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What are the three core functions of the financial services sector?
What are the three core functions of the financial services sector?
What is the name given to stock markets where the ordinary and preferred shares of companies, such as Amazon, Apple, Facebook and Netflix, are traded?
What is the name given to stock markets where the ordinary and preferred shares of companies, such as Amazon, Apple, Facebook and Netflix, are traded?
Equity markets
In 2022, did the New York Stock Exchange retain its number one place in the Global Financial Centres Index 30 (GFCI 30)?
In 2022, did the New York Stock Exchange retain its number one place in the Global Financial Centres Index 30 (GFCI 30)?
True
What are the two distinct areas within the financial services sector?
What are the two distinct areas within the financial services sector?
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What are the five areas of competitiveness that the Global Financial Centres Index is based on?
What are the five areas of competitiveness that the Global Financial Centres Index is based on?
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What is the global marketplace that determines the exchange rates for currencies around the world?
What is the global marketplace that determines the exchange rates for currencies around the world?
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The rate at which one currency is exchanged for another is determined by supply and demand.
The rate at which one currency is exchanged for another is determined by supply and demand.
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Which of the following are common types of financial instruments traded in derivative markets?
Which of the following are common types of financial instruments traded in derivative markets?
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Which of the following countries are not among the top five largest markets for insurance premiums in 2021?
Which of the following countries are not among the top five largest markets for insurance premiums in 2021?
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What is an insurance organisation known for providing specialist and complex risks in casualty, property energy, motor, aviation, marine and reinsurance, that is known as the place to bring unusual, specialist and complicated risks?
What is an insurance organisation known for providing specialist and complex risks in casualty, property energy, motor, aviation, marine and reinsurance, that is known as the place to bring unusual, specialist and complicated risks?
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Reinsurance companies protect themselves by using reinsurance companies.
Reinsurance companies protect themselves by using reinsurance companies.
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What types of financial services do retail/commercial banks provide to their customers?
What types of financial services do retail/commercial banks provide to their customers?
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What is the name given to a bank that offers multiple services, such as investments, pensions and insurance?
What is the name given to a bank that offers multiple services, such as investments, pensions and insurance?
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What is the name given to smaller banks, specialising in areas underserved by large, traditional banks, and which distinguish themselves from historic banking by deploying modern financial technology with no community branches?
What is the name given to smaller banks, specialising in areas underserved by large, traditional banks, and which distinguish themselves from historic banking by deploying modern financial technology with no community branches?
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What is the name given to a company that provides a full range of services for their clients, including wealth management, estate planning, insurance, lending and their lines of credit?
What is the name given to a company that provides a full range of services for their clients, including wealth management, estate planning, insurance, lending and their lines of credit?
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What is the name given to a state-owned investment fund that holds financial assets such as equities, bonds, real estate, or other financial instruments?
What is the name given to a state-owned investment fund that holds financial assets such as equities, bonds, real estate, or other financial instruments?
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Which of the following are examples of SWFs?
Which of the following are examples of SWFs?
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What is the name given to the administration function that is undertaken by third-party administrators (TPAs)?
What is the name given to the administration function that is undertaken by third-party administrators (TPAs)?
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What is the name given to the professional service available to individuals, their families and businesses, who need objective assistance in organising their financial affairs to achieve their financial and lifestyle objectives?
What is the name given to the professional service available to individuals, their families and businesses, who need objective assistance in organising their financial affairs to achieve their financial and lifestyle objectives?
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A firm carries out transactions on an execution-only basis if the customer asks it to buy or sell a specific named investment product without having been prompted or advised by the firm.
A firm carries out transactions on an execution-only basis if the customer asks it to buy or sell a specific named investment product without having been prompted or advised by the firm.
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Robo-advice is the application of technology to the process of providing financial advice, but without the involvement of a financial adviser.
Robo-advice is the application of technology to the process of providing financial advice, but without the involvement of a financial adviser.
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What is the name given to the latest theme within the financial sector, which is a conscious decision to focus on environmental, social, and governance factors?
What is the name given to the latest theme within the financial sector, which is a conscious decision to focus on environmental, social, and governance factors?
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Study Notes
Financial Services Sector
- The global financial services sector is increasingly integrated and interdependent, with significant trade and investment flows.
- The financial sector plays a crucial role in both advanced and developing economies.
- The sector's functions can be broken down into three core areas: investment chains, risk management, and payment systems.
Investment Chain
- The investment chain connects savers and borrowers, providing financing to businesses.
- Businesses seeking growth offer opportunities for savers to participate in potential returns.
- This chain is crucial for allocating capital efficiently to growing enterprises, enhancing productivity, and boosting global market competitiveness.
- Risk management is essential to mitigate risks within the investment chain.
Risk Management
- The financial sector effectively manages risks (e.g., currency fluctuations) through insurance and increasingly sophisticated derivatives.
- These tools help companies and individuals manage global uncertainties and everyday contingencies.
Financial Markets
- Wholesale and retail sectors are distinct within financial markets.
- Wholesale (professional/institutional) markets include equity, bond, foreign exchange, and derivatives markets.
- Retail markets focus on personal customers, including areas like retail banking, insurance, pensions, and investment services.
Equity Markets
- Equity markets (stock markets) facilitate the trading of company shares.
- Global market capitalization was over US$100 trillion at the end of 2022.
- Key exchanges, such as the NYSE and Nasdaq, are significant contributors to global equity trading.
Bond Markets
- Bond markets enable governments and companies to raise debt from investors.
- The trading volume is substantial, though less known than equity markets.
- International debt within bond markets constitutes a significant portion, including sovereign, supranational and agency debt, and corporate bonds.
Foreign Exchange (FX) Markets
- FX markets determine currency exchange rates globally.
- Daily turnover exceeds US$7.5 trillion, considerably larger than global GDP.
- Global centres are concentrated in a handful of exchange locations.
Derivatives Markets
- This market offers complex products based on several key underlying instruments (currencies, indexes, interest rates, equities, and commodities).
- Futures and options are prominent derivative instruments.
Insurance Markets
- Insurance markets manage personal, corporate, and life risks.
- The largest markets are led by the USA, China, and Japan.
Participants: Custodians
- Custodians specialize in safeguarding investments (e.g., equities, bonds) for entities such as fund managers or insurance companies.
- Their activities include holding assets in safekeeping, managing settlements, and maintaining regular transaction reporting.
Participants: Commercial Banks
- Commercial banks, also known as retail/commercial banks, specialize in handling deposits, loans, and related services for individual and business customers.
- They also broaden their engagement with offerings like investment, pensions, and insurance.
Participants: Investment Banks
- Investment banks provide advisory services and finance arrangements to companies needing to raise capital or conduct mergers and acquisitions.
- Activities include advice and support for governments, fund management, and securities trading.
Participants: Savings Institutions
- Savings institutions offer services such as savings products to retail customers.
- They are found globally under varying names (e.g., cajas, credit unions, building societies).
Participants: Peer-to-Peer Lending and Crowdfunding
- These provide a way for individuals and businesses to lend/borrow from each other.
- Peer-to-peer lending mechanisms replace traditional bank lending in many cases.
Participants: Pension Funds
- Retirement plans or pension funds offer retirement planning solutions.
- Funds are primarily invested in various assets to provide retirement income.
Participants: Fund Managers
- Fund managers, sometimes called asset managers, oversee investment portfolios.
- Institutions like pension funds frequently employ them to manage financial assets.
Participants: Stockbrokers
- Stockbrokers facilitate trading in stocks, bonds, and other assets for clients.
- Their activities can include executing trades on behalf of clients or wealth management advice.
Participants: Platforms
- Platforms provide investors with access to numerous investment products from a variety of sources.
- They facilitate online trading and offer various investment solutions to investors.
Participants: Private Banks
- Private banks target select, high-net-worth individuals.
- Services provided include wealth management, estate planning, insurance, and lines of credit.
Participants: Sovereign Wealth Funds
- Sovereign wealth funds (SWFs) are state-owned investment funds.
- These funds invest in various asset classes, typically for long-term financial objectives.
Industry Trade and Professional Bodies
- These bodies represent the interests of firms within the financial services industry.
- Global organizations like International Capital Market Association and International Swaps and Derivatives Association (ISDA) establish market standards.
Investment Distribution Channels
- Investment distribution channels help investors access investment opportunities, using various methods including individual vs. restricted advice, robo-advice, or execution-only services.
Financial Planning
- Financial planning services help individuals and businesses structure their financial affairs and achieve specific financial goals.
Third-Party Administrators (TPAs)
- Third-party administrators handle investment management tasks for other firms.
- Outsourcing is common in this field for greater efficiency.
Technological Advances in Financial Services
- Technological advancements, like Fintech, reshape how financial services are delivered and managed.
- Fintech is particularly influential in areas such as mobile financial applications.
Environmental, Social, and Governance (ESG) Considerations
- ESG investing is increasing amongst investors due to greater environmental awareness.
- Investors are prioritizing factors such as social and governance matters when making investment choices.
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Description
Explore the intricacies of the global financial services sector, focusing on investment chains, risk management, and payment systems. Understand how these components facilitate capital allocation and manage risks in both advanced and developing economies.
