CeMAP 1 Financial Services Training

These flashcards cover crucial concepts from the CeMAP 1 financial services training, including financial regulations, market structures, monetary policy, and taxation.

What is the CeMAP 1 exam format?

It is a multiple choice examination with 4 possible answers and consists of two units, each with 40 questions.

What is the passing grade for CeMAP 1?

A minimum score of 28 out of 40 on each unit (70%).

What ID is required for the CeMAP exam?

A form of photo ID is required.

What is the role of money in financial markets?

Money serves as a unit of account, medium of exchange, and store of value.

What four functions must money fulfill to be effective as a medium of exchange?

Acceptable to all parties, sufficient in quantity, divisible into small units, and portable.

What are the four main asset classes?

Cash, Property, Fixed Interest Securities, and Equities.

What does liquidity mean in terms of cash?

Cash is easily accessible and does not need to be converted or sold to be available.

How does inflation affect the real value of cash?

Inflation erodes the real value of cash, decreasing its purchasing power over time.

What are bonds?

Loan instruments issued by governments and corporations offering a fixed rate of interest for a set term.

What is a money market instrument?

Short-term loans mainly used by businesses and governments, with examples like commercial paper and Treasury bills.

What distinguishes equity (shares) from other types of investments?

Shareholders own the company and can benefit from dividends and capital gains from selling shares.

What is the principal purpose of property as an investment?

To generate income through rent and potential capital growth.

How does the Bank of England support the financial system?

By acting as a banker to the banks, setting interest rates, and ensuring there's a sufficient money supply.

What is the meaning of 'equilibrium' in market terms?

The point at which supply and demand are equal, determining the equilibrium price.

What defines secured borrowing?

An asset is offered as collateral to guarantee the loan.

How does a primary market differ from a secondary market?

The primary market raises new capital, while the secondary market involves trading existing shares.

What is the role of the Monetary Policy Committee (MPC) of the Bank of England?

To set the Bank of England Base Rate to meet the government's inflation target.

What are the two types of fiscal policy?

Expansionary fiscal policy and contractionary fiscal policy.

What does quantitative easing (QE) involve?

Stimulating the economy by increasing the money supply to encourage business investment and spending.

What is the Consumer Prices Index (CPI)?

An index used to measure inflation based on a selection of goods and services that reflect average household spending.

What does the term 'disinflation' mean?

A reduction in the rate of inflation; prices are still rising, but at a slower rate.

What is the Proceeds of Crime Act 2002 primarily about?

It is the main piece of legislation aimed at preventing money laundering activities.

What does 'binding in their entirety' refer to in the context of EU Regulations?

EU regulations must be implemented fully by member states without changes.

What is a mutual organization?

An organization owned by its members rather than by shareholders.

What is 'disintermediation'?

The process of bypassing financial intermediaries to directly access funds.

What is the purpose of the Financial Action Task Force (FATF)?

To combat money laundering and terrorist financing globally.

What is the standard 'personal allowance' in reference to income tax?

An amount individuals can receive without paying tax.

What do tariffs do to imports?

Tariffs are taxes imposed on imports to discourage their purchase.

What is an initial public offering (IPO)?

The first time a private company sells its shares to the public.

What is the 'public sector net cash requirement' (PSNCR)?

The amount the government needs to borrow when public spending exceeds revenue.

What do equities represent?

Ownership in a company, which allows shareholders to vote and receive dividends.

What characterizes the bond market?

A market where debt securities, such as bonds, are issued and traded.

What is a bank's role as a 'lender of last resort'?

To provide emergency funds to banks facing short-term liquidity issues.

How does a building society differ from a bank?

A building society is mutual and owned by its members, while a bank is typically owned by shareholders.

What is meant by 'interest rate policy'?

The management of interest rates by a central bank to influence economic activity.

What is the role of the Payment Systems Regulator (PSR)?

To ensure payment systems operate in the interests of service users and promote competition.

What constitutes financial crime?

Any criminal conduct relating to finance involving fraud, misconduct, or handling proceeds of crime.

What indicates a budget surplus?

When the revenue from taxation exceeds public spending.

What is capital growth in property investment?

The increase in the value of property over time.

What is the significance of a credit rating for bonds?

It assesses the likelihood of the issuer being able to meet their repayment obligations.

What does borrowing typically entail?

Using funds loaned from one party with the obligation to repay with interest.

Define 'money laundering'.

The process of concealing the origins of illegally obtained money.

What does the term 'financial intermediation' refer to?

The process by which financial intermediaries like banks facilitate the flow of funds between savers and borrowers.

How do financial regulators influence market operation?

By enforcing compliance with laws and overseeing the conduct of financial institutions.

What is 'maturity transformation'?

The process by which financial institutions borrow short-term funds to lend long-term.

How do mutual organizations share profits?

They typically share profits with members as lower fees or higher interest on savings.

What does the financial services regulatory framework consist of?

A four-tier process involving legislation, regulatory policies, compliance standards, and arbitration rulings.

What are Treasury bills?

Short-term government securities that are sold to raise funds with a maturity typically of one year or less.

What are the risks associated with market-based securities?

Potential defaults and the requirement for significant minimum investments.

What is the aim behind expansionary fiscal policy?

To stimulate economic growth by lowering taxes and increasing public spending.

How does the government treat its foreign currency reserves?

As savings that can be used to cover international payment deficits.

What is the 'equivalence' principle in EU laws?

A method for allowing firms from one country to access another's market under comparable regulations.

What does 'Portability' in money refer to?

The ability to easily carry and transfer money.

What is the significance of a guarantee in secured loans?

It allows the lender to claim the asset if the borrower defaults.

What does a government budget deficit imply?

Public spending exceeds the total revenue from taxation.

What distinguishes a proprietary organization?

It is owned by shareholders and exists to generate profit.

What role do liquidity and risk play in financial investments?

Liquidity refers to how easily an asset can be converted to cash; risk indicates the potential for loss.

What does the Bank of England use to measure the money supply?

M0 measures cash in circulation, and M4 measures bank deposits.

What challenges does a budget deficit present?

It may require the government to borrow funds or cut public expenditure.

What is the purpose of anti-money laundering laws?

To prevent financial systems from being used to facilitate criminal activity.

What is the relationship between taxation and public expenditure?

Taxation funds public services and government spending.

What is 'capital gains tax'?

A tax on the profit made from selling an asset.

What is 'economic stability' and why is it important?

A stable economy is essential for growth, investment, and public confidence.

What are the specific roles of the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA)?

PRA oversees the prudential regulation of financial firms; FCA regulates conduct in financial markets.