PFM - Exam Flashcards
Distinguish between needs and wants
Needs:The things you need to survive (A roof over your head, Enough good food and clean water to maintain your health, basic health care and hygiene products and clothing (just what you need to remain comfortable and appropriately dressed)
Wants: Everything that goes beyond your needs - a big house,designer clothes, fancy food and drinks, a new car - is a want.
Define opportunity cost
Opportunity Cost is the value of the lost alternative to which the economic resources could have been allocated.
What are the role of banks in the economy
Act as ‘intermediaries’ pooling deposits and extending loans
How to calculate simple interest and compound interest
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
- Multiply the amount by the rate of interest
- The principal times (1 + rate / 100)
What are the basic banking products including savings accounts and credit cards?
- financial advice
- offering credit/ debit cards
- Cheques
- Accepting deposits
- Investment and savings accounts
- overdrafts
- ATM’s
- internet banking
What are loan products?
Loan Product means one of the various types of consumer mortgage and home equity loan products offered to customers by Lender from time to time.
What are 3 methods of preparing a personal budget
- The envelope system - divide expenses into categories. Every payday take the cash out from the ATM then put it into the envelopes for the different categories.
- Balanced money formula
take your income 50% on needs 30% on savings and 20% on wants. - The traditional budget - gather paperwork bills and receipts into a budget planner (can be ASIC)
● Distinguishing between weekly, monthly and quarterly expenses
● Notion of having a savings buffer to cope with emergencies
What is wealth and how is it generally measured?
- The value of all of the resources and possessions that a person owns
- The most common way to measure the wealth of an individual is to calculate their net worth. The formula for calculating net worth is assets minus liabilities is net worth.
What is inflation and investing and how are these concepts related?
- Is the gradual rise in prices over time. Inflation erodes the value of money over time
- Investing is purchasing a financial product or other item of value with the expectation that the value of that thing will grow over time and therefore give the owner favourable returns (profit).
- Inflation is most damaging to investing, because it devalues interest rate payments as well repayments of principal.
What are the common investments that people buy to increase their wealth?
The common methods people use to build their wealth;
- Shares
- Property
- Other methods (e.g. bonds, commodities, collectors items, cryptocurrency, non-fungible tokens)
What is the relationship between risk and return (in relation to investing). Explain using examples.
The higher the risk the higher the reward. Higher risk investments include shares, NFT, Crypto.
What is a share?
A share is a unit of ownership in a company. A share owner, or shareholder, becomes a part owner of the business that they own shares in.
What is the share market?
A market in which securities are bought and sold; a stock exchange.
What is property?
Property is any item that a person or a business has legal title over (or ‘owns’), however usually refers to real estate; land, buildings and houses.
What is cryptocurrency?
Cryptocurrencies are a type of digital currency (or token) that allows people to make payments directly to each other via a digital ‘wallet’ online.
What is collector’s items?
These are items that are relatively rare in number such as works of art, sporting memorabilia, antique furniture etc. Some of these investments can rise by large amounts.
What is commodities?
A basic good used in commerce that is nterchangeable with other goods of the same type. Three of the most commonly traded commodities include oil, gold, and base metals.
What are NFTs?
“Non-fungible” means something that is unique and can’t be replaced with something else. 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.
What are the two main ways that people make money from shares and property?
- There are two ways to make money from shares:
- Dividends: As a part owner of a company, the investor is often entitled to a percentage of any
profits the company makes. These are called dividends and may be paid once or twice a year depending on how many shares you own. - Capital gains: when you buy shares for a certain price (e.g. $50 per share) and sell them for a higher price (e.g. $75), this is known as capital gains ($25 in this case). Investors usually buy shares that they believe will
How do you calculate rental yield (gross and net)?
Gross rental yield is the amount of rent your tenant is paying, and net rental yield is the amount you pocket after all of your costs, such as management, maintenance, rates, water and insurance.
