Financial Services Industry Flashcards

Which of the following best describes the role of an investment bank in the UK financial services industry?

Answer: Advising corporations on mergers, acquisitions, and capital raising

Investment banks primarily advise corporate clients on mergers and acquisitions, underwriting securities, and raising capital through debt and equity markets. They do not accept retail deposits (commercial banks) or set interest rates (Bank of England).

What is the primary function of the London Stock Exchange (LSE)?

Answer: To provide a secondary market for the trading of listed securities

The LSE provides a secondary market where investors can buy and sell shares and other securities that have already been issued. Regulation is the role of the FCA/PRA, not the exchange itself.

Which of the following is a key function of the Bank of England?

Answer: Acting as lender of last resort and maintaining monetary stability

The Bank of England acts as the UK's central bank, responsible for monetary stability, acting as lender of last resort, and overseeing systemic financial stability. The FCA and PRA handle authorisation and supervision of firms.

In the UK financial services industry, what does the term 'Chinese wall' refer to?

Answer: An information barrier preventing conflicts of interest between departments

A Chinese wall (information barrier) is a virtual barrier within a financial institution to prevent the flow of price-sensitive information between departments, such as corporate finance and trading, to avoid conflicts of interest and insider dealing.

What is the primary market in the context of securities trading?

Answer: The market where new securities are issued and sold for the first time

The primary market is where new securities are created and sold to investors for the first time, such as through an Initial Public Offering (IPO). The secondary market is where previously issued securities are subsequently traded.

Which type of financial intermediary pools money from multiple investors to invest in a diversified portfolio of assets?

Answer: A collective investment scheme

Collective investment schemes (such as unit trusts, OEICs, and investment trusts) pool money from many investors and invest in a diversified portfolio managed by professional fund managers. This provides diversification benefits that individual investors may not achieve alone.