Banking and Insurance: Systems, Instruments and Risk Transfer
Core concepts
Banking topics include functions of central and commercial banks, types of deposits and accounts, credit creation, negotiable instruments (cheque, bill of exchange, promissory note), and the role of regulation. Insurance topics include the principle of indemnity, insurable interest, utmost good faith, premium, policy, and types of insurance such as life and fire or marine.
Traps to watch
Students often confuse the central bank's role with that of commercial banks: the central bank regulates and acts as lender of last resort but does not serve retail customers. In insurance, indemnity restores the insured to the pre-loss position and does not permit profit; life insurance is treated differently from general insurance. Also distinguish a cheque from a bill of exchange and a promissory note by parties and direction of payment.
Worked example
A property worth 500,000 is insured for 500,000, and a loss of 100,000 occurs. Under indemnity, the insured receives 100,000, not the policy amount, because insurance restores the loss, not the asset's full value. Rule of thumb: general insurance compensates actual loss subject to the sum insured; it never creates gain.
Strategy
Group concepts by function and by party involved. For instrument questions, list drawer, drawee, and payee. For insurance, test each scenario against indemnity and insurable interest before choosing.
Marketing: The Mix, Segmentation and Consumer Behaviour
Core concepts
Marketing questions cover the marketing mix (product, price, place, promotion), segmentation, targeting and positioning, the product life cycle, branding, distribution channels, and consumer buying behaviour. Understand the difference between needs and wants, and between marketing and selling: selling pushes existing products, while marketing starts with customer needs.
Traps to watch
Common traps include treating promotion as the whole of marketing, confusing market segmentation with product differentiation, and misidentifying the stage of the product life cycle. In pricing questions, distinguish penetration pricing (low initial price to gain share) from skimming (high initial price to capture early adopters). Also note that a channel level refers to intermediaries between producer and consumer.
Worked example
A firm launches a new smartphone at a high price to target early adopters, then lowers it later. This is price skimming. If instead it launched at a very low price to build volume quickly and deter entrants, that would be penetration pricing. Rule of thumb: skimming harvests willingness to pay early; penetration buys market share early.
Strategy
For scenario questions, identify which element of the mix is being changed, then check the strategic intent. Learn the product life cycle stages with one typical marketing response each, and remember that positioning concerns the customer's perception, not the firm's internal view.