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btec business > finance > Flashcards

finance Flashcards

1
Q

functions of money

A

unit of account- it allows us to place monetary value on goods and services
means of exchange- allows us to trade
store of value- allows us to use it in the future as it keeps its value

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2
Q

Advantages of cash

A

-most widely accepted form of exchange
-physical not virtual
- makes budgeting easier

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3
Q

Disadvantages of cash

A

-can be stolen or lost
- threat of counterfeit (fraud)
- only appropriate on purchases up to a certain amount
- can’t be used online

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4
Q

debit card

A

(payments come directly from the account)

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5
Q

advantages of debit cards

A
  • no need to carry cash
  • secure method of payment with low risk of theft
  • widely accepted
  • offers protection on purchases
  • suitable for online transactions
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6
Q

disadvantages of debit cards

A
  • overspending
  • not accepted or appropriate for small transactions
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7
Q

credit card

A

(can delay payments)

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8
Q

advantages of credit cards

A
  • allows a period of credit that is interest free (a month)
  • most cards are widely accepted
  • loyalty schemes are often offered (collect points or cash back)
  • offers a degree of protection on purchases
  • suitable for online transactions
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9
Q

disadvantages of credit cards

A
  • interest is charged on balances not paid off within a month
  • can encourage overspending and therefore being in debt
  • interest is charged on cash withdrawals
  • limit is set on the amount of credit allowed
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10
Q

cheque

A

(a written order to a bank to transfer money from one persons account to another)

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11
Q

advantages of a cheque

A
  • low risk
  • widely accepted for face to face and postal transactions
  • no need to provide change as the amount is written
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12
Q

disadvantages of a cheque

A
  • time consuming
  • old fashioned
  • easy to make errors
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13
Q

advantages of a electronic transfer

A
  • instant
  • provides a record of payment
  • no additional costs
  • easy to use
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14
Q

disadvantages of electronic transfers

A
  • transfer could get lost
  • not useful for face to face
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15
Q

direct debit

A

(agreement made with a bank to allow a third party to withdraw money and set a pay day)

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16
Q

advantages of direct debit

A
  • easy to pay for regular payments like bills
  • quick and easy
  • amount paid can vary
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17
Q

disadvantages of direct debit

A
  • if payer makes a mistake then payee has to claim back the money
  • payer determines the amount paid each time
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18
Q

standing order

A

(agreement made with the bank to transfer a fixed sum of money on a set date on a regular basis) e.g phone bill

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19
Q

advantages of standing order

A
  • same amount paid each time is easy
  • easy to set up and cancel
  • don’t need to remember to make regular payments
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20
Q

disadvantages of standing order

A
  • payments are taken regardless of the customers balance so may have to use an overdraft
  • payments will continue unless cancelled
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21
Q

pre paid card

A

(money is uploaded onto a card with transactions then being withdrawn to reduce the balance)

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22
Q

advantages of a pre paid card

A
  • can set up a budget in advance to avoid overspending
  • if lost or stolen it’s limited to the remaining balance
  • effective way of controlling the amount spent
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23
Q

disadvantages of a pre paid card

A
  • no protection if lost
  • sometimes require an initial fee
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24
Q

advantages of a contactless card

A
  • easy
  • secure method of making payments
  • popular
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25
Q

disadvantages of contact less cards

A
  • only accepted for small transactions
  • not widely accepted as it’s new tech
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26
Q

change card

A

(allows customers to delay payments for a short period of time)

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27
Q

advantages of charge cards

A
  • reduces risk of debt
  • allows a short period of credit
  • don’t need to carry cash
  • offers additional perks
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28
Q

disadvantages of charge cards

A
  • must be paid in full each month
  • often an annual fixed fee
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29
Q

store card

A

(retail outlets can delay payments for customers)

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30
Q

advantages of store cards

A
  • allows a short period of credit
  • often offers discounts
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31
Q

disadvantages of store card

A
  • only accepted in issuing store
  • can encourage overspending
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32
Q

advantages of mobile banking

A
  • convenient
  • secure
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33
Q

disadvantages of online banking

A
  • features are limited
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34
Q

BACS

A

(transferring payments from one account to another)

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35
Q

advantages of BACS

A
  • instant transfers
  • can be accessed in many ways
  • no additional costs
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36
Q

disadvantages for BACS

A
  • faster payment not offered from all banks
  • limit set on the amount transferred
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37
Q

CHAPS

A

(can transfer payments from one account to another)

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38
Q

advantages of CHAPS

A
  • transfers can be made the same day
  • no limit to the amount transferred
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39
Q

disadvantages for CHAPS

A
  • there is a fixed charge per transaction
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40
Q

^ methods of payment

A
41
Q

overdraft

A

(you can borrow extra money through your account)

42
Q

advantages of overdrafts

A
  • can be paid off without penalties
  • provides a short term solution
43
Q

disadvantages of an overdraft

A
  • interest charges are often high
  • not the cheapest form of borrowing
  • could encourage overspending
44
Q

advantages of personal loans

A
  • useful when paying for a big item like a house
  • makes budgeting easier
  • regular payments
45
Q

disadvantages of personal loans

A
  • not suitable for short term loans
46
Q

hire purchase

A

(customer makes a down payment when buying an expensive item)

47
Q

advantages of a hire purchase

A
  • spreads the cost of an expensive item over time
  • credit is secured against a specific item
48
Q

disadvantages of hire purchase

A
  • high interest charges
  • agreements can be manipulated to make a purchase seem appealing
49
Q

advantages of a mortgage

A
  • can spread the payment over a long period of time
  • interest rates could be fixed reducing the risk of fluctuations
50
Q

disadvantages of a mortgage

A
  • interest payments could vary which could be hard to meet expenses
  • could lose your home if you fail to pay or could affect your credit rating
  • penalties may be applied to pay early
51
Q

payday loans

A

(cover immediate financial needs but is repaid on the next payday)

52
Q

advantages of payday loans

A
  • solve short term cash flow problems
53
Q

disadvantages of payday loans

A
  • interest rates are very high and can spiral out of control if not paid on time
54
Q

^ types of borrowing

A
55
Q

expenditure

A

(the amount of money you need to cover all your expenses/ outgoings)

56
Q

ISA

A

individual savings account

57
Q

advantages of ISA

A
  • interest rates are slightly higher than in other saving accounts
  • tax is not charged on interest earned allowing the customer to keep the rewards for saving
58
Q

disadvantage of ISA

A
  • set limit on how much you put in
  • can’t withdraw from it too often
  • notice is often required to make withdrawals
59
Q

advantages deposit and saving accounts

A
  • interest is earned on positive balances
  • accounts sometimes require regular deposits of a set amount forcing the saver to follow a savings plan
60
Q

disadvantages of deposit and savings accounts

A
  • interest earned is taxed
61
Q

premium bonds

A

(savings account where the interest paid is decided in a monthly prize draw)

62
Q

advantages or premium bonds

A
  • you can claim premium bonds immediately if someone passes away
  • are safe and secure
  • no limited amount of money you can win
63
Q

disadvantages of premium bonds

A
  • no guarantee of winning
  • a risk of losing value (your balance)
  • no regular income
64
Q

bonds and gilts

A

(lending money to the gov in return for regular interest)

65
Q

advantages of bonds and gilts

A
  • regular fixed returns
  • spreads risk across a range of markets
66
Q

disadvantages of bonds and gilts

A
  • risk of losing some or all value of the investment if the bond of gilts value falls
  • interest payments may not be received if the issuer is unable to make payments
67
Q

advantages of shares

A
  • share prices fluctuate offering a potential high reward
  • as part owners you may get discounts and special offers
68
Q

disadvantages of shares

A
  • share prices fluctuate which could be bad
  • no guarantee of any reward
69
Q

advantages of pensions

A
  • encourages people to save throughout their life
  • savings may be boosted by employers contributions increasing the final value of the savings
70
Q

disadvantages of pensions

A
  • final outcome is difficult to predict
  • if you move jobs it may mean a policy stops and another starts, reducing the overall value
  • if payments are deducted this may affect short term living standards
71
Q

^ savings and investment

A
72
Q

advantages of car insurance

A
  • protects you from damage or theft
  • meets legal requirements
73
Q

disadvantages of car insurance

A
  • premiums can be high (like for young drivers)
  • excess money may need to be paid (you may still need to pay for some damages)
74
Q

advantages of home and contents

A
  • protects against damage which may be too expensive to repair resulting in a loss of a home
  • contents are protected inside and outside the house
75
Q

disadvantages of home and contents

A
  • premiums are an additional expense to home ownership
  • some items cannot be replaced due to value (like jewellery or a painting)
76
Q

advantages of life insurance

A
  • provides peace of mind to family when you have lost someone
77
Q

advantages of travel insurance

A
  • protects your belongings
  • protects against cancellations or delays
  • covers medical costs when your on holiday
78
Q

disadvantages of travel insurance

A
  • may be a waste if you don’t travel much
  • additional costs when travelling abroad
79
Q

advantages of pet insurance

A
  • avoids expensive pet fees
80
Q

disadvantages of pet insurance

A
  • an additional monthly expense to protect against the unexpected
81
Q

advantages of health insurance

A
  • some compensation is provided when your ill which can reduce financial burden
  • if used to fund private care you can get better facilities and quicker treatments
82
Q

disadvantages of health insurance

A
  • won’t cover pre known conditions
  • you may not need to use it
83
Q

margin of safety

A

actual output or sales divided by break even point

84
Q

break even point

A

fixed costs divided by contribution per unit

85
Q

contribution per unit

A

selling price - variable costs

86
Q

closing balance

A

open balance + net cash flow

87
Q

profit

A

sales revenue - total costs

88
Q

sales revenue

A

total units sold x price of each unit

89
Q

total contribution

A

sales revenue + total variable costs

90
Q

contribution margin

A

revenue - fixed costs

91
Q

bank of england

A

UKs central bank
responsibilities include legal tender and setting interest rates for the uk

92
Q

building societies

A

-these are organisations that handle -financial transactions and stored money on behalf of customers
-members and account owners are part owners of the building society

93
Q

credit unions

A
  • these are non profit organisations
  • members are the owners
94
Q

national savings and investments

A
  • this is a government backed organisation that offers a secure savings option
  • offers a range of options such as ISA
    premium bonds and so on
95
Q

insurance companies

A
  • protect against the risk of loss
  • are profit making organisations
96
Q

pension companies

A
  • sell policies to individuals or to their employer so they can save for retirement
97
Q

pawnbrokers

A
  • loan money against the security of a personal asset
98
Q

advantages of building societies

A
  • offer a range of services and account types
  • secure
  • owned by members so costs are kept down
99
Q

disadvantages of building societies

A
  • savings are only protected up to a certain amount so if the society goes bankrupt then savings above the certain amount get lost

btec business (1 decks)

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