Chapter 1: The Financial Services Sector Flashcards
(31 cards)
What is the role of the investment chain?
Provides the link between organisations needing capital and individuals/organisations with capital available for investment.
What are the 3 core functions of the financial services sector?
- Investment Chain
- Managing Risk
- Payment Systems
In the context of Wholesale & Retail markets, what is the Wholesale market?
Wholesale financial markets enable organisations to raise capital to fund growth, trade, investments, etc.
In the context of Wholesale & Retail markets, what is the Retail market?
Retail financial markets are where organisations provide financial services directly to individuals.
What 8 financial activities make up the Wholesale market?
- International banking
- Equity markets
- Bond markets
- Foreign exchange
- Derivatives - options, swaps, futures & forwards
- Fund management
- Insurance - corporate/captive/risk-sharing
- Investment banking
What 5 financial activities make up the Retail market?
- Retail banking
- Insurance - life/home/motor
- Pensions
- Investment services
- Financial planning & advice
What is a Challenger bank?
Challenger banks are new banks that are designed to compete with large mainstream banks. They tend to be more nimble with less products and better technology.
What is peer-to-peer lending and what are it’s benefits?
P2P lending is where consumers/organisations cut out the bank and lend money to each other at a lower interest rate that benefits the borrower and saver.
What is shadow banking?
Shadow banking is a general phrase for a range of non-bank institutions that provide similar services to banks but outside of banking regulation. E.g. pawnbrokers, specialized investment vehicles & other financial companies.
What is the role of an investment bank?
Investment banks provide advice & arrange finance for companies looking to float on the stock market or carry out mergers / acquisitions.
What are the 3 types of fund managers?
- Institutional Fund Managers - work on behalf of institutions to invest their money/pension fund.
- Mutual Fund Managers - operate mutual funds that are available to the general public.
- Discretionary Investment Managers - private client managers that manage portfolios for private clients.
What are custodians?
Banks that specialize in safe custody of securities on behalf of fund managers / pension funds / insurance companies.
What 8 activities do custodians undertake?
- Holding assets in safekeeping
- Arranging settlement of security purchase / sale
- Asset servicing - collecting income from securities
- Providing information on the underlying companies
- Managing cash transactions
- Performing foreign exchange transactions
- Providing regular reporting to clients
- Reconciliation of assets held to tally with what the fund expects to be holding (trade support)
What 6 services do wealth management entities provide?
- Tailored banking products
- Investment management
- Secured lending (leverage)
- Investment products - forex, property, alternative investments, structured investments
- Trusts & estate management
- Tax / estate planning
What are the 4 categories of clients in terms of asset profile and what is their invest-able assets amount?
- Mass affluent - $100k+
- High-net-worth individuals - $1m+
- Very-high-net-worth individuals - $5m+
- Ultra-high-net-worth individuals - $30m+
What are the 6 steps in financial planning?
- Establish client relationship
- Collect client’s information
- Analysis client’s financial status
- Develop solutions
- Implement solutions
- Review clients situation
Who are the 6 wealth management providers?
- Financial Advisers - typically don’t manage investment portfolios directly, provide a planning service.
- Commercial Banks - offer same services as financial advisors to a mass market.
- Wealth Managers - stockbrokers / asset managers, buying & selling securities.
- Private Banking - focus on high wealth clients, providing a individual bespoke service.
- Family Offices - a wealth manager for a single ultra-high net worth family.
- Private Investment Offices - usually partnerships focused on managing high wealth family funds.
In terms of investment management services, what are the 2 bases that portfolio management can be conducted?
- Discretionary basis - portfolio manager makes investments within parameters set with the client.
- Non-discretionary / advisory basis - Client pays a fee for investment advice, all decisions are up to the client.
All stock exchanges provide a primary & secondary market, what is the difference?
Primary - raise capital & enable surplus funds to be matched with investment opportunities.
Secondary - facilitate two-way trading of securities for buyers & sellers.
What is an order-driven market?
A market that uses an electronic order book like the London Stock Exchange or an auction process like the New York Stock Exchange.
- DOES NOT use market makers.
- Buyers & sellers use a broker that acts on their behalf
- Trade takes place on the exchange floor or via computer trading system
- Requires good liquidity to operate effectively otherwise there is issues filling orders
- Buyers and sellers are matched in chronological order by price & quantity of shares.
- Order book queue priority is given on the basis of price and then time.
What is a quote driven market?
A market that provides bid & offer (buy & sell) prices during the trading day regardless of market conditions. Market makers make a profit via the price spread.
- DOES use market makers
- Liquidity is provided by market makers
- The market maker is required to buy & sell securities under all market conditions, quotes a larger spread during times of high volatility.
- A broker will execute trades with the market maker offering the best price
- NASDAQ OMX uses a quote-driven system
In the context of principal & agent trading, what is principle trading?
Principle trading involves the broker executing a sell/buy order against it’s own trading book, ensuring the client receives best execution.
In the context of principal & agent trading, what is agent trading?
Agent trading involves a broker arranging deals for clients.
What is Over-the-Counter (OTC) trading?
Known as off-exchange trading, trades take place outside of the stock exchange where there is more flexibility. Firms are not required to abide by ‘best execution’ rules. Bonds are often traded on the OTC market.
