Unit 3 - Functions and roles of money (A1)

Question 1

what is the functions of money

Answer 1

-Unit of account

-means of exchange

-store of value

-legal tender

Question 2

what is unit of account?

Answer 2

Where a monetary (related to money) value is placed on an item/service. The price of good/service can be seen to determine the quality and purpose of the item.

Question 3

What is means of exchange

Answer 3

Exchanging products/services for money

Question 4

What is store of value?

Answer 4

Money doesn’t lose its value it maintains its value the products increase in value.

Question 5

What is a legal tender?

Answer 5

anything recognized by law as a means to settle a public or private debt or meet a financial obligation, including tax payments, contracts, and legal fines or damages.

Question 6

Common principles of money

Answer 6

-avoid getting into debt
-control cost
-avoid legal action
-remain solvent
-maintain a good credit rating
-avoid bankruptcy

Question 7

What factors affects and influences the role of money?

Answer 7

-personal attitudes towards risk and reward, borrowing and spending, and saving

-Life stages key features of each stage financial needs and implications at each stage

-culture including religion and beliefs

-life events
-external influences/trends

-interest rates

-cost of borrowing vs saving

Question 8

Planning expenditure, common principles to be considered in planning personal finances:

Answer 8

-to avoid getting into debt

• to control costs
• avoid legal action and/or repossession
• remain solvent
• maintain a good credit rating
• avoid bankruptcy
• to manage money to fund purchases

-generate income and savings
-set financial targets and goals

-provide insurance against loss or illness

• counter the effects of inflation.

Question 9

external influences that impact the role of money

Answer 9

-changing intrest rates

-inflation

-government action e.g. Brexit

-Taxation

Question 10

Interest rates

Answer 10

Interest rates dictate how much money you pay back on products such as loans and how much money you are paid for saving money within a bank/building society.

(interest charged on a loan means that the business will pay back than they initially borrowed)

Question 11

What happens when rates of interest increase?

Answer 11

-the cost of borrowing increases

-less disposable income

-bigger overheads

-customers would spend less money

Question 12

What happens when you fall into debt or conduct any fraudulent activities?

Answer 12

Then you may face legal actions, which can range from paying fines, having seized by bailiffs, and serving a prison sentence.

Question 13

Remaining solvent

Answer 13

being solvent refers to being able to pay your day to day outgoings.

e.g. saving a set amount each month inro a savings account

Question 14

How do you remain solvent?

Answer 14

to remain solvent you should set financial goals/targets to plan ahead.

Question 15

good credit rating

Answer 15

your credit rating gives you a score based on your past financial decisions.

This indicates how much of a risk you are to financial institutions such as banks.

Question 16

what is bankrupt?

Answer 16

when you can’t find a way to pay off your debts.

Question 17

Funding purchases

Question 18

Generate income and savings

Answer 18

having a significant amount of savings will generate future income by paying interest from the account provider.

Question 19

Financial targets/Goals

Answer 19

Some financial targets may include;

-save £10,000 over two years
-Be in a job role earning £30,0000 within 3 years
-Purchase your first home within 5 years
-Pay off debts within 2 years

Question 20

Insurance for loss/illness

Answer 20

Savings provide a safety net for individuals/households.

Factors to consider include;

-serious illness
-losing your job
-having an accident
-being the victim of a crime

Question 21

Countering inflation

Answer 21

Inflation is the average price across all countries within a country.

This means that money does not lose its value but your spending power falls due to increased prices across all your purchases.