Topic Test #1

Question 0

Steps for preparing a budget

Answer 0

1. Define your goals
2. List your regular sources of income
3. List your expenses
4. Set aside an amount of money for emergencies

Question 1

Budgeting Definition

Answer 1

A plan of your regular income and expenses over a period of time.

Question 2

Superannuation

Answer 2

A percentage of your annual income that contributes towards your income during retirement.

Question 3

Managed Funds

Answer 3

An investment fund managed on behalf of you by a financial institution, offers a higher rate of return than a term deposit.

Question 4

Property

Answer 4

Purchasing land or property in the expectation that it will increase in value over time, known as capital appreciation.

Question 5

Shares

Answer 5

Purchasing equities, which is a slice of ownership in a company. In return for your holding in the company, you are paid dividend, and this is based off its performance. The higher the profit of the company, the higher the dividend.

Question 6

Reasons for investing

Answer 6

1. Major purchases such as a car or a house
2. An extra income to supplement your primary income
3. To allow you to be financially secure during old age

Question 7

What is investment

Answer 7

A type of saving, which involves putting money into something in order to make profit.

Question 8

Guarantor

Answer 8

Someone who guarantees to pay back the money if the borrower does not. Before signing you receive a copy of the loan contract, and an explanation of your rights and the liabilities you would incur if the debt is not paid.

Question 9

Character

Answer 9

A person’s reputation for honesty and reliability in paying debts. Credit will only be extended to those who have a reputation for paying their bills promptly and have not defaulted on previous loans.

Question 10

Capacity

Answer 10

A person’s ability to pay back a debt. A borrower may be honest and willing to pay back the debt but may lack the ability to pay for it.

Question 11

Collateral

Answer 11

An asset used as security for the payment of the loan, which is forfeited if the borrower is unable to pay back the credit.

Question 12

Expenditure

Answer 12

Payment of cash or cash-equivalent for goods and services

Question 13

Why do we need to save

Answer 13

Saving is imperative because it allows you to become financially independent, save up for a financially secure retirement, allow you to purchase expensive goods and services such as a house, holiday or car, and can assist you in an unexpected emergency.

Question 14

Reasons for borrowing

Answer 14

Can provide you with an immediate sense of satisfaction because you can purchase an item instantly you otherwise would not have had. This improves your quality of life, can be a more convenient method of receiving cash, and can assist you in unexpected emergencies where you need a quick influx of finances.

Question 15

Reasons against borrowing

Answer 15

Borrowing can provide you with a temptation to impulse buy, and can provide you with a false sense of security about the amount of money you actually have. It can also have additional costs and interest charges which you haven’t accounted for. There is also a higher chance of exhibiting a loss of control, because it complicates your financial situation.

Question 16

Getting a loan

Answer 16

Receiving a loan can be achieved based on our ability to repay, which is measured in the form of a credit rating. This is based upon your present and future income, the value of your assets and any outstanding debts you have.

Question 17

Personal Loan

Answer 17

A contract between a consumer and a financial institution, where the borrower pays the lender a set amount for a fixed period of time. The lender charges interest over the course of the loan, and the borrowed amount plus the interest is repaid in regular instalments.

Question 18

Mortgage

Answer 18

A loan for purchasing land or property.

Question 19

Overdraft

Answer 19

An extension of credit from a lending institution when an account balance reaches zero. It allows the individual to continue withdrawing money even if the account has no funds in it.

Question 20

Credit Cards

Answer 20

Allow you to spend using a continual line of credit up to a pre-set limit. This limit is based on the applicants level of income and ownership of assets. The bank expects a minimum amount of repayment, which is commonly 2-3% of the value of be sales. It pay,nets are not made in full at this time, further interest is incurred.

Question 21

Store Credit

Answer 21

Used exclusively at a specific store to purchase on credit, but often requires membership and has a high interest rate.

Question 22

Payday Loans

Answer 22

A small amount lent at a high interest rate, at the agreement that it will be paid once the borrower receives their next wages.