Week4: Savings Flashcards
1
Q
Transactions Motive
A
- Saving for specific spending
Eg: Holidays, retirement, deposit
2
Q
Precautionary Motive
A
- Savings for Emergencies
Eg: Sickness
3
Q
Speculative Motive
A
- Savings to allow good investment opportunities to be taken advantage of
4
Q
Risks of Saving
A
- Information Asymmetry
- Adverse Selection
- Moral Hazard
- Loss of Capital
- Tax Risk
- Inflation Risk
5
Q
Information Asymmetry
A
- One party to a transaction has access to superior information than the other party
6
Q
Adverse Selection
A
- One parry to a transaction has better access to information & disadvantaged party makes poor decision
7
Q
Moral Hazard
A
- One party does not act in good faith
8
Q
Financial Services Compensation Scheme
A
Compensate customers of authorised financial services in the event of their failure
9
Q
AER
A
- Annual equivalent rate is an interest rate that reflects what the interest rate would be if the interest is paid and compounded every year
