PFM Assessment Task 1

Question 1

What is Budgeting used for?

Answer 1

• Used to estimate the expenses and income over a period of time

Question 2

What are the benefits of budgeting?

Answer 2

• Helps to manage money more effectively
• Monitor performance
• Improve decision making
• Identify problems before they occur
• Plan for the future

Question 3

Whats the difference between Needs and wants? Give examples.

Answer 3

Needs – things necessary for survival
Eg. Food, water, shelter, clothing
Wants – not necessary for survival but make our immediate lives better
Eg. New car, big house, designer clothing

Question 4

What is Opportunity Cost?

Answer 4

Opportunity Cost is the value of the lost alternative to which the economic resources could have been allocated.

Question 5

What is the difference between simple and compound interest?

Answer 5

Simple Interest – is the interest that is paid on the principal amount only
Compound Interest – is interest that is paid on the principal and interest as well.
The interest earns interest

Question 6

What do banks/ products offer customers?

Answer 6

• financial advice
• offering credit/ debit cards
• Cheques
• Accepting deposits
• Investment and savings accounts
• overdrafts
• ATM’s
• internet banking

Question 7

How do banks make money?

Answer 7

Accepting money as savings (from customers) at a low interest rate and then lending that money at a higher interest rate

Question 8

What are credit cards and debit cards?

Answer 8

Credit Card – linked to a line of credit offered by the company that issues the card
Debit Card – users can only access funds in their accounts

Question 9

What is inflation?

Answer 9

• Is the gradual rise in prices over time
• Inflation erodes the value of money over time

Question 10

Why should you invest?

Answer 10

Grow your money and wealth in order to improve financial well being

Question 11

What is the formula for calculating networth?

Answer 11

Assets (E.G Owned Property) - Liabilities (E.G Car loan) = Net worth

Question 12

What are shares?

Answer 12

Unit of ownership in a company.

Question 13

How do you make money in terms of shares?

Answer 13

• Dividends : investor is entitled to a percentage of profit the company makes
• Capital Gain : buying shares in the belief that they will increase in value over time

Question 14

What is property?

Answer 14

Land, buildings and houses

Question 15

How do you make money in terms of property?

Answer 15

• Rent received
• Appreciation in the value of land

Question 16

What is Capital Gains Tax?

Answer 16

Capital Gains Tax is the tax that is paid on the gain achieved through an increase in price paid for a property and what it is sold for

Question 17

What is Gross Rental Yield and Net Rental Yield?

Answer 17

Gross Rental Yield – is amount of money you receive from your tenant
Net Rental Yield – is the amount you pocket after all of your costs, such as maintenance costs

Question 18

What are Bonds?

Answer 18

Bonds are like loans that you make to a government or corporation on which you receive interest payments over time.

Question 19

What are commodities?

Answer 19

Basic goods that is used in commerice that is interchangeable. E.G: wheat, oil, gold, silver, copper, dairy.

Question 20

What are Collectors Items?

Answer 20

Examples: art, cards, cars, clothing, jewellery

Question 21

What are NFT’s?

Answer 21

• A Non-fungible token is anything digital (song, video, artwork, gif etc.) that has been recorded and stored on the Ethereum blockchain.
• Ownership of these NFTs can be bought and sold like any commodity and the owners details are recorded.

Question 22

What are NFT’s?

Answer 22

• A Non-fungible token is anything digital (song, video, artwork, gif etc.) that has been recorded and stored on the Ethereum blockchain.
• Ownership of these NFTs can be bought and sold like any commodity and the owners details are recorded.

Question 23

What is Cryptocurrency?

Answer 23

Cryptocurrencies are a type of digital currency (or token) that allows people to make payments directly to each other via a digital ‘wallet’ online.

Question 24

What is Risk v Reward?

Answer 24

The higher the risk the higher the reward. Higher risk investment include shares, NFT, Crypto