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Finance Unit 3 > Topic 3 - The Impact of External Factors > Flashcards

Topic 3 - The Impact of External Factors Flashcards

1
Q

what does political factors refer to

A

government policies which affect the products and services offered by financial providers, and the impact these policies have on individuals

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2
Q

what does the new system of regulation post financial crisis set out

A

what they are and aren’t allowed to do, including transparency of pricing, quality of advice and how they respond to complaints

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3
Q

5 reasons why do we need regulation

A

protects consumers from dishonest, incompetent or unstable providers

a regulated and sustainable system will enhance individual sustainability - reducing risk of another financial crisis

gives confidence in the financial system

requires prudent business management and properly managed risks

requires providers to ensure consumers are fully informed of features, benefits, restrictions and terms and conditions of products

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4
Q

when the Financial Services Authority was abolished under the Financial Services Act 2013, who took its place

A

Financial Policy Committee
Financial Conduct Authority
Prudential Regulation Authority

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5
Q

what was the aim of the 3 new regulators

A

to maintain stability of the industry and providers, and ensure that consumers are treated fairly and fully protected

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6
Q

what agencies are in place to protect financial services consumers

A

Financial Conduct Authority

Financial Ombudsman Service

Financial Services Compensation Scheme

Competition and Markets Authority

Citizens Advice

Local Authority Trading Standards Offices

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7
Q

what is the political agenda

A

focused more directly on helping to ensure that every individual has access to the benefits that financial products and services can provide

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8
Q

social inclusion is a key policy within the agenda, what makes a person socially excluded

A

if certain groups or individuals in certain situations are denied access to the benefits enjoyed by most

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9
Q

if full social inclusion existed, what would every member of society experience

A

full participation in community life

can influence decisions affecting them

able to take some responsibility for what goes on in communities

exercise the right to access information and support that they may need

equal access to services and facilities

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10
Q

why do people find themselves social excluded

what is the extra feature for financial exclusion

A

physical/mental illness/disability

poor basic skills

live in deprived areas

have a low income due to low paid jobs

unable to find work

no fixed address/ homeless

discriminated against due to ethnicity/religion/gender/age/disability

level of financial literacy

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11
Q

what is financial exclusion

A

inability to access even the most basic financial products/services

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12
Q

what is meant by financial literacy

A

level of knowledge and understanding of financial matters

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13
Q

why were basic bank accounts introduced as part of the Universal Banking Policy 2003

A

benefits became payable by automatic credit transfer rather than cheque, so needed an account

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14
Q

what is the Post Office Card Account

A

the same as a basic bank account but accessed at the post office

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15
Q

what do the government promote providers to do to combat social and financial exclusion

A

offer products targeted at the financially excluded

provide information accessible to everyone

make own efforts to promote social inclusion through financial inclusion

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16
Q

how has the internet helped to reduce financial exclusion

who has it allowed access to

A

making broadband accessible to everyone

those who are housebound and cant get to the bank

have a disability

work unsociable hours

feel uncomfortable with sales staff

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17
Q

what is necessary for a perfect market

A

need competition, need confidence in buying products which will meet needs, at best price, and be informed about the product, the best way to buy it and own needs : perfect knowledge

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18
Q

what happens when consumers are not fully informed - information failure

A

no guarantee that free competition and market forces will deliver the best products at the best prices - market failure

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19
Q

what is the cost of complying to the new regulation

A

banks have to pay more for training of staff and costs of redesigning products

companies either have to accept lower prices (lower dividends) or increase price to consumer

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20
Q

what does technological factors include

A

matters such as automation, the rate of technological change and the influence of technology on outsourcing decisions

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21
Q

what processes are good for automation

A

ruled based jobs that require no judgement or discretion

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22
Q

what can automation show

A

any deterioration in accounts before it happens, when loans fall into arrears

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23
Q

what are the 2 key results of automation

A

increased speed and efficiency

less face to face advice and sales

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24
Q

providers can use it to get a clear picture of needs, wants and habits, why is this to consumer advantage

A

will be offered products that closely match their need and wants

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25
Q

what is digital divide

A

separates those of poor computer literacy/ access

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26
Q

what % of UK have not accessed/used the internet

A

13%

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27
Q

what are financial providers being encouraged to do

A

make their products environmentally friendly

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28
Q

what are banks encouraged to do

A

make favourable loans to companies that invest in developing green technology and not to those who are unsustainable

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29
Q

what are insurance companies encouraged to do

A

charge lower premiums for fuel efficient cars

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30
Q

what are green washing policies

A

masking products with green window dressing, when in truth they only pay a lip service to environmental issues

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31
Q

what changes are referred to in economic factors

A

interest (inflation, house prices, savings and investments)

economic activity, government spending and unemployment

global economy and exchange rates

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32
Q

what is the basic economy theory

A

if too much spending, consumer demand is higher than supply, so prices rise to take advantage, widespread action = inflation

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33
Q

what is the Monetary Policy Committees objective

A

to reduce consumer spending - which reduces demand and then prices

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34
Q

what does the higher cost of mortgages result in

A

reduced demand for property, as cannot afford it, resulting in falling house prices

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35
Q

before 2008 when there were relatively low interest rates, what impact did this have on house prices`

A

could borrow easily and cheaply, cheap mortgages, increase in property demand = increased price of property

36
Q

how much did providers loan out pre crisis

A

100% of property value and 7x annual salaries

37
Q

what is equity

A

the difference in market price and outstanding mortgage balance

38
Q

how did you get positive equity

A

if value of property rose above value of mortgage - could be used to secure against as a loan

39
Q

what can equity loans be used for

A

home improvements
consumer goods
life events
emergencies

40
Q

what is the subprime mortgage market

A

market for mortgages for those with low credit ratings, who are thus less able to repay and more likely to default

41
Q

if fewer people are buying what happens

A

reduced demand, lose jobs, fear job security

42
Q

what was the typical reaction during the financial crisis

A

reduce debts
increase savings
emergency fund
avoid new debt

43
Q

what is negative equity

A

value of house is lower than amount owed on mortgage

44
Q

why is negative equity bad

A

if default, not only lose their house but also may have to pay extra to cover the debt in full

45
Q

what are marginal borrowers

A

people who are only just managing to pay repayments even at a lower interest, who will be unable to meet even small increase in payments when interest rates rise

46
Q

rising interest results in

A

higher returns to savers

changed attitudes to savings - encourages save not spend - increases pressure to reduce prices

47
Q

how are business profits being reduced due to falling revenue and rising costs a problem

A

lower profits make shares seem unattractive - demand for shares fall - price of shares fall

48
Q

people lost faith in investments after crisis but wanted security with high returns, what are structured products

A

offer safer place than stock market but still allowed them to benefit from share price growth

49
Q

what are guaranteed growth/capital plans

A

investments called derivatives who if stock market goes up, get money back plus growth, but if market goes down get money back (many even plus a minimum)

50
Q

what is the risk of guaranteed growth/capital plans

A

not covered by FSCS

51
Q

what 4 sources of demand are there for economic activity

A

consumer demand

corporate demand

government spending

demand for exports

52
Q

what is a healthy economy

A

high enough demand for goods so unemployment is low, but not so high to cause high inflation

53
Q

what do the government do if inflation goes above 2%

A

increase interest to reduce spending, forces lower prices

54
Q

what do the government do if unemployment is growing`

A

reduce interest to make it cheaper to borrow for spending on consumer goods, increasing demand

55
Q

what is the monetary policy

A

manipulation of interest rates

56
Q

what is a fiscal policy

A

amount of money raised by taxation, the amount it borrows on financial markets, and overall amount it spends

57
Q

how do governments borrow money

A

through gilt edged securities

58
Q

what did the labour government do that was a mistake

A

increase government debt to improve public services and maintain full employment

59
Q

what was the government policy after 2010

A

austerity policy, lots of jobs lost from public sector

60
Q

what is the effect of high employment

A

people are in a high consuming life style and encourages consumer culture
enables people to save money if they make enough
feel confident

61
Q

what is the effect of high unemployment

A

have to rely on state benefits and do not have the resources

62
Q

due to increased travel and increased exports and imports, what do individuals need providers to supply

A

foreign exchange services

buy back Guarentee

credit cards that will be accepted abroad

products to manage exchange rate risk

63
Q

how are floating exchange rates effected by interest rates

A

if interest is high in the UK, then investors from abroad have an incentive to buy UK products

higher demand for sterling on currency markets increases the price for the pound

strengthens the value

64
Q

what do cultural issues refer to

A

ethnic and religious backgrounds

social group they belong to and were brought up in

65
Q

what do cultural backgrounds determine

A

ideas, beliefs, values and attitudes that were instilled to us as children and what is important

66
Q

what aspects of cultural issues are there to be considered

A

multiculturalism

religion

youth culture

grey culture

consumer culture

67
Q

how do providers need to consider multiculturalism to limit social exclusion of those who do not fully identify with UK tradition

A

must take into account cultural difference when designing, marketing and delivering products and services

68
Q

what does sharia law not permit

A

not allowed to charge or be charged interest for borrowing or lending money

if they need to borrow money should use their family or sharia-compliant product

and avoid investment products which are linked to the stock exchange

69
Q

what does youth culture refer to

A

people in their teens and early twenties and what they believe in and how they spend their time and money

70
Q

what does grey culture refer to

A

the older section of population which is increasing due to increasing life expectancy

they have specific financial needs and share certain values

71
Q

what is consumer culture

A

a society in which the buying and selling of goods and services is the most important social and economic activity

72
Q

how does consumer culture emerge

A

due to increased living standards and having more disposable income

73
Q

demographics involve analysing the population by what terms

A 
age
sex
ethnicity
culture
social status
geography
74
Q

how does the structure of the population and changes to structure affect financial products

A

providers can group individuals by certain demographics and they may have very different needs, wants and aspirations

75
Q

what is the problem of an ageing population and state pensions

A

more people above retirement age than there are people paying taxes to fund the state pensions from working, so less likely the state can provide adequate pensions

76
Q

what two big demographic changes are happening to the population

A

changes in birth rate

migration

77
Q

what two new groups of people now need specific financial products

A

mothers (who now work)

youth (who have more money)

78
Q

legal factors include laws relating to what (4)

A

discrimination

consumer protection

employment

health and safety

79
Q

what did the Banking Act 2009 establish

A

a permanent statutory regime for dealing with failing banks and makes new provisions for governing the bank of england

80
Q

what must companies comply with under the Financial Services Act 2012 (5)

A

company law (how set up and run)

employment legislation (must treat workers)

tax laws (taxes must pay)

proceeds of crime and anti-terrorism legislation (stopping criminals and terrorists)

accounting standards (drawing up annual financial statements)

81
Q

what changes happened under the Enterprise and Regulatory Reform Act 2013

A

Office of Fair Trading and Competitions Commission were closed and responsibilities were divided between Financial Conduct Authority and Competition and Markets Authority

82
Q

what is the Competitions and Markets Authority responsible

A

investigating mergers which may restrict competition

investigations where there may be competition and consumer problems

investigation breaches of law

enforcing consumer protection legislation

co-operating with and encouraging regulators

83
Q

what does the Sale of Goods Act ensure

A

that if customers are sold a product that doesn’t meet their needs then they can use the complaints procedure or cooling off period to change their mind

complaints lead to court case

84
Q

what is an EU law regulation

A

directly applicable to all member countries as soon as they come into force - apply to all members equally, no variation

85
Q

what is an EU law directive

A

instructions from the European Commission - members can adapt their laws, variation can exist as long as directive is fulfilled within time period

86
Q

what is the aim of the EU trying to harmonise the financial services regulation

A

to safeguard the rights of consumers of the financial services

87
Q

why is the objective to create a single European market for financial services

A

so all consumers can buy from all EU countries safe in the knowledge that providers are regulated to the same standard across the union

Finance Unit 3 (7 decks)

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