Learning aim A Flashcards

Functions and role of money

1
Q

What is unit of account (functions of money)?

A

It allows us to place monetary value on goods/service. The price of goods/services show the unit of account.

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2
Q

What is means of exchange (functions of money)?

A

It allows us to trade- businesses and customers can buy/sell goods using money

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3
Q

What is store of means (functions of money)?

A

It allows us to use money in the future as it keeps its value- may have money saved which you can use in the future to buy goods/services.

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4
Q

What is legal tender (functions of money)?

A

Legally recognized form of payment- it can be used to pay for a huge variety of things.

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5
Q

What are personal attitudes (role of money)?

A

Risk and reward, saving and borrowing, buy what you can afford or credit.

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6
Q

What are life stages (role of money)?

A

From childhood to old age, your financial needs change.

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7
Q

What is culture (role of money)?

A

Tradition, religion and ethical beliefs e.g. Christians pay tithes.

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8
Q

What are life events (role of money)?

A

University, travelling, getting married, family starting. Or things you can’t control such as illness, financial loss/gain.

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9
Q

What are external influences (role of money)?

A

The economy and Government. Two things you have little control over but can have a big impact e.g. tax, benefits.

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10
Q

What are interest rates (role of money)?

A

When low you may be more willing to borrow as less money to pay back, where as when high you are more likely to save as there would be more money to pay back.

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11
Q

What is debt?

A

When money is borrowed and you have to pay it back with interest added.

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12
Q

What is a credit rating?

A

A score that determines if a person will be able to get credit- based on their current and past amount of credit and how they’ve managed payments.

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13
Q

What does bankrupt mean ?

A

When all assets are sold to pay off debt, any remaining debt will be written off. In extreme cases, a person can be declared as bankrupt if debts have spiraled out of control.

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14
Q

What does solvent mean?

A

When assets are more than liabilities- you aren’t in any debt and can pay bills when they fall due.

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15
Q

Why should we budget and plan spending (11 reasons)?

A
  • to avoid getting into debt
  • to control costs
  • avoid legal action and/or repossession
  • remain solvent
  • maintain a good credit rating
  • avoid bankruptcy
  • set financial goals/targets
  • provide insurance against loss/illness
  • counter the effects of inflation
  • to manage money to fund purchases
  • generate income/savings.
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16
Q

What is cash? 2 advantages and disadvantages?

A

Notes and coins in a wide range of denominations.
-Most widely accepted form of exchange, makes budgeting easier.
-Can be lost/stolen, cannot be used online.

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17
Q

What is a debit card? 2 advantages and disadvantages?

A

Issued by banks with payments for goods and services being deducted directly from a current account.
-No need to carry cash, secure method with low risk of theft
-Short time lapse between making transactions can result in overspending, not accepted/appropriate for small
transactions

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18
Q

What is a credit card? 2 advantages and disadvantages?

A

Issued by financial institutions allowing customers to delay payments for goods and
services.
-Allows a period of credit that is interest free, loyalty schemes are offered.
-Interest charged on balances not paid off within a month, encourages overspending= debt.

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19
Q

What is a cheque? 2 advantages and disadvantages?

A

A written order to a bank to make a payment for a specific amount of money from one person’s account to another account.
-Low risk form of payment as can only be cashed by named payee, widely accepted
-Easy for consumers to make mistake while writing cheque, time delay can cause customer to go overdrawn.

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20
Q

What is electronic transfer? 2 advantages and disadvantages?

A

Payment is transferred directly from one bank account to another. -Almost instantaneous, no additional costs
-Risk of loss if transfer is incorrectly set up, not appropriate for face to face transactions.

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21
Q

What is direct debit? 2 advantages and disadvantages?

A

An agreement made with a bank allowing a third party to withdraw money from an account on a set day to pay for goods or services received.
-Easy way to make regular payments, amount paid can vary to ensure the payment matches the amount required.
-If the payer makes a mistake and takes too much it is the payee’s responsibility to claim back the money, the payer determines the amount paid each time making it difficult for the payee to plan and budget.

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22
Q

What is a standing order? 2 advantages and disadvantages?

A

An agreement made with a bank to transfer a fixed sum of
money to a third party account
on a set date on a regular
basis.
-Easier for payee to plan and budget, easy both to set up and to
cancel
-Payments are taken regardless of customers balance- unplanned overdraft, payments will continue to be made unless cancelled.

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23
Q

What is a pre-paid card? 2 advantages and disadvantages?

A

Money is uploaded onto a card with transactions then being withdrawn to reduce the balance.
-Can set a budget in advance to avoid overspending, if lost or stolen the loss is limited to the remaining balance.
-No protection if lost, sometimes requires an initial fee to
purchase or set up the card.

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24
Q

What is a contactless card? 2 advantages and disadvantages?

A

Cards containing antennae allow money to be transferred when the card touches a contactless terminal.
-Secure, popular
-Often only accepted for smaller amounts, not widely accepted as seen as new tech.

25
Q

What is a charge card? 2 advantages and disadvantages?

A

Issued by financial institutions allowing customers to delay payments for goods and services for a short period of time; the balance must be paid off in full when a statement is issued.
-Reduces risk of debt, avoids the need to carry cash.
-Often annual fee applied, must be paid in full each month.

26
Q

What is a store card? 2 advantages and 2 disadvantages?

A

Issued by a retail outlet so that customers can delay payments for goods and services (similar to a credit card but only accepted by stores specified).
-Allows short period of credit that is interest free, often offer loyalty schemes/discounts.
-Interest is paid on outstanding balances, can encourage overspending.

27
Q

What is mobile banking? 2 advantages and disadvantages?

A

The ability to carry out financial transactions using mobile devices such as phones or tablets.
-Convenient as can be used at any time/place, secure
-Features are still limited, doesn’t offer all functionality of internet banking

28
Q

What is Banker’s Automated Clearing Service (BACS) Faster Payment? 2 advantages and disadvantages?

A

A system that allows the transfer of payments directly from one bank account to another.
-Faster payment- instant transfers guaranteed within 2 hours, no additional costs.
-Limit set on amount that can be transferred in a single transfer, customer may have to default to BACs (if their bank doesn’t have a faster payment) which can take 3 days.

29
Q

What is a current account?

A

An account with a bank of building society that is designed for frequent use. Money can be paid in and withdrawn on a daily basis, without the need to give notice.

30
Q

What is a standard current account? What are a few features?

A

Normal account offered to customers with a reasonable credit rating. Features include a pre-agreed overdraft limit, and a debit card.

31
Q

What is an advantage and disadvantage of a standard current account?

A

Quick access to money for day to day spending, rate of interest is very low.

32
Q

What is a packaged/premium current account? What are a few features?

A

Offers addition features to a standard account. Features include credit card protection, car/house insurance, and cashback.

33
Q

What is an advantage and disadvantage of a packaged/premium current account?

A

Convenience of having extra services and banking all from one provider, additional monthly charge is applied.

34
Q

What is a basic current account? What is feature?

A

Offers only limited features designed for those customers who may find it difficult to open a bank account due to poor credit score. A feature is that it will not offer an overdraft and will not pay interest on positive balances.

35
Q

What is an advantage and disadvantage of a basic current account?

A

Offers an easy first step for individuals to gain access to basic banking facilities limited features e.g. no debit card/overdraft.

36
Q

What is a student current account? What are a few features?

A

Designed specifically to meet the needs of learners. Features include an agreed overdraft, and incentives to join bank e.g. rail-cards.

37
Q

What is an advantage and disadvantage of a student current account?

A

Course fees/loans can be easily handled and bonuses offered. Overdraft can encourage overspending.

38
Q

What is an Individual savings account (ISA), and what is an advantage and disadvantage?

A

Type of saving account where the holder is not charged income
tax on the interest received.
Tax is not charged on interest earned allowing the saver to keep all of the rewards for saving. There is an annual limit can be placed in an ISA.

39
Q

What is a Deposit and savings account, and what is an advantage and disadvantage?

A

Accounts where interest is paid on the balance and normally
the holder needs to give notice before withdrawing funds. Interest is earned on positive balances. Interest earned is taxed.

40
Q

What is a Premium bond, and what is an advantage and disadvantage?

A

A government scheme that allows individuals to save up to a set amount by buying bonds. The bond holder does not receive interest on their savings but each bond is placed into a regular draw for cash prizes. Chance of winning substantially more than could be earned in interest. No guaranteed return on investment.

41
Q

What are shares, and what is an advantage and disadvantage?

A

Shares involve investment in a business in return for equity, i.e. the shareholder becomes a part owner of the business. The shareholder will receive dividends from the company’s profits and will also want the value of the shares to increase. Share prices fluctuate offering a potential high reward, but also a high risk.

41
Q

What is Bonds and gilts, and what is an advantage and disadvantage?

A

These are fixed term securities where the lender (the individual) lends money to companies and governments in return for interest payments- the money is invested for a specified period of time. Regular fixed returns. Risk of losing some or all of the value of the investment if the bond or guilt value falls.

42
Q

What is a Pension, and what is an advantage and disadvantage?

A

These are long-term savings plans where individuals make regular contributions, called premium payments, throughout their working life. This is then repaid as either a lump sum, regular payments or a combination of the two upon retirement. Pensions can be state, company or private. Encourages individuals to save throughout their working life for retirement. Final outcome is difficult to predict.

43
Q

What is insurance and name three types?

A

Insurance is a form of protection, insurance policies cover the cost of damage or illness up to a prearranged level in return for regular payments. Some types include car, travel, health, home and contents, and pets.

44
Q

What does third party insurance cover?

A

It is the most basic form of car insurance and is the legal minimum for drivers. It only covers injuries to other people and damage to their property.

45
Q

What does third party fire and theft insurance cover?

A

Provides third party cover plus cover if car is stolen, damaged or written off by fire, and for damage caused by attempted theft (as long as you aren’t at fault).

46
Q

What does comprehensive car insurance cover?

A

Covers damage to yourself, your car and third parties.

47
Q

What is excess?

A

If you make a claim, insurers will typically require you to pay a certain amount of money towards the cost of repairing the damage when you make a claim. This is called the excess and it’s made up of two parts, compulsory and voluntary.

48
Q

What is an overdraft? Advantage and disadvantage?

A

An overdraft is the facility to overspend on a current account up to an agreed sum. Only pay for the money borrowed, the bank can call it in at any time.

49
Q

What are personal loans? Advantage and disadvantage?

A

A set amount of money provided, to an individual or couple, for a specific purpose, to be repaid with interest, over a set period of time. Fixed interest rates allow individuals to budget, interest must be paid regardless of financial situation.

50
Q

What is hire purchase? Advantage and disadvantage?

A

Spreading the cost of a purchase over a pre agreed period of time. Immediate use of the item, payments have to be made or the item will be repossessed.

51
Q

What is a mortgage? Advantage and disadvantage?

A

A long-term loan to fund the purchase of an expensive item that will hold value for a long time. Makes it possible to buy items such as a house which would not be feasible otherwise, payments may be subject to change e.g. if interest rates change.

52
Q

What is a payday loan? Advantage and disadvantage?

A

A short term loan, for a relatively small amount of money, to be repaid upon receipt of the lenders next wage. Solves short term cash flow problems, high rates of interest and needs to be repaid quickly.

53
Q

What is a credit card? Advantage and disadvantage?

A

It works by giving you access to a pre-approved amount of money that you can spend up to a predetermined limit which is paid back at the end of a set period. The credit card holder can pay above the minimum rate if they wish and hence speed up the rate of repayment and reduce interest incurred, interest rates are often higher than on a personal loan.

54
Q

What is Clearing house automated payment systems (CHAPs)?
2 advantages and 1 disadvantage?

A

A system that allows the transfer
of payments directly from one
bank account to another.
- There is no limit on amount that can be transferred, and can be made in the same day assuming instructions received prior.
- Fixed charge per transaction.

55
Q

Risks of saving?

A

No risk as money saved is guaranteed to be available in the future.

56
Q

Risks of investment?

A

Can go wrong and all/some of money can be lost- no guarantee of return.

57
Q

Rewards of saving?

A

Financial security and peace of mind

58
Q

Rewards of investment?

A

Potential for high financial return and can be thrilling.