Learning aim B

Question 1

What is a financial institution?

Answer 1

Organisations that offer financial services to businesses/individuals.

Question 2

What is a bank?

Answer 2

An organisation that handles financial transactions and stores money on behalf of it’s customers.

Question 3

What are some serviced that a bank offers? (3)

Answer 3

Holding deposits, making payments when instructed to do say, supplying credit.

Question 4

What are building societies?

Answer 4

Organisations that handle financial transactions and store money on behalf of their members.

Question 5

What two features of a building society?

Answer 5

• Members/account holders are part owners of the building society and have a right to vote and receive information on the running of the society.
• They don’t have shareholders on a stock exchange unlike banks which allows costs to be kept down.

Question 6

What are credit unions?

Answer 6

Not for profit organisations that handle financial transactions and store money on behalf of their members.

Question 7

What are two features of credit unions?

Answer 7

• Members are owners and have a voting right.
• Responsibility/desire to support a community made up of it’s members.

Question 8

What are national savings and investment? What are three examples of saving options?

Answer 8

Government-backed organisations that offers a secure saving option. There are a range of saving options such as an ISA, premium bonds and bongs and guilts

Question 9

What are insurance companies?

Answer 9

Profit making organisations that protect against the risk of loss in return for a premium.

Question 10

What are pension companies?

Answer 10

Businesses that sell policies to individuals, either privately or through employers, to allow them to save now to fun.

Question 11

What is one feature of a pension company?

Answer 11

They normally invest the money paid to them in contributions in order to increase its value. However this is not risk free.

Question 12

What are pawnbrokers?

Answer 12

Businesses or individuals who loan money against the security of a personal asset, for example an item of jewellery or piece of electronic equipment.

Question 13

What is one feature of a pawnbroker?

Answer 13

If the item is not bought back from the pawnbroker within a specified period of time then it will be sold on.

Question 14

What are pay-day loans?

Answer 14

Organisations that offer a short-term source of finance used to bridge the gap between now and next receiving a wage; they are normally only available for relatively small amounts at very high rates.

Question 15

When might a payday loan be suitable?

Answer 15

In an emergency to meet cash shortages.

Question 16

What are two advantages of pension companies?

Answer 16

• Provides a structure to help plan for financial security after retirement
  -Experts are employed to make investment decisions

Question 17

What are two disadvantages of pension companies?

Answer 17

-Poor investment decisions by the pension company
may result in a disappointing return
-Money already invested in a pension cannot be
released prior to the dates agreed in the policy

Question 18

What are two advantages of pawnbrokers?

Answer 18

-A quick way of acquiring cash needed for a short period of time
-Interest is not charged

Question 19

What are two disadvantages of pawnbrokers?

Answer 19

-The amount given for the asset is often lower than its actual worth
-If the money is not repaid within the agreed period, the asset will be sold on

Question 20

What is one advantage of payday loans?

Answer 20

A quick way of acquiring cash needed for a short period of time

Question 21

What are two disadvantages of payday loans?

Answer 21

-Interest charges are likely to be very high
-Often results in paying back a final sum higher than the initial amount
borrowed

Question 22

What are two disadvantages of credit unions?

Answer 22

-Savings are only protected up to the value of £85,000, so if it goes bankrupt savings would be lost
-May lack the business drive of a commercial bank

Question 23

What are two advantages of credit unions?

Answer 23

-Provide a secure place to store money
-Owned by members therefore costs can be kept down allowing for higher interest payments

Question 24

What are two advantages of national savings and investment?

Answer 24

-Government-backed, offering security on 100% of savings with no upper limit
-Offers additional services/methods of savings, e.g. premium bonds

Question 25

What are two disadvantages of national savings and investment?

Answer 25

-Rates are variable -Often required to give notice on withdrawals

Question 26

What are two disadvantages of insurance?

Answer 26

-Premiums are assessed on the estimated degree of risk which may be seen to penalise some members too harshly -Profit-making organisations, therefore premiums will be charged to ensure shareholder needs are met

Question 27

What are two advantages of insurance?

Answer 27

-Protect against unexpected losses or financial expenses -Easy and regular monthly payments make planning easy

Question 28

What are two advantages of Bank of England?

Answer 28

-Sets interest rates at a level designed to help achieve a stable economy -Lends to banks

Question 29

What are two disadvantages of Bank of England?

Answer 29

-Not a bank for members of the general public -Can raise interest rates making borrowing more expensive

Question 30

What are two disadvantages of Banks?

Answer 30

-Savings are only protected up to the value of £85,000, so if it goes bankrupt savings above this would be lost -Profit-making organisations owned by shareholders, therefore costs to individuals may be higher than necessary in order to fulfil shareholder objectives

Question 31

What are two advantages of Banks?

Answer 31

-Offer a range of services and account types -Provides a secure place to store money

Question 32

What are two advantages of building societies?

Answer 32

-Provide a secure place to store money -Owned by members and therefore costs can be kept down allowing for higher interest payment

Question 33

What are two disadvantages of building societies?

Answer 33

-Savings are only protected up to the value of £85,000, so if it goes bankrupt savings above this would be lost -May lack the business drive of a commercial bank

Question 34

What is a branch?

Answer 34

Physical place where customers can go to carry out financial transactions which can be face to fac e.

Question 35

What are two advantages and disadvantages of a branch?

Answer 35

-Additional services: advice - Gives customer high level of confidence - Need to travel there: costs - Restricted to opening hours

Question 36

What is online banking?

Answer 36

The use of the internet to carry out banking transactions.

Question 37

What are two advantages and disadvantages of online banking?

Answer 37

- available 24/7 - high level of privacy - not suitable for cash withdrawals - cyber crime

Question 38

What is telephone banking?

Answer 38

When transactions are carried out over the telephone.

Question 39

What are two advantages and disadvantages of telephone banking?

Answer 39

- no additional charges - convenient - automated systems can be frustrating - higher risk of fraud/identity theft

Question 40

What is mobile banking?

Answer 40

Use of mobile devices to conduct financial transactions.

Question 41

What are two advantages and disadvantages of mobile banking?

Answer 41

- available 24/7 - convenient -higher security risk if device is loss/stolen -hackers

Question 42

What is postal banking?

Answer 42

Use of postal services to carry out paper-based transactions.

Question 43

What are two advantages and disadvantages of postal banking?

Answer 43

- Traditional: customers feel comfortable using it -doesn't require additional tech -can be slow -post can get lost