Role of Money, Payment Method, Current Accounts

Question 1

ROLE OF MONEY

Answer 1

1) Units of account
2) Means of exchange
3) Store of value
4) Legal tender

Question 2

ROLE OF MONEY IS AFFECTED BY WHAT FACTORS:

Answer 2

1) Personal attitude towards risk, reward, borrowing, spending and saving
2) Life stages, key features of each stage, financial needs and implications at each stage
3) Culture, including religious and ethical beliefs
4) Life events can vary the personal cycle from individual to individual

Question 3

PLANNING EXPENDITURE WHY:

Answer 3

1) To avoid getting into debt
2) To control costs
3) Avoid legal action and to repossession
4) Remain solvent
5) Generate income and savings
6) Avoid bankruptcy

Question 4

PAYMENT METHODS

Answer 4

1) Cash-notes and coins
2) Debit card- issued by the bank
3) Credit card- short term borrowing method
4) Cheque- checks that are linked to your debit card
5) Direct debit- from debit card (the company is authorised to deduct an amount to pay) (payments vary)
6) Standing order- from debit card (customer is in control) (payments don’t change)
7) Electronic transfer- direct payment
8) Prepaid cards- cash loaded onto a card
9) Store card- issued by retailers
10) Charge card- identical to credit card just pay full balance at the end of the month
11) Mobile banking- online banking through an app
12) CHAPS- electronic payment from one bank account to another (fast payment) (fee is charged) (large amount)
13) BACS- electronic payment from one bank account to another (slower up to 3 days) (free)
Faster payments
-within 2 hours
-free

Question 5

ADS AND DISADS OF PAYMENT METHODS

Answer 5

Cash
Ads
1) Mostly accepted worldwide
2) Makes budgeting easier
3) Physical not virtual
Disads
1) Can be lost or stolen
2) Cannot be used online
3) Only really appropriate on purchases up to a certain amount
Debit card
Ads
1) No need to carry cash
2) Widely accepted
3) Suitable for online transaction
Disads
1) Not accepted or appropriate with small transaction
2) Short time lapse between making the transaction and the money being withdrawn from the account
Credit card
Ads
1) Suitable for online transactions
2) Allows a period of credit that it is interest free
3) Most cards are widely accepted
Disads
1) Interest is charged on balance not paid off within a month
2) Can encourage a customer to overspend and get into debt
3) Interest is charged on cash withdrawal
Cheque
Ads
1) No need to provide change as can be written for an exact amount
2) Widely accepted
3) Low risk form of payment as the cheque can only be cashed by the named payee
Disads
1) Viewed as old fashioned
2) Easy for the consumer to make errors
3) Expensive for the consumer if the bank refuses to clear the cheque
Electronic Transfer
Ads
1) Almost instantaneous
2) Provides a record of payment
3) No additional costs incurred
Disads
1) Risk of loss if the transfer is incorrectly set up
2) Not appropriate for face to face transaction

Question 6

ADS AND DISADS OF PAYMENT METHODS

Answer 6

Direct Debit
Ads
1) An easy way to make regular payments
2) Quick and easy to set up
3) Amount paid can vary to ensure the payment matches the amount required
Disads
1) If the payee makes a mistake and takes too much it is the payee’s responsibility to claim the money back
2) The payer determines the amount paid each time making it difficult for the payee to plan and budget
Standing Order
Ads
1) The same amount is taken each time making it easier to plan and budget
2) Easy both to set up and cancel
3) No need to remember to make regular payments
Disads
1) Payments are taken regardless of the customer’s balance this could lead to overdraft
2) Payments will continue to be made unless cancelled

Question 7

CURRENT ACCOUNTS

Answer 7

1) STANDARD ACCOUNT
- cheque book
- debit card
- no banking fees
- can go overdraft with high interest
2) PACKAGED, PREMIUM ACCOUNT
- additional features
- phone insurance, travel insurance
- special rates of interest on overdraft
- monthly fee
3) STUDENT ACCOUNT
- interest free overdraft up to a certain limit
- debit card
- free gift cards or travel discounts
4) BASIC ACCOUNT
- no overdraft facilities
- for people with poor credit history
- debit card
- no banking fees