Investment

Question 1

what do businesses invest in and why?

Answer 1

businesses invest in machinery, technologies, factories, product initiatives, people (entrepreneurs), firms and their own workforce to improve worker skills and efficiency to increase profit.

Question 2

why do individuals invest?

Answer 2

to achieve a future goal including extra income and security, comfortable retirement, paying major expense(s), funding holidays or education.

Question 3

what do governments invest in and why?

Answer 3

governments invest in infrastructure, healthcare, education, defence forces, justice systems etc to compete against other nations, build a prosperous country and increase the standard of living. it does not directly gain profit.

Question 4

investment

Answer 4

when money is spent in order to gain a profitable return.

Question 5

assets

Answer 5

something of value.

Question 6

blue chip

Answer 6

very safe, secure shares.

Question 7

dividend

Answer 7

part of a company’s profit divided among its shareholders

Question 8

ethical

Answer 8

acceptable to society’s standards.

Question 9

managed fund

Answer 9

a pool of money from investors with similar investment goals, invested by a fund manager.

Question 10

rate of return

Answer 10

profit received on an investment as a percentage of original investment

Question 11

stock market

Answer 11

where share of public companies are bought and sold

Question 12

barter

Answer 12

exchange of goods, services or resources between buyers and sellers.

Question 13

what are the two ways to finance an investment?

Answer 13

through personal savings (small investments) or by borrowing money (large investments)

Question 14

what are the three steps to save for an investment?

Answer 14

1) create financial goals
2) prepare weekly budget
3) record income and spending

Question 15

what are the advantages and disadvantages of using savings for an investment?

Answer 15

advantages:
* do not pay interest
* no repayment

disadvantages:
* time-consuming to save funds
* coexisitng additional expenses

Question 16

what are the advantages and disadvatages of borrowing for an investment?

Answer 16

advantages:
* make large purchases
* quick access to money
* improve credit score

disadvantages:
* risk of repayment and consequences
* risk credit score
* high interest rates

Question 17

what are the two types of loans?

Answer 17

personal loans and home loans.

Question 18

what are the two types of personal loans?

Answer 18

secured and insecured

Question 19

what are secured loans?

Answer 19

where bank or financial instituition use a personal asset (property, car etc) as security for loan. if individual defaults on payments, the asset can be sold as repayment. if borrower cannot provide sufficient asset, a gurantor (family or relative) guarantees to make payments if borrower defaults.
* lower interest rates
* large sum of money

Question 20

what are unsecured loans?

Answer 20

a loan that does not require a collateral and is distributed by banks and financial instituitions based on a borrower’s creditworthiness. consequences for defaulting payment includes collection agency to retrieve debt and court - if in creditor’s favour could result in reduced wages, paying debt, lower credit score and lien on property (seize and sell).
- higher interest rates
- higher risk
- small sum of money

Question 21

what are the types of home loan rates?

Answer 21

fixed and variable rates

Question 22

what are fixed rates?

Answer 22

rates that remain the same for the period of the loan:
- repayment remains same
- penalty fee applys for paying full amount before set date

Question 23

what are variable rates?

Answer 23

rates that fluctuate depending on the current financial market:
- rates vary
- RBA has some control over interest rates as they set cash rates

Question 24

what is an income and expenditure account and how is it set out?

Answer 24

record of income and spending during the previous week:
- starts with previous week’s balance
- income listed and totalled on left-hand column
- expenses listed and totalled on right-hand column
- total income - total expenses = ‘balance able to invest’

Question 25

what are the seven types of investments?

Answer 25

1) investment accounts
2) debentures and unsecured notes
3) superannuation
4) shares
5) property
6) managed funds
7) cryptocurrency

Question 26

what is an investment account?

Answer 26

a broad range of accounts that lets you put money to work and will often pay a profitable return on your money.

Question 27

what is a term deposit? advantages/disadvantages

Answer 27

sum of money deposited to financial instituition for set period to receive a fixed interest rate of return.
- cannot withdraw or add deposits; unaccessible
- safe and reasonable rate of return
- interest paid monthly or when term ‘matures’
- less flexibility
- not benefited by fluctuating market

Question 28

what is a share? advantages/disadvantages

Answer 28

units of ownership in a company:
- easy to buy
- wide variety
- capital gain when share price increases in the long term
- dividends

• *lose money depending on companies situation
• market might crash*

Question 29

where are shares traded in Australia?

Answer 29

sharemarket - ASX (australian securities exchange)
- six capital-city stock exchange
- 1987

Question 30

capital loss

Answer 30

loss incurred when an asset is sold for less than the price it was purchased for.

Question 31

capital gain

Answer 31

increase in an asset’s value compared to the original price it was paid for.

Question 32

positive screening

Answer 32

actively seeking industries that try to make an ethical, positive impact and are deemed desirable

Question 33

negative screening

Answer 33

excluding you don’t support or that go against your ethics.

Question 34

what is another way of saying ethical investment?

Answer 34

green conscious or socially responsible investment.

Question 35

what is ethical investment?

Answer 35

investing only in certain companies or organizations whose products, policies, and practices align with an investor’s own beliefs and values.

Question 36

NYSE

Answer 36

The New York Stock Exchange

Question 37

NASDAQ (American)

Answer 37

Nation Association of Securities Dealers Automated Quotations

Question 38

FTSE 100 Index

Answer 38

Financial Time Stock Exchange (100 highest market capitalization companies listed on the London Stock Exchange)

Question 39

Dow Jones

Answer 39

30 prominent companies listed in United States

Question 40

All ordinaries

Answer 40

Oldest index of shares in Australia and is made of 500 of the largest companies on the ASX.

Question 41

name issues in ethical investment? (10)

Answer 41

• types of products e.g. alcohol, gambling machines, cigarettes
• unsafe working conditions
• child labor
• forbidden trade unions
• excessive greenhouse gas
• deforestation
• experiments in genetic engineering or animal testing
• excess waste
• nuclear industry
• negatively impacted biodiversity

Question 42

who can you pay to trade shares and what is the fee called?

Answer 42

stockbroker, brokerage

Question 43

how do you spread the risk when buying shares?

Answer 43

diversifying your shares spreads the risk.

Question 44

rising share value =

Answer 44

investor’s capital growth

Question 45

how does a shareholder receive a part of a company’s profit?

Answer 45

dividends

Question 46

what is property? advantages and disadvantages

Answer 46

specifically known as real property, includes land, buildings occupying land and rights to use land.

• less volatile compared to shares
• collect rent, increased income
• captial growth (property increasing value overtime)
• tax deductions when renting out
• if you own house, when sold, profits from increase in value is not taxed
• high asset value

-low liquidity
- high cost
- maintenance
- hiking interest rates for mortgaged properties

Question 47

what is a managed fund? disadvantages and advantages

Answer 47

a pool of money from investors with similar investment goals, invested by a fund manager.

• diversifying shares; different companies, industries, countries
• don’t have to personally manage investments
• rely on the skills, knowledge and expertise of a financial professional
• price growth and income (distribuitions)
• cheap and easy to add extra funds periodically
• high fees for fund manager
• certain investments e.g. property are hard to liquify
• declining value of investments
• income must be reported on tax assessment
• foreign investment risks; market volatility and economic/political instability, currency risk

Question 48

what is superannuation? advantages and disadvantages

Answer 48

compolsary savings account where employer allocates a percentage of income (depending on tax brackets) fo retirement.
- paying additional money into account = tax advantages
- steady income for comfortable retirement
- professionally managed
- doesn’t cut from salary/wage
- easy eligibility

-no access until retirement age
- multiple super accounts = multiple fees
- high management fees

Question 49

what is cryptocurrency? advantages/disadvantages

Answer 49

digital-based finances traded within the virtual world
- high-risk investment
- criminal activities, cyber attacks
- high bitcoin value due to limited availability
- cheap, fast money transfers
- no payment processing fee
- becoming more widely used

Question 50

what are debentures and unsecured notes? advantages/disadvantages

Answer 50

long term loan issued by company and paid over a period of time at a fixed rate. debentures are protected by a company’s assets, compulsory interest payments and security guarantees money back even if company defaults. unsecured notes are loans that aren’t insured by the borrower’s assests, higher risk but offers high rate of return.

Question 51

debentures advantages/disadvantages

Answer 51

• fixed income and return
• secured investment
• alternative to shares
• if company is struggling with financial difficulty, it can compromise business growth and earnings
• limited borrowing capacity

Question 52

unsecured notes advantages/disadvantages

Answer 52

• high interest rate = higher return
• you can sell or borrow against note
• higher risk for investor
• must file a lawsuit to collect pay

Question 53

factors affecting consumer decisions (11)

Answer 53

1) amount
2) term
3) cost
4) investment option
5) risk
6) return
7) liquidity
8) diversification
9) investment goals
10) type of portfolio
11) ethical or social responsibility

Question 54

what is the main aim of investing?

Answer 54

maximise rate of return and make the most profit possible

Question 55

what is the rate of return equation?

Answer 55

rate of return = (profit of investment / original investment) * (100 / years of investment)

Question 56

what is an investment portfolio?

Answer 56

collection of individual’s assests
- smart to invest in a variety of investment goals

Question 57

greater ____ greater ________, lower ____ lower ________

Answer 57

risk, return

Question 58

What is the role of the Australian Securities and Investments Comission (ASIC)?

Answer 58

Independent Australian government body that regulates the financial industry, ensures that all institutions are conducting themselves responsibly and fairly (CSR). Makes laws to rpotect consumers, investors and creditors

Question 59

What is the role of the financial services industry?

Answer 59

Provide individuals and businesses with tools, advice and guidance to manage their financial resources. Provide training and support for operational and reporting needs. Provide advice on management of investments that ensures long term finanical gain.

Question 60

How can changes in personal and economic circumstances lead to variations in investment decisions?

Answer 60

If an individual personally suffered financial struggle, they are likely to sell the investment to make profit and ensure stability. This situation also prevents them from making any further investments. On the contrary, if one climbs to a better financial position, they are able to contribute surplus funds to an investment option.

If the overall economy is experiencing a recession (downturn), there is a decline in profits over a majority of investment type, causing a widespread reluctance to invest. However, if the economy is booming, profits begin to crease significantly and investors are more than happy to invest if it means they can receive a higher rate of return.

Question 61

What companies are on the ASX and what are they authorised to do?

Answer 61

public companies.they must make there financial reports available on the internet to the general public.

Question 62

Explain the concept of diversification in relation to investing.

4 mark question

Answer 62

diversifying - spreading your money across different investment types to spread risk
main principle of investment - reduce risk

Diversifying is an investment strategy to lower your investment portfolio’s risk and helps with stable returns. Having a variety of investments with different levels and types of risks will balance out the overall risk of your portfolio. If one business or sector performs badly, not all of your investments will experience a decline in value; some may even experience capital growth. For example, when interest rates fall, bond prices rise while shares tend to perform poorly at this time and visa versa.