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Questions and Answers

Which action exemplifies the Treasury Department's role in enhancing national security?

  • Providing financial aid to developing countries.
  • Regulating interstate commerce.
  • Advising Congress on domestic economic policy.
  • Implementing economic sanctions against foreign threats. (correct)

What is the primary focus of FINRA's regulatory activities?

  • Regulating the insurance market.
  • Overseeing the banking industry.
  • Managing international trade agreements.
  • Supervising securities firms and registered representatives. (correct)

Which of the following is a key objective of the CFTC?

  • Setting monetary policy.
  • Promoting ethical advertising standards.
  • Regulating the labor market.
  • Protecting market participants from derivatives-related fraud and manipulation. (correct)

How does the Treasury Department contribute to global economic stability?

<p>By working with international bodies to prevent financial crises. (A)</p> Signup and view all the answers

Which of the following reflects FINRA's comprehensive role in the securities business?

<p>Administering dispute resolution between investors and firms, alongside industry education and regulation. (D)</p> Signup and view all the answers

What specific action does the CFTC take to lower risk in the futures and swaps markets?

<p>Overseeing derivatives clearing organizations and swap data repositories. (B)</p> Signup and view all the answers

Which outcome aligns with the European Union's effort to establish a single European market in finance?

<p>Standardized financial regulations across member countries. (C)</p> Signup and view all the answers

How does the Treasury Department combat financial support networks of national security threats?

<p>By identifying and targeting financial support networks. (C)</p> Signup and view all the answers

What is the primary goal of removing barriers to inter-state trade within the EU's financial services sector?

<p>To create a uniform regulatory environment ensuring equal investor protection regardless of the provider's location. (D)</p> Signup and view all the answers

Which of the following describes the concept of 'passporting' in the EU financial services market?

<p>Allowing financial institutions authorized in one member state to provide services across the EU under a consistent regulatory environment. (A)</p> Signup and view all the answers

According to the content, what is the anticipated impact of a single market in financial services on the broader economy?

<p>It is expected to act as a catalyst for economic growth, boost productivity, and provide lower-cost, better-quality financial products. (A)</p> Signup and view all the answers

What was the main driver behind the EU adopting structural changes to its financial system in the years following 2007-08?

<p>To secure financial stability in the EU after the financial crisis. (D)</p> Signup and view all the answers

Which of the following is NOT a component of the European System of Financial Supervision introduced in 2010?

<p>The European Central Bank (ECB). (B)</p> Signup and view all the answers

In the EU legislative structure, what is the role of the European Commission in Level 2?

<p>To draft detailed provisions (Delegated and Implementing Acts) that specify the content of framework acts. (A)</p> Signup and view all the answers

Which entities are responsible for drafting Regulatory Technical Standards and Implementing Technical Standards within the EU legislative framework?

<p>The European Supervisory Authorities (ESAs). (C)</p> Signup and view all the answers

What is the primary purpose of the guidelines and recommendations issued by the European Supervisory Authorities (ESAs) at Level 3 of the EU legislative structure?

<p>To ensure uniform application of the Level 1 and Level 2 Acts. (C)</p> Signup and view all the answers

How does arbitrage primarily impact asset prices across different markets?

<p>It takes advantage of price discrepancies, pushing prices towards equilibrium. (A)</p> Signup and view all the answers

A company primarily listed on the LSE has significant operations in South America. Which factor would least likely affect its share value?

<p>Increase in UK local council tax rates. (C)</p> Signup and view all the answers

Which of the following exemplifies the 'globalisation' of business, as described in the content?

<p>A multinational corporation sourcing raw materials from various countries and selling products worldwide. (A)</p> Signup and view all the answers

How do organizations like the WTO facilitate globalization?

<p>By providing a platform for negotiating trade rules and liberalizing trade laws. (A)</p> Signup and view all the answers

What is a significant impact of the increasing globalisation of business and finance on individual investors in the UK?

<p>Greater exposure to international market risks and opportunities. (B)</p> Signup and view all the answers

Which of the following best illustrates the concept of businesses becoming more similar around the world due to globalisation?

<p>A multinational fast-food chain having standardized menus and operational processes across different countries. (D)</p> Signup and view all the answers

What is a potential negative impact of globalization?

<p>Loss of national identities and a more homogeneous world. (B)</p> Signup and view all the answers

What is the most likely reason for a global bank, such as HSBC, to emphasize its understanding of local business practices?

<p>To demonstrate its adaptability and commitment to serving diverse markets effectively. (A)</p> Signup and view all the answers

How has the internet facilitated global business interactions?

<p>By making it easier for buyers and sellers to connect and conduct business electronically. (B)</p> Signup and view all the answers

Which of the following is an example of how technology impacts global dynamics in business?

<p>Outsourcing of activities to countries with lower labor costs. (D)</p> Signup and view all the answers

Due to globalisation enhancing interconnectedness, how might a sudden economic downturn in Asia affect a UK-based investment portfolio?

<p>It could negatively impact the portfolio through decreased global market values and interconnected financial systems. (D)</p> Signup and view all the answers

What is the most direct effect of international standardisation on global business activities?

<p>It facilitates international trade and operations by creating a common framework. (D)</p> Signup and view all the answers

What challenge does the rise of large multinational corporations pose in the context of globalization?

<p>Potential for these corporations to become too powerful and difficult for governments to control. (D)</p> Signup and view all the answers

Which statement best describes the role of the OECD in a globalized economy?

<p>It helps governments address various economic, social, and governance challenges. (D)</p> Signup and view all the answers

HSBC's decision to move away from using a specific title reflects what aspect of globalization?

<p>A strategic shift due to changing global dynamics and business direction. (C)</p> Signup and view all the answers

What is the relationship between technology and the pace of globalization?

<p>Technology accelerates globalization by facilitating communication and electronic transactions. (C)</p> Signup and view all the answers

An individual has a taxable income of £60,000. Using the provided tax bands, calculate the amount of income tax they would pay.

<p>£11,940 (D)</p> Signup and view all the answers

Which scenario best describes a situation where Inheritance Tax (IHT) could be applied, according to the provided information?

<p>A wealthy individual gifting a substantial amount of money to a friend six years before their death. (C)</p> Signup and view all the answers

What is the primary focus of estate planning, as described in the provided information?

<p>Planning the distribution of assets after death, potentially minimizing tax implications. (B)</p> Signup and view all the answers

An individual's taxable income falls within the Higher rate tax band. If their income increases, which of the following is most likely to occur?

<p>A larger percentage of their income will be taxed. (B)</p> Signup and view all the answers

What is the main difference between 'lifetime transfers' and 'death estate' in the context of Inheritance Tax (IHT)?

<p>Lifetime transfers refer to gifts made during the donor's life, while death estates refer to assets left in a will. (A)</p> Signup and view all the answers

Which action exemplifies the Financial Stability Board's (FSB) role in fostering a level playing field within international financial markets?

<p>Encouraging consistent implementation of financial policies across sectors and jurisdictions. (D)</p> Signup and view all the answers

In the context of the UK economy, what is the most direct way the government influences the financial services sector?

<p>Through its policies on taxation, public borrowing, and public spending. (D)</p> Signup and view all the answers

What distinguishes primary markets from secondary markets in the context of financial investment?

<p>Primary markets are where new securities are issued, while secondary markets involve the trading of existing securities. (B)</p> Signup and view all the answers

Which of the following is the MOST direct responsibility of a central bank regarding the money supply?

<p>Controlling the amount of money in circulation to manage inflation and economic growth. (B)</p> Signup and view all the answers

Which of the following best describes 'fiscal easing'?

<p>Increasing government spending and/or reducing taxes to stimulate economic activity. (D)</p> Signup and view all the answers

How does national income most directly affect the financial services sector in the UK?

<p>It influences the volume of transactions and investments within the economy. (B)</p> Signup and view all the answers

What is the primary reason GDP and GNP are considered important indicators for the financial services sector?

<p>They reflect the overall health and size of an economy, influencing investment decisions and financial stability. (A)</p> Signup and view all the answers

How does increased globalisation typically affect financial services firms?

<p>It increases competition and the potential for cross-border financial activities. (A)</p> Signup and view all the answers

Flashcards

US Treasury Role

Encourages global economic growth and prevents financial crises.

Treasury & National Security

Implements economic sanctions against foreign threats.

FINRA's Role

Regulates securities firms in the US.

FINRA's Functions

Registers and educates industry participants.

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CFTC's Mission

Protects market participants from derivatives-related fraud.

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CFTC's Focus

Regulates derivatives markets.

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CFTC Oversight

Oversees various entities including clearing organizations and swap dealers.

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EU Single Market

Aims to create a unified market in sectors like finance.

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EU Single Market Aim

Removes obstacles to trade between states by standardizing regulatory rules.

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Passporting

Financial firms authorized in one EU state can offer services in any other, following the same rules.

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Benefits of Single Market

Stimulates economic growth, boosts productivity, and delivers cheaper, better financial products.

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EU Financial Supervision

Ensures financial stability within the EU after the 2007-08 crisis.

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European Systemic Risk Board

Oversees the EU financial system for risks.

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EIOPA

Supervises insurance and pensions in the EU.

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EBA

Supervises banking activities in the EU.

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ESMA

Supervises securities and markets in the EU.

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Arbitrage

Taking advantage of price differences for the same asset in different markets.

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Market Interconnectedness

Events in one market impacting prices in other markets due to arbitrage.

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Global Operations Impact

Companies with global operations are affected by economic events worldwide.

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Globalization

The increasing interconnectedness of business and financial systems globally.

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Cross-Border Business

Businesses operating across many countries.

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Global Standardization

Products, processes, and lifestyles becoming more similar worldwide.

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McDonald's (Globalization)

A retail business with similar customer experience worldwide.

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Currency impact on UK markets

Currency fluctuations in other countries can significantly affect UK markets via economy and interest rates

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Inheritance Tax (IHT)

Tax levied on wealth transfers, especially on death, gifts within 7 years of death, and certain lifetime transfers.

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Lifetime Transfers (IHT)

Transfers of assets made while the donor is still alive.

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Death Estate (IHT)

Assets of the deceased passed on through a will.

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Estate Planning

Planning how a client's assets will be distributed after their death, often including tax minimization strategies.

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Legatees

Individuals who inherit money or property from a will.

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World Trade Organization (WTO)

An organization dealing with trade rules between nations, aiming to liberalize trade laws.

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OECD

An international organization helping governments tackle economic, social, and governance challenges in a globalized economy.

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Outsourcing

Contracting out specific business functions to a third-party provider.

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Offshoring

Relocating business processes to a different country, typically to reduce costs.

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Online Marketplaces

The ease with which buyers and sellers can find each other using the internet

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Electronically Concluded Agreements

Agreements that are concluded and executed electronically

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Labor Cost Arbitrage

Transferring business activities to countries with lower labor costs.

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Government's Economic Role

Government influences the economy through taxation, borrowing, and spending policies.

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Primary vs. Secondary Markets

Primary markets facilitate new capital raising; secondary markets allow for trading of existing securities.

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Balance of Payments

Records all financial transactions between a country and the rest of the world.

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Interest Rate Setting

Sets interest rates to control inflation and stimulate economic growth.

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Money Supply Effects

Increasing the money supply to boost economic activity.

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Fiscal Easing

Using government spending and taxation to influence the economy.

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Gross Domestic Product (GDP)

Total value of goods and services produced within a country's borders.

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Study Notes

  • The Treasury Department collaborates with federal agencies, foreign governments, and international financial institutions to foster global economic growth, raise living standards, and prevent economic and financial crises.
  • It also enhances national security by implementing economic sanctions, targeting financial support networks of threats, and improving financial system safeguards.

Financial Industry Regulatory Authority (FINRA)

  • FINRA is the largest independent regulator for securities firms in the U.S.
  • As of December 2019, FINRA oversaw approximately 3,500 brokerage firms, 153,900 branch offices, and 624,000 registered securities representatives.
  • FINRA's responsibilities include registering and educating industry participants, examining securities firms, creating and enforcing rules and federal securities laws, educating the public, providing trade reporting, and administering dispute resolution.

Commodity Futures Trading Commission (CFTC)

  • The CFTC is an independent agency regulating derivatives markets.
  • The CFTC protects market participants and the public from fraud, manipulation, and systemic risk related to derivatives (futures/swaps) and promotes transparent markets.
  • The CFTC oversees designated contract markets, swap execution facilities, clearing organizations, swap data repositories, swap dealers, futures commission merchants, commodity pool operators, and other intermediaries.

Financial Services in Europe

  • The EU aims for a single European market in finance, removing barriers to trade through regulatory alignment.
  • The goal is to ensure customer protection, regardless of the member state of the financial product provider.
  • A single market allows financial institutions authorized in one member state to provide services throughout the EU, fostering competition within a consistent regulatory environment via "passporting".
  • This single market aims to boost economic growth, increase productivity, and provide lower-cost, higher-quality financial products.

Financial Services in the EU

  • Post-2007-08 financial crisis, the EU introduced structural changes for financial stability.
  • In 2010, the European system of financial supervision was introduced which includes the European Systemic Risk Board and three supervisory authorities:
    • European Insurance and Occupational Pensions Authority (EIOPA)
    • European Banking Authority (EBA)
    • European Securities and Markets Authority (ESMA)

Structure of EU Legislation

  • Level 1: Framework Acts (Regulations and Directives) are adopted by the Council of the European Union and the European Parliament, developed by the European Commission.
  • Level 2: Delegated and Implementing Acts are drafted by the European Commission to specify the content and procedures of the Framework Acts.
  • The European Supervisory Authorities (ESAs) draft additional Level 2 text as 'Regulatory Technical Standards' and 'Implementing Technical Standards', endorsed by the European Commission.
  • Level 3: Guidelines and Recommendations by the ESAs ensure uniform application of Level 1 and 2 Acts.

Globalization of Business and Finance

  • Globalization describes the increasing interconnectedness of business and financial systems.
  • Businesses now operate across borders, with banks offering services internationally and companies sourcing materials and selling to customers globally.
  • It also refers to the increasing similarity of products, processes, and lifestyles worldwide, facilitated by international standards.
  • Examples include McDonald's and HSBC, aiming to provide consistent experiences globally while adapting to local practices.
  • The World Trade Organization (WTO) deals with trade rules between nations, aiming to liberalize trade laws and provide a forum for trade negotiations.
  • The Organisation for Economic Co-operation and Development (OECD) helps governments address economic, social, and governance challenges in a globalized economy, contributing to world trade and sustainable economic growth.
  • Some view globalization positively for enabling poorer countries to participate in international trade.
  • Others view it negatively due to potential loss of national identities and the rise of uncontrollable multinational corporations.

Impacts of Technology

  • Technology significantly impacts business interactions and profitability within global dynamics.
  • Businesses, including financial services firms, outsource activities like call centers and computer programming to countries with cheaper skilled labor, such as India.
  • The internet facilitates finding buyers and sellers and enables faster cross-border business through electronic communication and clear laws on electronic agreements.
  • Technology fosters coherent implementation of policies across sectors and jurisdictions.
  • The Financial Stability Board (FSB) strengthens financial systems and increases the stability of international financial markets.
  • The FSB's policies are implemented by jurisdictions and national authorities.

Key Factors Influencing the Financial Services Sector in the UK

  • National income
  • GDP
  • Global trends, notably globalisation.

Income Tax Rates and Bands

  • Basic Rate Tax: 20% on income from £12,571 to £50,270 (on the next £37,700).
  • Higher Rate Tax: 40% on income from £50,271 to £125,140.
  • Additional Rate Tax: 45% on income over £125,140 (no personal allowance).

Inheritance Tax (IHT)

  • IHT is primarily a tax on wealth, levied on assets transferred in various ways, including gifts, not just upon death.
  • It applies to wealth left to someone on death, gifts within seven years of death, and certain lifetime transfers.
  • IHT is a tax on gifts or transfers of value.
  • Chargeable occasions include gifts made during the donor's lifetime (lifetime transfers) and gifts or transfers on death.
  • Property left to someone in a will (the death estate) is an example of gifts or transfers on death.

Provision for Dependents Before and After Death

  • Estate planning involves planning what will happen to a client’s assets on their death.
  • It may include significant elements of tax planning, so as to minimise the effects of tax on what is passed on to the client’s legatees.

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