Business Unit 2 - Finance Test Review

Front 1

Various Saving Options

Back 1

- Savings Accounts
- Term Deposits and GICs
- RRSPs
- RESPs

Front 2

Advantages of a Savings Account

Back 2

- Safe vehicle for any amount of savings
- Earn interest while saving
-Have the lowest rate of interest paid on all types of investments

Front 3

Disadvantages of a Savings Account

Back 3

- Many financial institutions require a monthly minimum balance before paying interest
(Minimum amounts might be as high as $5000)
- The rate of interest paid varies amongst institutions

Front 4

Term Deposit

Back 4

A savings plan in which a fixed sum of money is deposited for a specific length of time paying a fixed rate of interest higher than paid on regular savings accounts.

Front 5

Guaranteed Investment Certificates (GICs)

Back 5

A savings plan similar to a term deposit but usually involving a larger sum of money invested for a longer period of time.

Front 6

Advantages of Term Deposits and GICs

Back 6

- Terms range from 30 days to 5 years
- The greater the term the higher the interest
- Term deposits can be redeemed or cashed in early
- Some GICs can be redeemed on the anniversary date of their purchase
- Some financial institutions sell GICs that can be redeemed early

Front 7

Disadvantages of Term Deposits and GICs

Back 7

- The shorter the term the greater the deposit required and the lower the interest rate
- Term deposits offer a lower rate of interest than GICs because they can be redeemed, or cashed in early
- Some financial institutions don't offer term deposits
- Some GICs are locked in

Front 8

Registered Retirement Savings Plans (RRSP)

Back 8

A long-term savings plan that builds up a savings fund for a person's retirement. Tax is deferred on money earned in the plan until it is withdrawn.

Front 9

Advantages of an RRSP

Back 9

- Help save money by allowing a portion of a person's yearly income to be invested without paying income tax on it
- Contributions grow along with interest earned on a tax-free basis until you withdraw the funds after retirement
- Self-employed people and those without company pension plans can make larger RRSP contributions

Front 10

Disadvantages of an RRSP

Back 10

- When you withdraw the money you must pay income tax on it
- The government limits how much money you can contribute to your RRSP each year depending on whether you and your employer contribute to a pension plan

Front 11

Registered Education Savings Plan (RESP)

Back 11

A long-term tax sheltered savings plan to finance a child's post secondary education.

Front 12

Advantages of an RESP

Back 12

- Parents, grandparents, aunts, uncles, or anyone else who wants to help a child save for educational costs can contribute to an RESP
- The income earned from investing in these contributions grows tax-free until the beneficiary is ready to attend college, university, or other approved post secondary institution on a full-time basis
- Little to no tax is paid when funds are withdrawn
- Government contributes a set amount for every dollar saved in an RESP

Front 13

Disadvantages of an RESP

Back 13

- Person making the contributions to an RESP does not get any tax benefit
- Government limits the amount that a person amount that a person can contribute to an RESP each year
- Government sets a maximum limit for the total RESP contribution

Front 14

Comparison Shopping

Back 14

Comparing the price quality and services of one product or store with those of another

Front 15

What to Consider When Comparison Shopping

Back 15

1) Price and quality
2) Features
3) Services (Delivery / Follow-up)

Front 16

3 Reasons Why People Save

Back 16

1) Short and long term goals (new pair jeans VS new car)
2) Emergency Needs (10% of each pay / 3-6 months salary saved)
3) Security and Future needs (Retirement income / unexpected events)

Front 17

What to do if you are spending more than you are making.

Back 17

1) Cut back on spending unnecessary spending
2) Buy cheaper alternatives
3) Create a budget
4) Determine what are needs and wants
5) Earn more money to compensate for the differential

Front 18

How does a bank know if it is you signing a cheque or deposit?

Back 18

Through a signature card.

Front 19

Signature Card

Back 19

A financial institution's official record of a customer's handwritten name, used to verify a customer's identity when engaging in financial transactions.

Front 20

Various Investing Options

Back 20

- Canadian Savings Bonds (CSB)
- Corporate Bonds
- Stocks (Common Stocks, Preferred Stocks, Stock Exchange)
- Mutual Funds
- Real Estate
- Collectibles

Front 21

Canadian Savings Bond

Back 21

A loan from the purchaser to the Government of Canada, in return for a promise that the purchaser will receive the face value of the bond, plus interest, on or before the maturity date.

Front 22

Advantages of a CSB

Back 22

- Government guarantees they will repay the value plus interest
- purchaser will receive the face value of the bond, plus interest, on or before the maturity date
- Very liquid - cashed out anytime (only earn interest after the first three months)
- Can be purchased through payroll deduction
- Can be purchased at all major financial institutions

Front 23

Disadvantages of a CSB

Back 23

If cashed in within the first 3 months you only receive its face value and no interest payments

Front 24

Corporate Bonds

Back 24

When people lend money to a corporation with the definite promise to repay the borrowed money on a future date along with interest.

Front 25

Advantages of a Corporate Bond

Back 25

- Guaranteed by specific Assets of the company issuing the bond
- Bondholders receive a fixed interest payment each year based on the company's reputation and credit rating
- Can be sold to other investors

Front 26

Disadvantages of a Corporate Bond

Back 26

Only way to get the money back before the maturity date is to sell the bond to another investor

Front 27

Stocks

Back 27

A unit of ownership in a corporation.

Front 28

Advantages of Stocks

Back 28

- You become part owner
- Share the rewards of the company
- Shares don't have a maturity date

Front 29

Disadvantages of Stocks

Back 29

- Shared risks
- Stock prices can rise and fall from day to day or hour to hour
- Stock prices are influenced by supply and demand

Front 30

Common Stock

Back 30

- Gives its owner a voice in the operation of the business

Front 31

Advantages of Common Stock

Back 31

- Shareholder gets a voice in the company
- Have the right to attend the company's annual meeting and vote on company matters
- The more shares the more votes
- Share values go up and dividends are given when enough profit is made
- Liquid (can be bought or sold on the open market at any time)

Front 32

Disadvantages of Common Stocks

Back 32

- If the company makes a profit shareholders will share in that profit after bondholders and preferred shareholders have been paid
- Share values goes down and no dividends are given when the company suffers a poor year or the market declines

Front 33

Preferred Stock

Back 33

Stock that has priority over common stocks in the payment of fixed rate dividends and gives holders certain additional privileges.

Front 34

Advantages of Preferred Stocks

Back 34

- Priority over common stockholders
- Payment of fixed rate dividends with a higher yield
- Paid first when the company makes profit
- Prices tend to be more stable
- Liquid (can be bought or sold on the open market at any time)

Front 35

Disadvantages of Preferred Stocks

Back 35

- Less chance of big gains in years of high profit
- Preferred shareholders have no voting rights within the corporation

Front 36

Mutual Funds

Back 36

A pool of money from many investors that is set up and managed by an investment company to buy and sell securities of other corporations

Front 37

Advantages of a Mutual Fund

Back 37

- Professional managers make day-to-day decisions for you
- The investment managers research economic and marketplace conditions around the world
- The risk is spread over a large number of securities

Front 38

Disadvantages of a Mutual Fund

Back 38

- Management fees and additional fees for buying and selling securities are paid to professional investment managers
- Might not be getting the best possible return on your investment

Front 39

Real Estate

Back 39

Land and anything attached to it.

Front 40

Advantages of Real Estate

Back 40

- Ability to see, use, and enjoy the investment
- Ability to buy income property and rent to tenants to make profit

Front 41

Disadvantages of Real Estate

Back 41

- Requires careful planning and selection
- Cost of maintenance, amount mortgage payments, taxes, and insurance are often taken into account

Front 42

Collectible

Back 42

Any Item of personal interest to a collector that can increase in value over time.

Front 43

Advantages of Collectibles

Back 43

- can increase in value over time if popular and hard to find, limited edition, or if demand exceeds supply
- Personal pleasure from the process of buying, storing, arranging, and displaying what's collected
- Interesting and enjoyable hobby with a potential investment

Front 44

Disadvantages of Collectibles

Back 44

- Do not provide dividends or interest
- Will not realize a return until the item is sold
- You need to find someone who wants to buy your collectible at a price satisfactory to you
- Investing in collectibles requires as much serious effort and study as any other investments

Front 45

Investment of $550 at 3.56% for 3 years? (Compound and simple interest)

Back 45

I = PRT
I = (550)(0.0356)(3)
I = 58.74

(550)(0.0356)(1)= 19.58 550 + 19.58= 569.58
(569.58)(0.0356)(1) = 20.28 569.58+20.28= 589.86
(589.86)(0.0356)(1) = 21.00 569.58+21.00=590.58

Front 46

What is the purchasing power of money?

Back 46

- Money's true value is its purchasing power

Front 47

Why is money's true purchasing power not constant?

Back 47

- It changes as prices for goods and services change
- In general prices tend to rise (inflation) so the dollar buys less from one year to the next

Front 48

What is a branch bank?

Back 48

A bank part of a banking system in which there is a head office and interconnected branches or outlets providing financial services in different parts of the country

Front 49

Advantages of Branch Banking to customers

Back 49

- Offers residents of both small and large cities the same services at the same cost
-Branches link small communities to major financial centres

- Each branch is fully supported by the expertise and services of the bank's head office

- Customers can go to any branch of their bank anywhere in Canada and with proper I.D. can make transactions as easily as at their home branch

- A bank can diversify (spread out) its loans among various segments of the economy to reduce the degree of risk resulting poor economic conditions in on area may affect the local branch but this will be balanced better in other areas