unit 1

Question 1

What is Legal Tender?

Answer 1

Bills and Coins (has to be accepted by merchants)(NOT a credit card or cheque)

Question 2

What is Purchasing Power?

Answer 2

The value of a currency expressed in terms of the
amount of goods or services that one unit of money can
buy
NOTE: Purchasing power changes as prices for goods
and services change

Question 3

What is CPI?

Answer 3

A measure that examines the weighted
average of prices of a basket of consumer
goods/services.
- 600 products typically bought by Canadian
households
- Includes food, shelter, transportation,
clothing & recreation

Question 4

What are the different types of income?

Answer 4

-Gross Income (Total received from job/income source)
-Disposable Income (total after taxes, insurance etc.)
-Discretionary Income (How much is left over)

Question 5

How do you manage money efficiently?

Answer 5

-Know how much you have to spend and where to spend it
-Always put aside money for needs, and use the rest for wants

Question 6

How do you spend money wisely?

Answer 6

-Comparison Shopping
-Sales
-Avoiding impulse buying

Question 7

What are the basics of budgeting?

Answer 7

-set personal budget goals
-prepare a personal budget
-calculate fixed expenses (regular payments that stay the same such as mortgage payments and rent)
-calculate variable expenses (clothing, eating out, power bill)

Question 8

What is revenue?

Answer 8

The amount of money an individual receives from work. (ex. sales of goods and services, job)

Question 9

What are expenses?

Answer 9

Money going out in payment of living
expenses (rent, utilities, insurance)

Question 10

What is a CPP?

Answer 10

CPP stands for Canada Pension Plan, which is one of three levels of Canada’s retirement income system, which is responsible for paying retirement or disability benefits.

Question 11

What is EI?

Answer 11

EI stands for Unemployment Insurance. Its a small source of income for workers who have lost their jobs through no fault of their own. (Not eligible if the worker quits their job.)

Question 12

What is Life Insurance?

Answer 12

Individuals pay an insurance company a
monthly fee. A sum of money is paid out by the
Insurance company upon the death of the
individual

Question 13

What is Long Term Disability?

Answer 13

Individuals pay an insurance company a
monthly fee. A sum of money is paid out to the
individual upon an injury that leaves them
unable to work for an extended period of time.

Question 14

What is the Bank Act?

Answer 14

-Sets the rules and regulations banks need to follow
-Set by federal government
-Outlines procedures for opening banks, forming mergers and what banks can and cannot do.
-There are 3 types of banks: Schedule 1, Schedule 2, and Schedule 3 banks
-These are referred to as chartered banks

Question 15

What is the prime rate?

Answer 15

Prime rate: The annual interest rate that Canada’s major banks and financial institutions use to set interest rates for variable loans & lines of credit. Currently 3.5%

Question 16

What are interest rates used for?

Answer 16

-They are used for controlling the money supply by the Bank of Canada
-If they are higher, less loans will be taken out, causing the supply to drop
-If they are lower, more loans will be taken out, causing the supply to increase.

Question 17

What’s a trust company?

Answer 17

-A corporation that takes care of the administration of trusts and estates as a trustee
-Usually owned by large banks but some are privately owned.

Question 18

What do trust companies provide?

Answer 18

Provides:
-basic banking services
-purchase/sale of real estate,
-administer estates of deceased people
-maintain trust accounts for charities and minors
-E.g. Canadian Western Trust

Question 19

What’s a credit union?

Answer 19

Organized and owned by groups of people who agree to pool and share their resources. Must own 1 share to be apart of it. Share a common bond of association:
-Profession
-Cultural/ethnic background
-Geographic region
-Religion

Question 20

What do credit unions do?

Answer 20

-Offerings innovative loan repayment options during economic difficulty
-Each member has one vote when decisions are being made
-Credit unions are accountable to their members
-Can respond in unique ways to the special needs of their members
ex. Teacher’s Credit Union

Question 21

What’s the line of credit?

Answer 21

instant access to credit, one-time approved loan that allows you to borrow up to a prearranged amount
-Pay interest only when money is borrowed
-Very helpful for new businesses

Question 22

What are some functions of a bank?

Answer 22

They encourage savings, and give you access to financial services and exchanging currencies. They make most of their money off interested on loans to customers. Some examples of financial services are:
-Chequing account
-Savings account
-Loans-paying back over a fixed period of time
-Insurance (Home/Car/Life)
-Line of credit
-Credit cards
-Direct deposit and withdrawals
-Overdraft protection
-Safety deposit boxes

Question 23

Why should you save?

Answer 23

• safely putting money aside for future use
  -earns interest
  -protected against lost
  -short and long term goals (ex. a new phone or a car)
  -emergency needs (car breaks down)
  -security and future needs (you loose your job)

Question 24

What is the simple interest formula?

Answer 24

i = prt

Question 25

What is investing?

Answer 25

Investing:
* Using your savings to earn extra income
* Can be lost completely
Advantages
1. Often yield a higher rate of return (a.k.a. interest rate)
2. Can grow at or exceed the rate of inflation (CPI example: loaf of bread, movie etc.)
Disadvantages:
3. The yield (interest rate is not guaranteed)
4. Risk of losing part or all of the money

Question 26

What is the compound interest formula?

Answer 26

i = p(1+r)^t

Question 27

What is liquidity?

Answer 27

The ability to convert an asset or investment into cash quickly and easily

Question 28

What are different forms of investments?

Answer 28

1. Canada Savings Bond (CSB): a loan from you to government of Canada. you earn interest on the maturity date.
2. Corporate Bonds: A promise to repay borrowed money at a future date with interest. Guaranteed by assets of the company
3. Stock: you buy a share, and become a shareholder. You get a share in the risk and reward of the country. Often sold by companies to gain money to expand and grow. Prices change daily/hourly
   Bull market: when demand and price of stocks is high
   Bear market: when demand and price of stocks is low
4. Mutual funds: A pool of money from many investors that is set up and managed by an investment company.
5. Real Estate: Land and anything attached to it.
6. Collectibles: Any item of personal interest that can increase in value over time (ex. Pokémon card)

Question 29

What are the 3 types of investments?

Answer 29

We can classify all of these investments into three different types:
1. Ownership Investments – gives individuals ownership of a company. Literally!
Examples: Stocks, Real Estate
2. Lending Investments – allows you to be the bank.
Examples: Your Savings Account, Bonds
3. Money Market Funds – Low Risk, Low Return, Very liquid

Question 30

What is credit?

Answer 30

The borrowing capacity of an
individual or company to be paid
back at a later date.

Question 31

What are creditors and debtors?

Answer 31

Creditor: any person or business
that grants a loan or sells on credit.

Debtor: any person or business that
buys on credit or receives a loan.

Question 32

What is a bank issued credit card?

Answer 32

Bank Issued Credit Cards Ex. VISA & MasterCard
* Issued to customers whose credit ratings meet certain
standards
* Set credit limit for each individual
* If the balance of the credit card is paid in full every month, then
no interest is charged
* Otherwise customers must pay the minimum monthly payment
* Interest is calculated immediately on any cash advances
* For purchases – interest is charged only after the payment due
date has passed

Advantages:
* Small & large companies can set themselves up to accept credit
card payments
* Great for web-based businesses
* Increase the probability and size of consumer purchases
* Speed of Payment
* Payment is guaranteed
Disadvantages:
* Businesses incur the cost (equipment, transaction fees,
monthly statement charges)
* Charge-back fee for returned items or customer disputes

Question 33

what is a travel/entertainment credit card?

Answer 33

b) Travel & Entertainment Credit Cards
Ex. American Express, Diner’s Club

Advantages:
* Used to purchase hotels stays, airline tickets & car rentals
* Premiums available Ex. Theatre tickets premium seating

Disadvantages:
* Yearly fee
* Full payment of balance owing at the end of each month

Question 34

What is a retailer credit card?

Answer 34

c) Retailer Credit Cards Ex. The Brick, Esso, Shell

Advantages:
* Stores establish retailer credit card systems to avoid the
charges & fees from the universal credit card companies
* Also earn interest on late payments

Disadvantages:
* Paperwork
* Collecting bad debt

Question 35

What are the 5 types of loans?

Answer 35

-Term Loans: a form of installment credit in which the borrower agrees to make fixed monthly payments over a set period of time.

-A Lease: an agreement to rent something for a period of time at a set price. Ex. Car, house,

-Demand Loans: short term loan with flexible terms of repayment.
* Usually given when there is security or collateral to secure the loan
* Collateral – something of value that the lender can take and sell if the loan is not repaid on time.

-Student Loans: guaranteed by federal & provincial gov’ts, interest free
* Payment begins six months after graduation with interest

-Mortgage Loans: a long-term credit plan for buying property

Question 36

What are the three C’s of credit?

Answer 36

1. Character: Borrower’s willingness to repay a loan when it’s due. Examples are: trustworthiness, good reputation, good history of loan repayment.
2. Capacity – borrower’s ability to make payments on time and to pay a debt when its due.

Examples: steady income, amount of income, current living expenses, any other debt

3. Capital – the value of the borrower’s assets.

Examples: Money in savings, asset values, rent or own your residence, collateral

Question 37

What’s a credit bureau?

Answer 37

A business that gathers credit information on all borrowers in a particular region for the purpose of selling that information to credit grantors or lenders.

Question 38

What’s Credit Rating?

Answer 38

A measure of credit worthiness.

Good Credit Rating:
1.Carries no outstanding debt
2. Pays all bills on time
3. Keeps debt at a reasonable level
4. Paid back previous loans

Lower Credit Rating:
1. Pays bills late
2. Had too many credit cards
3. Owes large sums of money
4. Declared bankruptcy
5. Applies for many loans or credit
cards in a short period of time.

Question 39

How do you know when you’re in a credit crisis?

Answer 39

How do you know when you have a
credit crisis?
1. Consistently unable to pay off your
credit cards
2. Using cash advances to pay for
everyday living expenses
3. Not knowing how much debt you
have
4. Seeming to always be in debt

Question 40

How do you get out of debt?

Answer 40

Getting out of Debt
1. Contact creditors immediately &
explain your diffi culties
2. Be honest & realistic and work
with creditors to repay debts
3. Pay a portion of what is owed in
overdue payment
4. Put credit cards away
5. Credit Counsellor