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UK Financial Services Essentials
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UK Financial Services Essentials
UK Financial Services Essentials
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1
Question
What are the four essential functions of financial services in the economy?
Answer
Protection of savings, matching capital access, insurance against risks, dispersing risk.
2
Question
In fractional-reserve banking, what risk does lending out more than available reserves pose?
Answer
Liquidity risk and potential insolvency.
3
Question
What is a building society and how does it differ from banks?
Answer
Mutually owned, originally for home loans, owned by members, no dividends to shareholders.
4
Question
What is the main purpose of a gilt in government finance?
Answer
To raise funds, functioning as a government loan.
5
Question
How do conventional gilts protect against inflation?
Answer
They pay fixed interest, with some linked to RPI or CPI.
6
Question
What is the purpose of green gilts issued by the UK government?
Answer
Fund green projects to support net zero goals.
7
Question
What is the fundamental principle of insurance and risk management?
Answer
Risk transfer through pooling and policies.
8
Question
What are the two main objectives of capital markets?
Answer
Growth over inflation and funding company investments.
9
Question
What financial instrument allows investors to buy a part of a company's ownership?
Answer
Shares.
10
Question
What do bonds represent in capital markets?
Answer
Lending money to entities in exchange for interest.
11
Question
What is the key difference between on-exchange and OTC markets?
Answer
On-exchange has physical or electronic exchanges; OTC is dealer-based without physical exchanges.
12
Question
Name the main components of the UK financial services structure.
Answer
Financial infrastructure, markets, firms, authorities.
13
Question
What is the role of the Bank of England in payment systems?
Answer
Oversees and facilitates the Sterling markets and payment systems.
14
Question
What agency regulates the UK's payment systems industry?
Answer
The Payments Systems Regulator (PSR).
15
Question
What is the function of clearing houses and settlement systems?
Answer
Provide infrastructure for clearing and settling securities and derivatives.
16
Question
Describe the financial services provided by retail banks and building societies.
Answer
Core services like current accounts, deposit accounts, and loans; indirect services like portfolio management and insurance.
17
Question
What are current accounts primarily used for?
Answer
Security, accessibility, and transactions like direct debits.
18
Question
What distinguishes deposit accounts from current accounts?
Answer
Less accessible, often higher interest, meant for savings.
19
Question
What is the traditional purpose of mortgages and loans?
Answer
Finance property or asset purchases.
20
Question
What is portfolio management?
Answer
Managing investments for clients, either discretionary or advisory.
21
Question
Define bancassurers.
Answer
Banks that set up their own life insurance companies.
22
Question
What future trend is predicted for financial advice providers?
Answer
Fewer tied firms, more multi-tied or independent advice.
23
Question
What is a friendly society and how does it operate?
Answer
Mutually owned, tax-exempt, offers savings and small life policies.
24
Question
What legislative act allowed friendly societies to extend their scope to include unit trusts and ISAs?
Answer
The Friendly Societies Act 1992.
25
Question
What is the role of international bodies like IOSCO and IAIS?
Answer
Set international standards for securities and insurance sectors.
26
Question
Which UK authorities set global regulatory standards and promote convergence?
Answer
The FCA, EBA, ESMA, and EIOPA.
27
Question
What are the three European Supervisory Authorities?
Answer
EBA, ESMA, and EIOPA.
28
Question
What is the purpose of the European Central Bank's role in regulation?
Answer
Coordinate monetary policy and interest rates in eurozone countries.
29
Question
What is the ESRB's function within the EU?
Answer
Monitor and assess systemic risks to financial stability.
30
Question
What was the primary objective of the EU's Financial Services Action Plan (FSAP)?
Answer
Create a single EU wholesale market, open retail markets, and establish prudential rules.