Topic 1: Key Words Flashcards
(32 cards)
Inflation
an increase in level of prices of goods and services
Financial Intermediary
an entity that acts as the middle person between two parties in a financial transaction. E.g. banks, building society
Intermediation
matching those with surplus cash and those with shortfall. The saver lends to the borrower via an intermediary.
Intermediation profit margin
the intermediary borrows from the saver at one rate and lends the money to the borrower at a higher rate, the difference is their margin (profit)
Disintermediation
those with a surplus and those with a deficit connect without the intermediary (middle person)
Risk Management
identifying and monitoring risk to manage loss
Product Sales Intermediaries
brings together the product provider and the potential customers who wish to purchase the providers product and services. E.g. financial adviser, mortgage adviser
Surplus Party
cash rich, more liquid funds
Deficit Party
cash poor, do not have sufficient funds to meet spending needs
Liquidity
the ability to turn an asset into cash. Liquid assets are those that can be exchanged quickly or are already liquid. E.g. Cash. Liquid assets can take time to convert E.g. property, shares, company
Retail Banks
provide payment services and saving loans to personal customers or smaller businesses
Wholesale Banks
provide funding for other financial institutions or very large corporate clients
Life assurance
insurance that provides payment on death of a person covered by the policy. E.g. life insurance or life cover
General insurance
to protect policyholders from the financial consequences of adverse life events. E.g. home, motor, travel and commercial property insurance
MPC Monetary Policy Committee
set interest rates to ensure inflation target is met
Proprietary Organisations
majority of large financial institutions limited companies. Owned by shareholders who have the right to share distribution of the company’s profits in the form of dividends
Mutual Organisations
not constituted as a company therefore no shareholders. Owned by it’s members, who determine how the company is managed
Demutualisation
Building Society Act 1986, allows Building Societies to demutualise and convert to a bank
Windfall
free shares members are entitled to following demualisation
Carpetbagging
opening an account with a mutual organisation who are soon to convert to obtain shares. Restrictions in place to stop this
Credit Unions
a mutual organisation run for the benefit of it’s members
Ordinary Shares (Credit Union)
paid up and bring all benefits if credit union membership
Deferred Shares (Credit Union)
payable in special circumstances e.g. death
Interbank Market
a large market which recycles surplus cash held by banks, either directly between banks or through the services of specialist money brokers
