Finance Unit Test

Question 1

Saving

Answer 1

Saving is setting aside money for future use, often for emergencies or planned expenditures. It involves putting funds in low-risk, liquid accounts.

Question 2

Investing

Answer 2

Investing involves committing money to assets (stocks, bonds, real estate, etc.) with the expectation of earning a return, typically through interest, dividends, or capital gains. It carries more risk compared to saving.

Question 3

Savings Plan

Answer 3

A savings plan is a strategy for setting aside money for specific goals (e.g., retirement, buying a house). It often involves automated transfers to ensure consistent saving.

Question 4

Why People Save

Answer 4

-Emergencies (unexpected expenses)
-Future goals (education, travel, retirement)
-Security (to feel financially stable

Question 5

Benefits of Savings Plans

Answer 5

-Ensures financial discipline
-Provides funds for future needs
-Offers some protection against inflation and financial emergencies

Question 6

Earnings

Answer 6

Earnings refer to the income generated from savings or investments (interest, dividends).

Question 7

Yield

Answer 7

Yield is the return on an investment, expressed as a percentage of the initial investment or principal.

Question 8

Deposit

Answer 8

A deposit is money placed in a bank or financial institution, often in savings or checking accounts.

Question 9

Interest

Answer 9

Interest is the cost of borrowing money, or the return earned on savings or investments.

Question 10

Simple interest

Answer 10

Simple interest is calculated only on the principal amount.

Question 11

Compound interest

Answer 11

Compound interest is calculated on the principal plus any accumulated interest

Question 12

Rate of Return/Yield

Answer 12

The rate of return is the percentage of return earned on an investment over a period, reflecting the performance of the asset.

Question 13

Liquidity

Answer 13

Liquidity refers to how quickly an asset can be converted into cash without significantly affecting its value.

Question 14

High Liquidity

Answer 14

Cash, savings accounts

Question 15

Low liquidity

Answer 15

Low liquidity: Real estate, collectibles

Question 16

Savings Accounts

Answer 16

Savings Accounts: Bank accounts earning interest, low risk, liquid.

Question 17

Term Deposits

Answer 17

Term Deposits: Fixed-term accounts, higher interest, penalties for early withdrawal.

Question 18

GIC (Guaranteed Investment Certificate)

Answer 18

A Canadian investment that guarantees a fixed interest rate over a set period.

Question 19

RRSP (Registered Retirement Savings Plan)

Answer 19

A tax-deferred investment plan in Canada for retirement savings. Contributions reduce taxable income, and taxes are paid upon withdrawal.

Question 20

RESP (Registered Education Savings Plan)

Answer 20

A Canadian account to save for post-secondary education. Contributions are tax-sheltered, and the government may provide grants.

Question 21

Common Forms of Investments

Answer 21

Stocks, Bonds, Real Estate, Mutual Funds

Question 22

Stocks

Answer 22

Stocks: Equity ownership in a company, with potential for dividends and capital gains.

Question 23

Bonds

Answer 23

Bonds: Debt securities issued by corporations or governments. Investors receive periodic interest payments.

Question 24

Real Estate

Answer 24

Real Estate: Investment in property, either for rental income or capital appreciation.

Question 25

Mutual Funds

Answer 25

Mutual Funds: Pools of money from multiple investors to invest in diversified assets.

Question 26

Diversification

Answer 26

Diversification involves spreading investments across different asset classes to reduce risk.

Question 27

Canada Savings Bonds

Answer 27

Government-backed savings instruments in Canada, offering a fixed return, now phased out but previously a safe savings option.

Question 28

Corporate Bonds

Answer 28

Bonds issued by companies to raise capital. These offer fixed interest payments but are riskier than government bonds.

Question 29

Investing in Stocks

Answer 29

Stocks represent ownership in a company. Investors can earn money through dividends (a portion of profits) and capital gains (increase in stock price).

Question 30

Shareholder

Answer 30

A shareholder is an individual or entity that owns shares in a company and has a stake in its profits and decision-making.

Question 31

Bull Market

Answer 31

A bull market refers to a market in which prices of assets (stocks, bonds, etc.) are rising or expected to rise, indicating investor confidence.

Question 32

Bear Market

Answer 32

A bear market is when prices of assets are falling, indicating a downturn or pessimism about economic conditions.

Question 33

Common Stock

Answer 33

Common stock represents ownership in a company and entitles shareholders to vote on company matters and receive dividends.

Question 34

Preferred Stock

Answer 34

Preferred stock gives shareholders a higher claim on assets and dividends, but typically without voting rights. It’s less risky than common stock.

Question 35

TSX (Toronto Stock Exchange):

Answer 35

Canada’s primary stock exchange.

Question 36

NYSE (New York Stock Exchange):

Answer 36

A major US exchange.

Question 37

Nasdaq:

Answer 37

A US exchange known for technology and growth companies.

Question 38

Mutual Funds

Answer 38

Mutual funds pool money from multiple investors to buy a diversified portfolio of assets. Managed by professionals, they allow individual investors to access diversified investments.

Question 39

Collectibles

Answer 39

Collectibles are items that may appreciate in value over time (e.g., art, rare coins, antiques). These are non-traditional investments, often with high risk and illiquidity.

Question 40

Business Investments

Answer 40

Investments made in companies to earn a return, either through stocks, bonds, or private equity. Business investments can be high-risk, especially in startups, but have high reward potential.

Question 41

Insider Trading (Martha Stewart):

Answer 41

The illegal act of using confidential information to make profits in the stock market. Martha Stewart was convicted for this.

Question 42

Forex Scam:

Answer 42

A scam where people are tricked into investing in fake or misleading foreign exchange (currency) schemes.

Question 43

Ponzi Scam:

Answer 43

A type of fraud where returns are paid to earlier investors using the money from newer investors, instead of profit.

Question 44

Famous examples of Ponzi Scam

Answer 44

-Bernie Madoff: Operated the largest Ponzi scheme in history. -Charles Ponzi: The scam was named after him, originating in the 1920s.

Question 45

Rule of 72

Answer 45

To use it, you divide 72 by the annual rate of return (as a percentage) to estimate the number of years it will take for your investment to double.

Question 46

Difference between savings and investing.

Answer 46

-Saving is safer, with lower returns, and focuses on short-term needs. -Investing carries more risk, offers higher potential returns, and is intended for long-term growth.