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Financial Studies - Year 2 > Unit 3 Topic 1 > Flashcards

Unit 3 Topic 1 Flashcards

Topis covered BUT not in massive detail include: insurance (1.8.5), bank accounts (1.8.1) and pensions (1.8.6). I'd recommend reading those sections fully bc i couldn't be arsed to include them in these flashcards

1
Q

Define ‘Assets’ - what might examples of these include?

A

Things that a person or a business owns.
Property, jewelry or financial products i.e. company shares.

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2
Q

What is the ‘bank rate’?

A

The interest rate that the bank of England uses when it lends money to other banks.

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3
Q

When do FSP’s (Financial Services Providers) take account of the Bank rate?

A

When they decide how to set interest rates on their own products.

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4
Q

What is this referring to?
A situation in which a person cannot pay their debts and is the subject of a court order that shares out their assets between their creditors.

A

Bankruptcy

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5
Q

What is a budget?

A

A plan of expected incomings and outgoings over a set time period such as a month.

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6
Q

What term is given to the government’s annual spending plan, which the Chancellor sets out in the House of Commons each year?

A

Budget

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7
Q

What is a cash-flow forecast?

A

A plan of expected incomings and outgoings over several time periods, such as the next three months or a year.

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8
Q

What is this referring to?
A software program that can predict the medium and long-term impact of different decisions and events on an individual’s income, expenditure and savings plan.

A

Cash-flow modelling

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9
Q

What is a contingency plan?

A

A plan to deal with unexpected changes in income or expenditure.

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10
Q

What kind of card is this referring to?
A card that allows the holder to make purchases face to face, online or over the phone, and to withdraw cash from an ATM. Transactions are paid by the card provider. The card holder repays the amount owed to the provider either in one payment or in instalments. Provider charges interest on cash withdrawals from the time the withdrawal is made and on purchases after a certain period.

A

A credit card

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11
Q

What is a credit union?

A

A mutual organisation that provides a range of financial products to members.

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12
Q

Give two examples of financial products that a credit union may offer its members.

A

Savings account
Personal loans
Mortgages

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13
Q

Define ‘deficit’

A

Where expenditure exceeds income.

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14
Q

What is discretionary expenditure?

A

Spending or saving that people choose to do or not.

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15
Q

What is disposable income?

A

The amount of money left over once mandatory and essential expenditure has been paid out.

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16
Q

What is essential expenditure?

A

Spending on items required to live.

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17
Q

Name 3 examples of possible essential expenditure?

A

Rent
Mortgage repayments
Food and drink
Water supplier
Gas and electricity

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18
Q

Define ‘financial capability’

A

Being able to manage personal finances effectively.

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19
Q

What does it mean to pay a ‘fixed interest’ rate?

A

Paying the same rate of interest until the end of the savings, investment or loan term.

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20
Q

What is flexible financial planning?

A

Making financial plans to cover wants, needs and aspirations over the medium to long term, which make allowance for unexpected expenses and changes in circumstance.

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21
Q

What is this referring to?
A type of secured consumer credit, to finance items such as cars and furniture, which involved the borrower repaying over a number of years.

A

Hire purchase

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22
Q

What is ‘Income Protection Insurance’? How does it work?

A

A policy that allows people to manage the risk of loss of earnings over a long term.

It pays out a monthly income to insured people who have suffered an accidental injury or long-term illness and who are therefore unable to work.

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23
Q

What is an individual savings account (ISA)?

A

An account that pays interest tax-free on savings up to a certain level.

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24
Q

What changes were brought to ISA’s in 2014?

A

A higher limit on the amount that can be saved tax free was imposed.

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25
Q

Define ‘inflation’

A

A general rise in prices, which means that the purchasing power of money falls.

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26
Q

What is ‘insolvency’?

A

A situation in which a person cannot repay what they owe because their debts are greater than their assets.

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27
Q

What is insurance?

A

Products that give financial protection against certain events.

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28
Q

What are investments?

A

Money paid into financial products.

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29
Q

What is the aim of an investment?

A

The aim is that the value of the product will grow over time and so the person will eventually receive back more money than they paid in.

30
Q

True or False?
Investments are a way of saving over the short-term.

A

FALSE
Investments are a way of saving over the medium or long term.

31
Q

What is mandatory expenditure?

A

Compulsory outgoings

32
Q

What is a money-purchase pension scheme?

A

A pension scheme in which the value of the fund available at retirement is based on the contributions made by an employee, which are invested.

33
Q

What is a mortgage?

A

A loan taken out to pay for a property, usually over a long term such as 25 years.

34
Q

What is mortgage payment protection insurance?

A

An insurance policy intended to cover mortgage payments in the event of illness or unemployment.

35
Q

What are national insurance contributions?

A

Money deducted from the pay of people who are employed or self-employed and used by the government to fund state pensions in other benefits.

36
Q

What type of investments are items such as fine wines, art and antiques?

A

Non-financial investments

37
Q

What is a notice account?

A

An account for which the holder has to tell the provider in advance if they want to withdraw their money. If they do not give the provider
the required amount of notice, they lose interest on their savings.

38
Q

What is a recession?

A

A period of at least six months in which the amount of goods and services the country is producing is shrinking.

39
Q

What is the act of repossession?

A

A legal process whereby a financial institution takes ownership of an asset, often a house, because loan repayments relating to that asset have not been met. It is the last resort in the process of recovering money owed.

40
Q

What’s a savings bond?

A

A savings product held for a fixed period, eg two years. The holder can only make a limited number of withdrawals, or none at all, during that period without incurring a penalty.

41
Q

What are ‘shares’?

A

Also known as ‘equities’, investments that represent part-ownership in a company.

42
Q

What is a ‘surplus’?

A

Income that exceeds mandatory and essential expenditure.

43
Q

Explain sustainable personal finance.

A

Achieving and maintaining a balance between personal income and expenditure to satisfy needs, wants and aspirations within a budget.

44
Q

Name 5 characteristics of a flexible financial plan

A
  1. Balanced (between different time periods)
    2.Informed
    3.Flexible
    4.Fluid
  2. Realistic
45
Q

How does a ‘Gilt’ work?

A

investor buys gilt
lends money to UK government in echange for regular interest payments
government returns principle amount when bond matures

When an investor buys a gilt, they are lending money to the UK governmen

46
Q

Are ‘Gilts’ considered low or high risk?

A

Low

47
Q

True or False?
Interest rates on gilts CAN impact the prices of mortgages and financial derivatives, as well as government spending plans.

A

True

48
Q

What caused the financial crisis of 2007/08?

A

Generally attributed to bankers who are accused of encouraging people to take on mortgage loans and other debts that they could not afford to repay.

49
Q

What did the financial crisis of 2007/08 lead to?

A

A worldwide economic recession from which many countries have yet to recover

50
Q

What happened to the total personal debt in the Uk between 1994 and 2002?

A

Doubled - from £400bn to £800bn
It reahced £1,400bn in 2008.

51
Q

What are CCJ’s?

A

County Court Judgements

52
Q

Name AT LEAST 3 non-government organisations who offer help, adivce and debt management couselling services to those in financial difficulties.

A

Citizens Advice
StepChange Debt Charity
The money charity
Payplan
National Debtline Service

53
Q

The governemnt publishes an annual budget - what is it?

A

An estimate/forecast of the income from taxation that it expects to recieve over the coming year and its expenditures.

54
Q

What is the role of customer accountants?

A

They draw up annual budgets which management use to predict whether the company is going to make a profit or a loss.

55
Q

Name 3 factors that may attribute to how people decide to finance their expenditure

A

Their attitude to savings
Their anticipated future income
Borrowing and other financial products

56
Q

What is the first step in drawing up a new financial plan?

A

To make a list of all the goods and services on whcih someone is likely to spend money over a given time frame and how much these purchases will cost.

57
Q

Fill in the gaps within the order of spending priorities.

1.Pay all ____ bills
2.Meet ____ needs
3.Pay all ____ bills
4.Divide any ________ between spending and saving.

A
  1. mandatory
  2. basic
  3. essential
  4. surplus
58
Q

What time frame is cash-flow modelling most commonly used for?

A

short-term

59
Q

Contingency planning involves planning for both positive and negative events. Name as many of each as you can.

A

Positive:
Getting a job
Salary increase/promotion
Winning money in lottery
Increase in the value of an asset

Negative:
Loosing a job
Pay cut
Increase in the rate of income tax
Becoming ill and unable to work
Major car/house repair costs

60
Q

What is this reffering to?
Making large cuts in public spending in order to try to cut government debt by reducing the deficit between government income and expenditure.

A

Austerity measures

61
Q

Financial advisers usually recommend saving a contigency fund that is roughly euqal to:
a. 4 months net salary
b. 6 months net salary
c. 3 months net salary

A

c

62
Q

Why are notice accounts, fixed-term, fixed-interest accounts and savings bonds not suitable for emergency funds?

A

because savers pay a penalty if they withdraw money in an emergency without giving the required notice or before the ‘maturity date’ of the fixed-term savings product.

63
Q

Name AT LEAST 3 main products that allow people to borrow from financial institutions.

A

Overdrafts
Personal loans
Credit cards
Store cards
Hire purchase or retail credit
Mortgages

64
Q

What period of time does general insurance tend to cover?

A

short-term
<12 months

65
Q

What does general insurance protect?

A

Home
Car
Income
Health
Holidays

66
Q

Why is the cost of ASU usually lower than IPI?

A

because of limited payout

67
Q

Name AT LEAST 2 types of pensions

A

State pension
Occupational Pensions
Personal pension plans
Stakeholder pensions
NEST

68
Q

What is NEST? Is it available to self-employed people?

A

low-cost, trust based pension scheme designed to make it easier for all employers to meet their new duties and help more people to save for their retirement.

Yes

69
Q

What does eligibility for full state pension rely on?

A

a person’s NIC record

70
Q

Name the two reasons someone may be offered a reduced state pension rate

A
  1. someone’s been out of the country for a number of years
  2. someone has not been in paid employment because they hav been caring for children or a dependent relative

Financial Studies - Year 2 (8 decks)

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