CISI Introduction to Securities and Investments chapter 1

What is the main role of the financial services sector?

To link borrowers and investors by providing capital, advice, execution, payment, and management services.

How does the financial services sector benefit developed economies?

It generates employment, overseas earnings, and contributes to GDP growth.

What are the two distinct markets in financial services?

Wholesale (professional) and retail.

Who are the customers in the wholesale market?

Companies, public organisations, governments, and financial institutions.

Who are the customers in the retail market?

Individual clients and households.

What are equity markets?

Markets where shares or stocks of publicly listed companies are bought and sold.

What are the main functions of equity markets?

Capital raising, price discovery, and liquidity provision.

What are benchmark indices used for?

To measure market performance, e.g. FTSE 100, S&P 500.

What do bond markets trade?

Debt instruments such as government or corporate bonds.

What influences bond prices?

Interest rates, credit risk, and economic conditions.

What is traded in the foreign exchange (FX) market?

Currencies such as EUR/USD or USD/JPY.

Is the FX market centralised?

No, it is decentralised and operates over-the-counter (OTC).

What are derivatives?

Financial instruments whose value depends on an underlying asset like shares or currencies.

Name two common types of derivatives.

Options and futures.

What is the primary purpose of derivatives?

To hedge risk or speculate on asset prices.

What is the role of the insurance market?

To manage and transfer risk for individuals and organisations.

What is reinsurance?

When insurance companies transfer some of their risk to other insurers.

What do investment banks do?

They advise on mergers, acquisitions, IPOs, and help raise capital.

What is the main function of fund managers?

To professionally manage portfolios for individuals and institutions.

What do pension funds invest in?

Shares, bonds, and other assets to provide retirement income.

What is the role of retail banks?

They offer savings accounts, loans, mortgages, and payment services to the public.

What are custodian banks responsible for?

Safekeeping, settlement, and administration of client assets.

What is a platform in financial services?

An online service for managing investments (e.g., Hargreaves Lansdown).

What do Third-Party Administrators (TPAs) do?

Provide outsourced administration services for investment firms.

What is an Independent Financial Adviser (IFA)?

A professional offering unbiased financial advice across the entire market.

What is restricted advice?

Advice limited to specific products or providers.

What is execution-only service?

A service where clients make their own investment decisions with no advice given.

What is Fintech?

Technology used to improve financial services, e.g. mobile banking, robo-advice.

What is robo-advice?

Automated financial guidance based on algorithms and client data.

What is peer-to-peer lending (P2P)?

A system where individuals lend directly to others via online platforms, bypassing banks.

What does ESG stand for?

Environmental, Social, and Governance.

What is the FCA’s SDR?

Sustainability Disclosure Requirements to prevent greenwashing and ensure transparency.

What are the PRI?

Principles for Responsible Investment promoting ESG in investment practices.