee.

Answer 31

Peer-to-peer Lending

Question 32

collect premiums in exchange for the coverage provided

Answer 32

Insurance companies

Question 33

provides solutions for much more than the standard areas, such as life cover and general insurance cover

Answer 33

Insurance industry

Question 34

is a key area of financial advice, and the insurance industry provides a variety of products to meet many potential scenarios.

Answer 34

Protection planning

Question 35

are one of the key methods by which individuals can make provision for their retirement needs. There are a variety of retirement schemes available, ranging from ones provided by employers, to self-directed schemes.

Answer 35

Retirement scheme or pension scheme

Question 36

also known as investment managers, portfolio managers or asset managers, run portfolios of investments for others

Answer 36

Fund managers

Question 37

will buy and sell shares, bonds and other assets in order to increase the value of their clients’ portfolios

Answer 37

Investment managers

Question 38

work on behalf of institutions, for example, investing money for a company’s pension fund or an insurance company’s fund, or managing the investments of a mutual fund

Answer 38

Institutional fund managers

Question 39

invest the money of relatively wealthy individuals

Answer 39

Private client managers

Question 40

arrange stock market trades on behalf of their clients, who are investment institutions, fund managers or private investors.

Answer 40

Stockbrokers

Question 41

Stockbrokers can be divided into four main categories:

Answer 41

Execution-only stockbrokers Robo-advisers Advisory and Discretionary managers Institutional brokers

Question 42

these offer telephone or internet-based trade execution and settlement for retail clients.

Answer 42

Execution-only stockbrokers

Question 43

a recent innovation, a robo-advisor is an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners.

Answer 43

Robo-advisers

Question 44

these offer a wealth management service to private investors- either advice only or a fully managed (discretionary) service.

Answer 44

Advisory and discretionary wealth managers

Question 45

these are brokers who arrange trades on behalf of large institutions.

Answer 45

Institutional brokers

Question 46

a wide range of services for their clients, including wealth management, estate planning, tax planning, insurance, lending and lines of credit

Answer 46

Private banks

Question 47

is offered both by domestic banks and by those operating offshore

Answer 47

Private banking

Question 48

is a state-owned investment fund that holds financial assets such as equities, bonds, real estate, or other financial instruments.

Answer 48

Sovereign wealth funds

Question 49

undertake investment administration on behalf of other firms, and specialize in this area of the investment industry.

Answer 49

Third-party adminstrators (TPAs)

Question 50

The investment industry is a dynamic, rapidly changing business, and one that requires co-operation between firms to ensure that the views of various industry sections are represented

Answer 50

Trade Bodies

Question 51

Heirarchy of Financial Needs

Answer 51

Estate Planning Investment Protection Savings Basic Income