finance unit three- topic six

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how is travel fuelling globalisation?
travel between countries is now easie, it is quick and cheap
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how is communication fuelling globalisation?
communication is now faster than its ever been. ICT has made contact between people and fianncial arkets almost instantaneous
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how is international trade fuelling globalisation?
businesses frequently trade across borders because of the ease of which goods can be transported and with which people can get in touch with each other
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how is migration fuelling globalisation?
when people move to another country they take a part of theri culture with them
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how are mergers and takeovers fuelling globalisation?
many businesses activities span internationl borders. takeovers and mergers have created very large multinational companies
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what is globalisation?
the trend towards a single global economy and society
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what is the role of the IMF?
to help member govts take advantage of the opportunities and manage challenges posed by globalisation and economic development more generally
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what is one of the main features of globalisation?
increased trade liberalisation adn advances in ICT
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what is depersonalisation (main criticism of multinationals)?
when the local culture of the community is undermined in a country because of multinationals
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how do some providers try to give the impression that they adapt to local needs?
they combine the virtues of being global with the virtues of being local as well
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what are the benefits of mergers and takeovers that lead to an increase in the number of multinationals?
leads to an improvement in the standard and range of products and to consistency in other products
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what is offshoring (main criticm of multinationals)?
the practise of basing some of a companys processes or services overseas, so as to take advantage of lowe costs
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explain why a benefit of multinationals to the local community is outsorcing to local businesses.
it gives local businesses money and invests more in the local community and economy
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why did subprime securities lead to the financial crisis and credit crunch in 2008?
the securities fell in price after the people who had the subprime mortgages began to default on their payments
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what's a criticism of multinationals (takeovers and mergers)?
the bigger companies take over the smaller local companies creating redundancies and decreasing competition
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what is the effect of globalisation on customers?
UK providers may face competition from overseas this means customers should enjoy better services and lower prices due to increased competition. it may mean UK customers see a decrease in standards because UK banks decide to move more overseas
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what action has the UK govt taken to discourage global borrowing by banks which was also a contributory factor to the financial crisis?
in 2010 they placed a levy of 0.088% on teh value of debts from banks (excl. ordinary deposits of savers) which was increased to 0.21% in april 2015. from 2012, the levy wont apply to overseas activities of banks
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what are two other practices that lead to financial crisis (not international borrowing)
the payment of large bonuses to investment bankers which encouraged them to take too many risks and the reluctance of UK banks to lend moeny to businesses so they could expand
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what has project merlin resulted in?
an agreement betwen govt and main banks that they would pay lower bonuses to employees and make more moeny available for business loans
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how can the economy affcet financial providers?
they are affected by what goes on in their local economy e.g. what can happen when interest rates rise or when unemplyments highand events in other countries impact on both imports and exports
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how did the financial crisis lead to protectionism?
it meant lots of people lost their jobs or had tpo take a paycut. protectionism involves the govt giving money to one of its industries to preserve jobs or making import taxes on goods and services from abroad higher to make its own products more com
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what is the role of the WTO and economic unions?
it promotes cooperation and trade between its 160 members. it ensures trade flows as smoothly, predictably and freely as possible
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what is GDP?
gross domestic product- a country's economic activity in terms of its total output of goods and services usually measured at market prices
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what does rising GDP mean?
its seen as a good thing as it means a rise in the standard of living and higher employment and production
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how can the govt measure GDP per capita?
total GDP divided by total number of peopel
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what happens if an economy is growing at an unsustaibable rate?
it can become overheated which means businesses arent able to supply sufficient goods to meet demand adn so will push up prices leading to higher inflation
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what is sustainable economic growth?
growth that is controlled enough to be able to continue into the mediuma nd long term
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how can sustainable growth be achieved?
higher productivity- producing more goods and services with same resources. investing in more efficient equipment and latest technology and investing in education to enusre labour fource has right skills
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what is the likely effect or changes in overall world eceonomy during thsi period of falling world growth on companies?
a fall in growth is likely to be accompanied by falling share prices and a lack of investor appetite for shares
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what can providers of savings and investment products offer if share prices are falling?
they can identify in companies worth investing adn will be able to maintain and even increase teh value of portfolios
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why have low cost supermarkets thrived during the recession?
shoppers from long established UK supermarkets have switched in an effort to reduce their food bills
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how do insurance companies benefit during a recession?
peopel who still have jobs feel less confident in their long term job security and so see a benefit in taking out insurance for an income or at least to cover their mortgage
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how has the growth of the world's emerging markets caused problems for established economies?
growth in BRIC countries has led to high demand for commodities such as raw materials which has pushed prices up higher. this has led to inflation in those countries that are net importers of commodities e.g. UK
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what impact has inflation had on individuals' financial planning?
many families have experienced a fall in earnings and also had to pay higher prices on their everyday needs and wants
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what are economic conditions an EU country must achieve before they can join the Eurozone?
must ahve certain standards of fiscal stability, must have central banks that are independent of political process, must have low inflationa nd interest rates and msut have established stable currencies over a certain period
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who sets the interest rates in the eurozone?
the european central bank based in frankfurt
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which eurozone countries have struggled to repay money borrowed from other countries?
greece, ireland, portugal, spain and italy
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how could countries not repaying debts affect other eurozone countries?
other richer european countries have to bail out these countries to prevent the euro collapsing
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why did the UK govt lend £3b to the irish govt when its property and banking sectors collapsed
they were closely linked to that of the UK and would have had an immediate effect on the other if tehy were allowed to fail
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why is there a strong interaction between different countries economic and financial health and teh global monetray system?
govts fund their public services through taxation and when that's not enough they borrow from the international market. they msut offer an interest rate on their bonds that is enough to attract investors
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when will a govt have to offer higher interest payments to be sure that it can sell the volume of bonds it needs to fund public spending?
when a country's economic problems cause the percieved degree of risk of default to increase teh govt has to offer higher interest rates to make sure it can raise the amount of bonds to cover public spending
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what are the consequences on personal financial planning if the UK govt were ever to reach the brink of defaulting on its debts?1
millions would be affected by rising unemployment, higher taxes and austerity measures far beyond those already measured
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what is the government department responsible for setting economic and financial policy?
HM Treasury
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who sets interest rates
the bank of england's monetary policy committee
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how does inflation affect investment?
if infaltions low peopel have a sense of security in the value of their assets in the future this makes them happy to invest, if inflation is rising they will be uncertain and look for investments that will keep them ahead of inflation
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how do low interest rates affect borrowers and savers?
when interest rates are low and borrowings cheap people will be able to borrow more. people with savings will get low returns and may look for riskier products
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how does a rising interest rate affect borrowers?
people with high levels of personal debt will have problems as they may be unable to meet repayments and providers who have lent irresponsibly will be affected as their borrowers are likely to default
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how has the UK stock market affected investors?
the demand for products offered on the stock market such as unit trusts, investment trusts and stocks and shares ISAs have fallen
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if the value of the pound falls against the Euro, how will this affect importers and exporters?
the cost of imports from europe rise if teh value of sterling falls against euro, but this makes UK products relatively cheap abroad and in the UK
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how did the bank of england try to encourage spending in the economy to boost economic activity?
they cut interest rates
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what has sparked a vicious cycle of unemployment in the UK?
banks stopped lending to each other and cut back their lending to customers. this along with lack of confidence led to a steep decline in economic activity and to recession which led to high unemployment
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why did cutting interest rates not boost spending?
with high levels of personal debt and many peopel fearful of unemployment, UK consumers continued to focus on paying off at least some of their debt
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what is a commodity?
a raw material or primary agricultural product that can be bought and sold such as copper or coffee. the price can flucuate in the same way share prices do
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why is a fall in oil prices good for the UK economy?
it decreases prices of imported oil and means inflation isn't rising
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how can flucuations in commodity prices affect personal financial planning?
it can impact a person's finanical planning via the impact it has on inflation
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how can a government fund a war
raising income taxes, increasing sales taxes and issuing gilts with high interest rates
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how would the government funding a war impact on financial planning
people would have take home pay due to increased income taxes and inflation would increase because of increasing sales taxes
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how can international weather affect personal financial planning in the UK?
the effect of bad weather on food production and therefroe food prices can have a direct effect on financial planning as people will have to replan to make up for higher prices
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what are examples of unethical financial management by companies?
false, creative or poor operational controls, falsified or hidden records and unethical or illegal business practices adopted as part of overall business strategies
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what are teh drawbacks of mergers which lead to debts of one subsidary having to be paid off?
huge debts for parent companies, sudden loss in wealth for investors who held shares, stock market uncertainty and fall in peoples' confidence because if tehy don't trust bansk tehy wont put their moeny in them
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what is meant by breach of fiduciary duty?
when a director does a particularly bad job either through deliberate dishonesty or through negligence, the shareholders can sue them for breach of fiduciary duty
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what is the role fo an auditor?
they have a duty to check teh accuarcy of teh published accounts for the protection of the shareholders and stakeholders
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what are four examples of ethical business behaviour?
environmental ethics, product sustainability, political ethics and animal welfare
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what is the role of UKSIF?
a membership organisation for those in the financial industry committed to growing sustainable and responsible finance in the UK
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what is CSR and how can it influence business activity?
CSR is a form of self regulation now practised by many large companies. it is a way businesses can demonstrate there is a social conscience behind it's business model
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what is the impact of a major failure of the financial system (systemic failure) on customers with current accounts?
this would mean customers would'nt be abel to amke payments, would be unable to use money in their current accounts and wouldnt be able to receive salaries or pensions paid into their accounts
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what is the impact of a major failure of the financial system (systemic failure) on customers with savings accounts?
they would lose their money
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what is the impact of a major failure of the financial system (systemic failure) on customers with borrwoing products
they would be unsure about the impact on their debts. the debts would be taken over by whatever company bought the failed bank, but they wouldnt know what the terms were
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what is the impact of a major failure of the financial system (systemic failure) on businesses?
businesses wouldn't be able to pay their employees' salaries, buy raw materials or borrow funds to meet their cash flow and investment needs. they may be forced to stop trading meaning workers would be out of a job
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what is the impact of a major failure of the financial system (systemic failure) on the stock market and value of sterling?
there would be a substantial slump in stock market prices and if the teh failure were limited to UK banks there would be a fall in pound compared to other currencies
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how is communication fuelling globalisation?

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communication is now faster than its ever been. ICT has made contact between people and fianncial arkets almost instantaneous

Card 3

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how is international trade fuelling globalisation?

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Card 4

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how is migration fuelling globalisation?

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how are mergers and takeovers fuelling globalisation?

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