what is inflation?
a sustained increase in the general level of prices of goods and services
list 4 properties money must have or be?
- sufficient in quantity
- generally acceptable to all parties in all transactions
- divisible into small units
- portable
list 3 things that a financial services organization can offer:
- convince (eg current accounts that enable people to make and receive payments)
- a means of achieving otherwise difficult objectives (eg a mortgage)
- protection from risk (eg insurance to protect people from the financial consequence of adverse life events)
what is money?
- a medium of exchange - it can be exchanged for goods and services
- a unit of account - a common denominator against which the value of goods and services can be measured
- a store of value - money received as payment today can be stored until required
what is intermediation?
a financial institution that lends money from the surplus sector to the deficit sector
what is a financial intermediary?
an entity that acts as the middleman between two parties in a financial transaction. banks and building societies are best known.
what is disintermediation?
lenders and borrowers interacting directly rather than through an intermediary. eg crowdfunding
list 4 elements of intermediation:
- Geographic location
- Aggregation
- Maturity Transformation
- Risk Transformation
what does geographic location mean in the elements of intermediation?
physical problem of lenders and borrowers finding each other. eg a high street branch connects the two.
what does aggregation mean in the elements of intermediation?
The lender might not have enough funds to satisfy the borrowers required amount. intermediaries can overcome any size difference between lenders and borrowers.
what does maturity transformation mean in the elements of intermediation?
The borrower may need the funds for longer than the lender is willing to lend, intermediaries are able to overcome the mismatch by offering a wide range of products and services.
what does risk transformation mean in the elements of intermediation?
intermediaries enable s lenders to spread the risk of lending over a wide variety of borrowers so that if a few fail to repay, the intermediary can absorb the loss.
list 3 examples of ‘product sales’ intermediary:
- financial advisors
- mortgage advisors
- insurance brokers
list 7 financial services group
- retail banking
- mortgage services
- credit card services
- wealth management services
- financial assets management
- investment banking
- insurance services
list 7 roles of the Bank of England:
- issuer of bank notes
- Banker to the government
- Banker to banks
- Advisor to the government
- Foreign exchange markets - manages the official reserves of gold and foreign exchange currencies
- lender of last resort
- Maintaining the economic stability
What is liquidity?
Assets (eg cash) that can be quickly made available to meet an institutions liabilities without affecting the market price of those assets.
from the 1st April 2013, name 2 new regulators responsible for financial stability other than the Bank of England and the Treasury:
the Financial Conduct Authority (FCA) & the Prudential Regulation Authority (PRA)
What is the difference between a proprietary and mutual organization?
a mutual organization is owned by its members, whereas a proprietary one is owned by it’s shareholders as a limited company.
what are gilt-edge securities (gilts) ?
a loan to the government
what is the interbank market?
a very large market which recycles surplus cash held by banks, wither directly between banks or more usually through the services of specialist money brokers.
what does LIBOR mean?
London Interbank offered rate
what is LIBOR?
a reference rate for the majority of cooperate lending.
