Chapter 1 Flashcards
Describe how the LSE acts as a PRIMARY MARKET.
It allows companies and governments to raise or borrow money by issuing bonds and shares.
Describe how the LSE acts as a SECONDARY MARKET.
It allows investors to buy and sell bonds and shares that have already been issued.
How can companies and governments borrow money via the stock market? (2)
1) Issuing bonds - in return for lending money to these institutions, the investor receives regular interest payments.
2) Issuing shares - investors who purchase shares (‘shareholders’) become part of the company that has issued the shares, and are entitled to a share of the company’s profits. Investors can make a profit if they sell their shares back via the secondary market, as long as the share price is higher than the price at which they bought the shares.
Define the CAPITAL MARKET.
The general term used to refer to the market in bonds and shares.
Define the MONEY MARKET.
A market for commercial borrowers and lenders to invest or borrow cash over periods from as short as overnight to as long as a year.
Define the FOREIGN EXCHANGE MARKET.
The global market for buying and selling currencies.
Define the INSURANCE MARKET.
This covers insurance companies and life and pensions providers, as well as more specialised institutions such as reinsurance firms and Lloyd’s of London.
Define CREDIT UNIONS.
Typically small, non-profit-making organisations. Members tend to have a common bond, such as living in the same area or working in the same type of job. They offer accessible and affordable savings and loans products to their members.
Define INTERMEDIARIES.
Intermediaries sell and sometimes give advice on the products produced by the insurance companies and the life and pensions providers. They can be INDEPENDENT or RESTRICTED.
What is the difference between INCOME PROTECTION policies and CRITICAL ILLNESS PROTECTION policies?
INCOME PROTECTION policies pay out a monthly income if the policyholder is unable to go to work due to ill-health, which replaces their salary.
CRITICAL ILLNESS PROTECTION policies pay out a lump sum in the event of the customer being diagnosed with a serious illness such as cancer. This can be used to fund lifestyle changes such as private care or making adaptations to the home, or easing financial burdens such as mortgage repayments.
