Introducing The Financial Services Industry Quiz

1. What are the two primary functions of money?

A. Medium of exchange and unit of account.
B. Store of value and taxes.
C. Credit creation and risk management.
D. Inflation control and wealth distribution.

2. What is the main role of a financial intermediary?

A. To act as a lender of last resort.
B. To facilitate transactions between surplus and deficit parties.
C. To regulate the supply of money.
D. To provide insurance services.

3. Which of the following is not one of the four elements of intermediation?

A. Geographic location.
B. Aggregation.
C. Risk transformation.
D. Tax reduction.

4. What is the primary function of the Bank of England?

A. To act as a financial ombudsman.
B. To regulate the supply of money and maintain economic stability.
C. To provide retail banking services.
D. To issue credit cards.

5. What is the key difference between a mutual organisation and a proprietary organisation?

A. Mutual organisations are owned by shareholders, while proprietary organisations are owned by members.
B. Mutual organisations are owned by members, while proprietary organisations are owned by shareholders.
C. Mutual organisations focus on profit, while proprietary organisations focus on social value.
D. Mutual organisations are regulated by the FCA, while proprietary organisations are not.

6. What is the primary purpose of a credit union?

A. To provide high-risk investment opportunities.
B. To offer savings and loans to members at reasonable rates.
C. To act as a wholesale bank for large corporations.
D. To issue government bonds.

7. What is the main distinction between retail and wholesale banking?

A. Retail banking serves individuals and small businesses, while wholesale banking serves large corporations and financial institutions.
B. Retail banking focuses on high-risk investments, while wholesale banking focuses on low-risk deposits.
C. Retail banking is regulated by the FCA, while wholesale banking is regulated by the Bank of England.
D. Retail banking operates internationally, while wholesale banking operates domestically.

8. What is Sonia?

A. A type of cryptocurrency.
B. A benchmark interest rate based on overnight sterling transactions.
C. A regulatory body for financial institutions.
D. A type of government bond.

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

A. To regulate credit unions.
B. To set the base interest rate to meet the government’s inflation target.
C. To manage the UK’s foreign exchange reserves.
D. To oversee the issuance of banknotes.

10. What is the legal maximum interest rate that credit unions can charge on loans?

A. 1% of the reducing balance per month.
B. 3% of the reducing balance per month.
C. 5% of the reducing balance per month.
D. 10% of the reducing balance per month.

Secured and Unsecured Lending Quiz

1. What is the primary difference between a repayment mortgage and an interest-only mortgage?

A. An interest-only mortgage is cheaper overall.
B. A repayment mortgage includes both capital and interest in monthly payments, while an interest-only mortgage only covers interest.
C. An interest-only mortgage requires a lump sum payment at the start of the term.
D. An interest-only mortgage is only available for investment.

2. What is a key requirement for an interest-only mortgage under the FCA's Mortgages and Home Finance: Conduct of Business rules?

A. The borrower must have a credible repayment strategy in place.
B. The borrower must not be a first time buyer.
C. The borrower must have a fixed-rate mortgage.
D. The borrower must have a minimum income of 125k a year.

3. Which of the following is a potential drawback of using a pension plan as a mortgage repayment vehicle?

A. You are legally required to invest your pension in only low-risk cash accounts, limiting growth potential.
B. The minimum pension age restricts when the mortgage can be repaid.
C. You must pay an annual government penalty simply for linking a pension to a mortgage.
D. You cannot make any changes to your pension contributions once the mortgage is in place.

4. What is the main benefit of using an Individual Savings Account as a mortgage repayment vehicle?

A. The funds grow free of tax on income and capital gains.
B. The borrower can repay the mortgage early without penalties.
C. The borrower does not need separate life assurance.
D. The borrower can access the funds at any time without restrictions.

5. What is a capped-rate mortgage?

A. A mortgage where the interest rate is fixed for the entire term.
B. A mortgage where the amount of borrowing is capped.
C. A mortgage where the cap is on the payment amount rather than the rate.
D. A mortgage where the interest rate is variable but cannot rise above a specified upper limit.

6. What is the purpose of a mortgage indemnity guarantee?

A. To protect the borrower in case of job loss.
B. To protect the lender in case of a high loan-to-value ratio and borrower default.
C. To reduce the interest rate on the mortgage.
D. To cover the solicitor cost in repossession.

7. Which of the following is a characteristic of a flexible mortgage?

A. The term can be adjusted without affordability assessment.
B. The borrower can overpay, underpay, or take payment holidays without penalties.
C. The mortgage term is shorter than a standard mortgage.
D. The borrower must make a lump sum payment at the end of the term.

8. What is the loan-to-value ratio?

A. The ratio of the loan amount to the borrower's income.
B. The ratio of the loan amount to the borrower's savings.
C. The ratio of the loan amount to the borrower's credit score.
D. The ratio of the loan amount to the value of the property used as security.

9. Which of the following is a key feature of a base-rate tracker mortgage?

A. The interest rate is capped at the base-rate.
B. The interest rate moves in line with changes in the Bank of England base rate.
C. The interest rate cannot rise above a specified upper limit.
D. The borrower can borrow additional funds at the base rate.

10. What is a potential disadvantage of using an ISA as a mortgage repayment vehicle?

A. You are legally prohibited from holding more than one ISA provider's account at any time during the mortgage term.
B. You are required to convert your ISA into a fixed-rate cash account five years before the mortgage ends, regardless of performance.
C. You must pay an annual government penalty simply for using ISA funds to repay a mortgage.
D. The borrower may need additional life assurance to cover the loan in case of death.

Consumer Credit Quiz

1. What is the primary purpose of the Consumer Credit Act 2006?

A. To regulate all forms of mortgage lending in the UK
B. To control the Bank of England’s base interest rate policy
C. To ensure fair treatment of insurance policyholders
D. To increase protection for borrowers in consumer credit agreements

2. Which of the following is exempt from the provisions of the Consumer Credit Act?

A. Credit card agreements used for personal spending
B. Loans over £25,000 to small businesses for business purposes
C. Hire purchase agreements for personal vehicles
D. Personal loans under £25,000 from a bank

3. What is the standard cooling-off period granted to borrowers under the Consumer Credit Act?

A. 14 days
B. 7 days
C. 28 days
D. 1 calendar month

4. Which of the following must be included in advertisements for consumer credit products under the Consumer Credit Directive?

A. The borrower’s most recent credit score
B. The lender’s credit scoring criteria
C. A representative example with a 'representative' APR
D. Details of the lender’s internal underwriting policy

5. What is the FCA's cap on daily interest and fees for high-cost, short-term credit?

A. 1.0% per day
B. 0.8% per day
C. 0.5% per day
D. 0.1% per day

6. Which of the following activities requires full FCA authorisation under consumer credit regulations?

A. Credit broking as a main business activity
B. Providing informal loans to friends with interest charged
C. Selling goods on credit within a private club
D. Offering personal loans under £5000 without a contract

7. What must lenders do before significantly increasing a customer's credit limit under CONC rules?

A. Obtain written consent from the borrower's bank
B. Notify the customer at least 30 days before the change
C. Automatically raise interest rates
D. Assess the customer's creditworthiness

8. Which of the following statements must be included in communications about loans secured on a borrower's home?

A. "This loan is subject to PRA regulation"
B. "Credit history can impact approval"
C. "Your home may be at risk if you do not keep up repayments"
D. "Early repayment charges will apply"

9. What is the maximum total repayment amount allowed under FCA rules for high-cost, short-term credit?

A. 100% of the amount borrowed
B. 150% of the amount borrowed
C. 200% of the amount borrowed
D. 250% of the amount borrowed

10. Which CONC section specifically addresses requirements for debt management firms?

A. CONC 10
B. CONC 12
C. CONC 5
D. CONC 7

11. Which of the following activities would require full FCA authorisation under consumer credit regulations?

A. Operating as a credit broker for payday loans
B. Selling goods on credit in a retail store under 50k
C. Offering a store card with a £500 limit
D. Providing debt counselling as a community service

12. Under the Consumer Credit Directive, what must a creditor do before granting a significant increase in credit?

A. Reduce the APR for the borrower
B. Complete a full FVA approved factfind
C. Charge any additional processing fees
D. Assess the borrower’s creditworthiness

13. Which CONC section specifically addresses overdraft pricing rules?

A. CONC 7E
B. CONC 10
C. CONC 5C
D. CONC 8

14. What is the maximum default fee allowed under the FCA’s cap on high‑cost, short‑term credit?

A. £25
B. £15
C. £50
D. £5

15. Which of the following is exempt from the cooling‑off period under the Consumer Credit Act?

A. A £10,000 personal loan
B. A credit card agreement
C. A hire purchase agreement for a car
D. A £40 or under overdraft facility

16. What must a credit intermediary disclose under the Consumer Credit Directive?

A. Whether they work exclusively with one lender
B. The borrower’s latest credit score
C. Their annual rate stress test eligibility
D. Competitors’ APRs

17. Under CONC 7, what must a lender do if a customer exceeds their overdraft limit?

A. Charge an immediate penalty fee
B. Report the customer to a credit reference agency
C. Close the account automatically
D. Contact the customer in writing without delay

18. Which of the following is a requirement for rent-to-own agreements under CONC 5B?

A. APR disclosure is optional if under £1,000
B. Prices must not exceed the average of three local competitors
C. Total credit cannot exceed 100% of the product’s cost
D. No cooling‑off period applies

19. What is the primary purpose of the representative APR in credit advertisements?

A. To match the Bank of England base rate
B. To show the absolute lowest possible rate a lender could offer
C. To include any broker fees in cost
D. To reflect the rate offered to at least 51% of successful applicants

20. Which CONC section covers debt collection practices?

A. CONC 5
B. CONC 7
C. CONC 3
D. CONC 9

23. Which of the following triggers a financial promotion risk warning under CONC 3?

A. "Warning: Late repayment can cause serious money problems"
B. "Low‑interest rates available"
C. "No fees for early repayment"
D. "Approval guaranteed"

22. What is the FCA’s requirement for firms monitoring overdraft repeat use?

A. Charge higher fees to customers who exceed limits
B. Report repeat users to credit agencies within 30 days
C. Suspend customer accounts after three limit breaches
D. Identify patterns of repeat use and take steps to reduce them

23. Which activity falls under the limited permission regime for consumer credit?

A. Peer‑to‑peer lending platforms
B. Offering incidental credit
C. Credit broking as a main business
D. Debt adjusting as the firm’s principal activity

24. Under UK consumer credit law, what is the primary legal significance of an “unenforceable agreement”?

A. The lender cannot obtain a court order to compel repayment unless the agreement is first made compliant
B. The debt is automatically written off and removed from the borrower’s credit file
C. The borrower is entitled to a refund of all payments made under the agreement
D. The lender must transfer the debt to the FCA

25. When calculating the APR for a regulated credit agreement, which of the following must be included in the cost of credit?

A. Optional payment protection insurance premiums, if purchased after the agreement is signed
B. Fees for services unrelated to the granting of credit, such as after‑sales warranties
C. Compulsory charges known at the outset that the borrower must pay as a condition of the credit
D. Any voluntary overpayments made by the borrower during the term