My Libf Topic 6 Unit 4 Exam With Complete Solutions
Annual Equivalent Rate (AER) - ANSWER The interest that will be earned on the money in one
year, taking into account how often the provider pays the interest (eg monthly or annually),
the effect of compounding the interest and any fees and charges.
Annuity - ANSWER A product where the customer pays a lump sum (the proceeds of a
pension fund on retirement) and, in return, receives an agreed set of annual amount for the
rest of their life.
Catastrophic loss - ANSWER A loss in excess of unexpected loss, which is unlikely but that
could conceivably happen.
Catastrophe bonds - ANSWER Bonds purchased by investors who receive a good rate of
interest as long as the catastrophe the bond covers does not happen. If it does occur, then
they lose their capital and the insurance company does not have to pay them back what they
invested; this helps the insurer to lessen its exposure to the disaster.
Cyberterrorism - ANSWER A situation where terrorists deliberately attack computer networks
by uploading viruses that cause links and files to malfunction and data to be deleted.
Ethical investment - ANSWER An investment made in a company that takes into account the
wider impact of its activities on society and the environment.
, Exogenous shocks - ANSWER A significant event that happens without warning and that has
large and lasting effects on political, economic, and social systems, eg the Somerset floods of
2014.
Expected loss - ANSWER The average amount of loss that someone could expect to face, eg
loan defaults.
Gross interest - ANSWER Interest paid without tax deducted.
Ijara home purchase plan - ANSWER A form of Islamic home purchase plan. The provider buys
the client's selected property. The provider then sells the property to the client for the same
price under a promise to purchase agreement, with repayment spread over a term of up to 25
years. The provider is the registered owner of the property during the repayment term. The
client occupies the property under a lease during the payment term, paying a monthly
amount that combines capital repayment and rent for the lease. The monthly payment is fixed
for 12 months at a time and is then reviewed to allow for adjustments to the rental element as
appropriate; these adjustments will usually reflect changes in external interest rates.
Index-linked - ANSWER Rising in line with inflation.
Islamic home purchase plans - ANSWER Methods of buying a home that are compliant with
Sharia law, which forbids Muslims from paying or receiving interest. There are two main types:
Ijara and Murahbaha home purchase plans.
Loan to value (LTV) - ANSWER The ratio of the size of the loan to the value of the property.
Annual Equivalent Rate (AER) - ANSWER The interest that will be earned on the money in one
year, taking into account how often the provider pays the interest (eg monthly or annually),
the effect of compounding the interest and any fees and charges.
Annuity - ANSWER A product where the customer pays a lump sum (the proceeds of a
pension fund on retirement) and, in return, receives an agreed set of annual amount for the
rest of their life.
Catastrophic loss - ANSWER A loss in excess of unexpected loss, which is unlikely but that
could conceivably happen.
Catastrophe bonds - ANSWER Bonds purchased by investors who receive a good rate of
interest as long as the catastrophe the bond covers does not happen. If it does occur, then
they lose their capital and the insurance company does not have to pay them back what they
invested; this helps the insurer to lessen its exposure to the disaster.
Cyberterrorism - ANSWER A situation where terrorists deliberately attack computer networks
by uploading viruses that cause links and files to malfunction and data to be deleted.
Ethical investment - ANSWER An investment made in a company that takes into account the
wider impact of its activities on society and the environment.
, Exogenous shocks - ANSWER A significant event that happens without warning and that has
large and lasting effects on political, economic, and social systems, eg the Somerset floods of
2014.
Expected loss - ANSWER The average amount of loss that someone could expect to face, eg
loan defaults.
Gross interest - ANSWER Interest paid without tax deducted.
Ijara home purchase plan - ANSWER A form of Islamic home purchase plan. The provider buys
the client's selected property. The provider then sells the property to the client for the same
price under a promise to purchase agreement, with repayment spread over a term of up to 25
years. The provider is the registered owner of the property during the repayment term. The
client occupies the property under a lease during the payment term, paying a monthly
amount that combines capital repayment and rent for the lease. The monthly payment is fixed
for 12 months at a time and is then reviewed to allow for adjustments to the rental element as
appropriate; these adjustments will usually reflect changes in external interest rates.
Index-linked - ANSWER Rising in line with inflation.
Islamic home purchase plans - ANSWER Methods of buying a home that are compliant with
Sharia law, which forbids Muslims from paying or receiving interest. There are two main types:
Ijara and Murahbaha home purchase plans.
Loan to value (LTV) - ANSWER The ratio of the size of the loan to the value of the property.
