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Btec Business > Finance > Flashcards

Finance Flashcards

(55 cards)

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1
Q

Unit of Account

A

Money can be used to place a value on goods and services. You exchange money for an equivalent value in goods and services.

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2
Q

Means of Exchange

A

Money is used to sell, buy, or trade goods and services. Money makes it simple to do this: otherwise you would have to swap products or services in order to trade

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3
Q

Store Value

A

Money has a value. It can be stored, e.g. in a bank, and then used in the future to buy goods and services

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4
Q

Legal Tender

A

Money is the legal means you use to pay for goods and services. Legal tender is the national currency of a country. It is the official method of payment

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5
Q

Role of Money - Personal Attitudes

A

Your attitudes towards risk and reward.
How you balance the way you borrow, spend and save.

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6
Q

Role of money - life stages

A

As you go through each five life stages (childhood, adolescence, young adult, middle age and old age) - your financial priorities and needs will change

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7
Q

Role of Money -Life events

A

Major life events such as moving home or being made redundant can affect your view of the importance of money

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8
Q

Role of Money - culture

A

Your background or culture, including religious beliefs or ethical principles, may shape your view of money

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9
Q

Role of Money - External influences

A

These include events outside your control, such as the state of the economy or the availability of jobs in your area

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10
Q

Role of Money - Interest rates

A

Can have a big impact on whether you decide to save or borrow. Low interest rates are good for borrowers but not for savers, while high interest rates make money expensive to borrow but savers receive more interest on their deposits

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11
Q

Why plan expenditure?

A

Avoid getting into debt
Control cost
Remain solvent
Maintain a good credit rating
Avoid bankruptcy
Generate income and savings
Set financial targets and goals
Counter the effects of inflation

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12
Q

Benefits of Planning Expenditure

A

Good credit rating means you will be able to borrow money to fund a large purchase such as a car or your home
Money not spent on essentials can be saved and earn interest to generate an income
Savings can be used to fund purchases or be available to pay for unexpected expenses

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13
Q

Risks of not planning

A

Getting into debt because you cannot pay bills
Having legal action taken against you for non-payment of loans or losing goods that you are unable to pay for
A poor credit rating, which affects your ability to borrow money

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14
Q

Ways to Pay - CHAPS

A

Electronic payment from one account to another.
Guaranteed same-day transfer as long as bank instructed by certain time.
A fee is charged.

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15
Q

Current Accounts

A

Standard Account
Packaged Premium Account
Student Account
Basic Account

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16
Q

Standard Account

A

Customers must have a fair credit rating.
Features include:
• no banking fees
• cheque book and bank card, often with contactless payments
• facility to set up direct debits/standing orders to pay bills
• salary can be paid directly into the account
• overdraft facilities - interest may be high

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17
Q

Packaged Premium Account

A

Monthly Fees.
• packaged benefits, e.g. travel insurance or discounts on goods and services - customers have to pay for these even though they may not want them.
• interest on credit balances
• cash back on household bills paid by direct debit.
• special rates of interest on overdrafts.
• some benefits may not be required or used.

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18
Q

Student Account

A

Aimed at learners in higher education to heal them manage their finances.
Limited features:
• interest-free overdraft up to a certain limit.
• debit card.
• some accounts offer a free gift card or travel discounts.

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19
Q

Basic Accounts

A

No- frills account aimed at customers with poor credit rating.
No overdraft facilities.
Features include:
• no banking fees
• debit card
• facility to set up direct debits to pay bills

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20
Q

Types of Borrowing

A

Overdraft
Personal Laon
Hire Purchase
Mortgage
Credit Card
Payday Loan

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21
Q

Overdraft

A

ST loan whip can be used to pay bills if you are short of cash. You arrange with the bank to borrow money up to an agreed amount when the balance on your current account reaches 0.
+ usually free to set up.
– interest is high & will be charged a fee to use your overdraft

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22
Q

Personal Loan

A

Used to buy expensive items. Borrow a fixed amount and pay it back in set monthly installments, 1-5 years at a fixed rate of interest.
+ monthly installments allow to plan expenditure.
– arrangement fees, can add to the cost. Failure to make payments can cause you to lose the asset it is secured against.

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23
Q

Hire Purchase

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A

Usually user to buy a car. You can put down a deposit, then may monthly installments over a period of 1-5 years.
+ Allows you to buy an expensive item at an amount you can afford
– While you are paying you cannot sell the car because you don’t own it

24
Q

Mortgage

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A

Loan taken out to buy a property. 25 years. Pay off mortgage in monthly installments.
+ Allows you to buy your home and spread the cost over a long period.
– Increase in interest rates may affect your ability to pay back the mortgage.

25
Credit Card
Use this to buy goods and services in shops, online, by post, and on the phone. End of each month you will receive a statement showing how much you owe. + if you pay the full amount each month, you will pay no interest. – If you pay the minimum amount shown on the statement, you will be charged interest on the outstanding amount. Interest rates are higher than a personal loans
26
Payday Loan
ST loan, usually for small amounts, offer. when people need cash to pay bills between paydays. + can help with cash-flow problems. – very expensive to borrow
27
Individuals Saving Accounts (ISA)
Allows you to save with paying tax on the interest or profits you earn. Limit on the amount you can put into an ISA. Two types of ISA: • Cash ISA - a savings account where interest is paid tax-free. • Stocks and shares ISA - funds are invested in shares or bonds, and profits/returns earned are tax-free. Cash ISAs are less risky. Stocks and Shares ISAs have potential for significant capital gains but could result in financial losses.
28
Deposit and Savings Accounts
Easy access savings account allows you instant access to your savings. Pays a variable amount of interest which is taxable. A fixed deposit account pays a set amount of interest over a set period of time. You are not allowed to make withdrawals during this time
29
Premium Bonds
Do not pay interest. Savers are given the chance to win a tax-free cash prize every month. Savings are secure.
30
Bonds and Gilts
Fixed interest securities issued by companies (corporate bonds)band the government (gilts). Pay investors regular interest over a set period of time, as long as the issuer is able to pay the interest.
31
Shares
Give investors part ownership of a company. Shareholders receive payments, or dividends, per share based on performance and profits of the business. Shareholders can lose their investment if the company underperforms. Liability to company debts is limited to the number of shares you have purchased.
32
Pensions
LT saving schemes designed to help you save for retirement. Employees pay into the state pension through National Insurance contributions. Workplace pensions put a percentage of an employee’s pay into a pension scheme.
33
Insurance
Motor insurance Home and contents insurance Life insurance and assurance Travel insurance Pet insurance Health insurance
34
Motor Insurance
+ Satisfied the legal requirement for car owners to have insurance + Three levels to cover to meet individual requirements (3rd party, 3rd party fire and theft, fully comprehensive) + Provides protection against liability claims from other drivers. – Expensive for new or young drivers. – Policy excesses can add to costs in the event of a claim
35
Home and contents insurance
+ Home insurance covers the cost of rebuilding or repairs as a result of fire, flooding or subsidence + Contents insurance covers loss or damage to personal possessions. + Additional security precautions can reduce premiums – Only covers the cost of rebuilding the property, not the market value
36
Life insurance and assurance
+ Life insurance pays out a sum of money in the event of death + Life assurance is a mixture of life insurance and investment + Pay out may be larger than the total amount of premium paid – Life assurance pay-outs are linked to the performance or investments - Pre-existing medical conditions may not be covered
37
Travel insurance
+ Provides cover for delays, cancellations or curtailment of the trip + Provides cover for loss of personal possessions while on the trip – Pay-outs may not cover the full amount of financial loss – High risk sporting activities usually require an additional premium
38
Pet insurance
+ Veterinary bills can be expensive + Cover provided for personal injury or damage caused by the animal – Some policies will limit the amount of medical expenses covered – Vaccinations are not covered
39
Health Insurance
+ Covers some or all private medical costs with convenient treatment times + You can choose the type of illness and treatment you want to cover – Pre-existing medical conditions are not covered – Medical conditions which arise during the initial period of the policy may not be covered
40
Financial Institutions
Bank of England Banks Building societies Credit unions National Savings and Investments Insurance Companies Pension Companies Pawnbrokers Payday Loan Companies
41
Bank of England
UK’s central bank Responsible for maintains the UK’s monetary and financial stability Sets interest rates - if it increases rates, the cost of borrowing will rise Issues legal tender Independent from government
42
Banks
Owned by their shareholders Offer customers a range of financial services Reliable, secure and private May charge for certain account and services Saving deposits are only secure up to an upper set limit of £85,000
43
Building Societies
Owned by their members Provide financial services Can offer better interest rates and saving than banks Fewer branches leading to poorer access
44
Credit unions
Financial cooperatives owned and run by their members Not for profit organisations Offer members savings accounts, current accounts and loans More limited funds and opportunities than commercial banks and building societies Good cooperative and group feeling
45
National Savings and Investments
Sells saving and investments products Money invested in products used to finance government activities Savings and investments are secure as government backed Poor interest rate, no interest payments on premium bonds
46
Insurance Companies
Offer policies which compensate policyholders against personal injury, loss or damage to property and other risks including third party liability Offers life insurance and pension plans
47
Pension companies
Businesses that sell policies to customers allowing them to save into personal pension schemes in preparation for retirement Funds locked into the savings scheme with penalties if taken out early Projected income is based on figures that may change over time
48
Pawnbrokers
Individuals or businesses that loan money against the value of a person’s assets. Interest is charged on loans for the period during which the money is borrowed. Pawned items not bought back within certain time may be sold by the pawnbroker to recover debt. Instant cash available if assets has value. ST cost is high, risk of losing asset
49
Payday Loans
Businesses that offer short-term loans to people requiring cash between paydays. Immediate cash available even for those with poor credit history Very expensive and easy to get into deeper debt
50
Customer communication
Bank Branch Telephone Banking Online Banking Postal Banking Mobile Banking
51
Bank Branch
Customers visit the bank to carry out transactions either over the counter or transactions either over the counter or using automated self-services machines. Seek advice Branch staff may try to sell additional products. Limited access
52
Telephone Banking
Carry out simple transactions over the phone 24/7 Services are automated Automated systems are very efficient Overseas call centre are not always able to meet the requirements of the customer
53
Online Banking
Allows customers to manage their account on a computer or laptop via the internet. Check their balance, pay bill, transfer money, and seek online advice. Limited Access is 24/7 May forget passwords
54
Postal Banking
• Paper copies of statements to their customers • Pay bills by cheque sent through the postal system • Cheques could be delayed in the post • Some savings accounts offered by financial institutions are only available via postal banking
55
Mobile banking
• Manage accounts through a mobile device • Service is available 24/7 • Very efficient but there are concerns about security

Btec Business (6 decks)

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