Re-sit Areas

Question 1

What is a market in finance?

Answer 1

A market is where buyers and sellers meet to exchange goods or services. In finance, markets refer to places where financial products like shares, bonds, and currencies are traded.

Question 2

What are retail markets?

Answer 2

Retail markets are where banks, building societies, and insurance companies offer products to individuals, such as savings accounts, loans, and mortgages.

Question 3

What are wholesale markets?

Answer 3

Wholesale markets involve larger transactions, typically between businesses, governments, and financial institutions, such as large loans or currency exchange.

Question 4

What are retail institutions?

Answer 4

Retail institutions are banks or companies that deal with individual customers, like Barclays, HSBC, or Nationwide.

Question 5

What are wholesale institutions?

Answer 5

Wholesale institutions are large financial organisations that typically deal with businesses or governments, such as investment banks like Goldman Sachs or JPMorgan.

Question 6

Who are market participants?

Answer 6

Market participants are people or organisations that take part in the financial markets, such as brokers, dealers, and institutional investors.

Question 7

What do brokers do in financial markets?

Answer 7

Brokers help buyers and sellers make deals in markets, acting as intermediaries or middlemen.

Question 8

What do dealers do in financial markets?

Answer 8

Dealers buy and sell financial products for their own benefit, not as intermediaries.

Question 9

Who are institutional investors?

Answer 9

Institutional investors are large organizations, such as pension funds or insurance companies, that invest large amounts of money.

Question 10

What is an economic cycle?

Answer 10

An economic cycle moves between periods of boom (economic growth) and bust (economic downturn or recession).

Question 11

What is market volatility?

Answer 11

Market volatility is the degree to which the price of something can change in a short period. High volatility means rapid, unpredictable price changes, while low volatility means prices are stable.

Question 12

What are cash deposits?

Answer 12

Cash deposits are money kept in a bank account. They are very safe but do not earn much interest.

Question 13

What are money market instruments?

Answer 13

Money market instruments are short-term investments (less than a year), such as government or corporate bonds, that are typically safe but yield low interest.

Question 14

What are government securities?

Answer 14

Government securities (like gilts) are bonds where you lend money to the government in exchange for interest and repayment after a set time. They are low risk.

Question 15

What are corporate bonds?

Answer 15

Corporate bonds are issued by companies, where you lend money in exchange for regular interest payments. They are riskier than government bonds.

Question 16

What are Eurobonds?

Answer 16

Eurobonds are bonds issued by governments or companies in a foreign currency, such as a US company issuing bonds in euros.

Question 17

What are equities (stocks)?

Answer 17

Equities are shares of a company. When you buy shares, you own a small part of the company, and their value can fluctuate based on the company’s performance.

Question 18

What is direct investment?

Answer 18

Direct investment is when you invest directly in assets like cash, bonds, shares, property, or business schemes without a middleman.

Question 19

What are Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT)?

Answer 19

EIS and VCT are ways to invest in small or new companies, offering tax relief to encourage investment in high-risk startups.

Question 20

What are OEICs and Unit Trusts?

Answer 20

OEICs (Open-Ended Investment Companies) and Unit Trusts are collective investment products where money is pooled from many investors and managed by a professional fund manager.

Question 21

What are investment trusts?

Answer 21

Investment trusts are similar to OEICs but are traded on the stock market like shares, with prices fluctuating based on demand.

Question 22

What are life assurance contracts?

Answer 22

Life assurance contracts are insurance policies that pay out if you die and may also build up a cash value over time.

Question 23

What are offshore funds?

Answer 23

Offshore funds are investment funds based in another country, often for tax advantages.

Question 24

What are structured products?

Answer 24

Structured products are complex investments that combine different types of financial products, such as stocks and bonds, to provide a custom return.

Question 25

What are ISAs (Individual Savings Accounts)?

Answer 25

ISAs are savings or investment products where the money saved is tax-free, meaning you don’t pay tax on interest or profits.

Question 26

What is the purpose of life insurance?

Answer 26

Life insurance pays out a lump sum to your family if you die, helping them financially.

Question 27

What is health insurance?

Answer 27

Health insurance covers medical costs or private healthcare when you are ill or injured.

Question 28

What is general protection?

Answer 28

General protection includes insurance products like income protection (replaces lost income if you can’t work due to illness) and critical illness insurance (pays out if diagnosed with a serious illness).

Question 29

What is budgeting?

Answer 29

Budgeting involves managing your money to ensure you don’t spend more than you earn and planning for the future by saving for emergencies.

Question 30

What is protection in financial advice?

Answer 30

Protection in financial advice involves planning for situations like illness, injury, or death, and ensuring you or your family are financially protected.

Question 31

What is the process of giving financial advice?

Answer 31

The process involves assessing affordability (whether the client can afford the product) and suitability (whether the product meets the client’s needs).

Question 32

What must be included in financial advice?

Answer 32

Financial advisers must explain how products work, their risks, costs, and compare them to other options.

Question 33

What is a contract in legal terms?

Answer 33

A contract is a legally binding agreement between two or more people to exchange goods or services.

Question 34

What is capacity to contract?

Answer 34

Capacity to contract means a person must understand what they’re agreeing to. If someone is too young or mentally incapable, they cannot legally enter into a contract.

Question 35

What is agency in legal terms?

Answer 35

Agency is when one person (an agent) acts on behalf of another person (the principal), like a financial adviser acting on behalf of a client.

Question 36

What is income tax?

Answer 36

Income tax is a tax on the money you earn, such as salary or investment income, with allowances and reliefs that can reduce the amount owed.

Question 37

What is capital gains tax (CGT)?

Answer 37

Capital gains tax is paid on the profit from selling something for more than you paid, like property or stocks.

Question 38

What is inheritance tax (IHT)?

Answer 38

Inheritance tax is paid on the value of someone’s estate when they die, but there are exemptions for certain gifts and estates.

Question 39

What is corporation tax?

Answer 39

Corporation tax is paid by companies on their profits, similar to how individuals pay tax on income.

Question 40

What is inflation?

Answer 40

Inflation is when prices increase over time, reducing the purchasing power of money.

Question 41

What is deflation?

Answer 41

Deflation is when prices fall, which can hurt the economy by reducing demand.

Question 42

What is disinflation?

Answer 42

Disinflation is a slowdown in inflation, meaning prices still rise but at a slower rate.

Question 43

How is inflation measured?

Answer 43

Inflation is commonly measured by the Consumer Price Index (CPI), which tracks the cost of a basket of goods and services.