G7 Term 1 CES module 1.3 key point 1-2 (MCQ)

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Questions and Answers

Which of the following describes a component of rational consumption?

Investing in high-risk stocks without a budget

Prioritizing essential purchases before discretionary spending (correct)

Consuming more than one earns

Borrowing money to buy luxury items immediately

What best describes the concept of 'interest' in borrowing?

The value of goods purchased with borrowed money

The additional cost incurred by the borrower for early access to funds (correct)

The total amount returned to the lender without any deductions

The principal amount borrowed for basic living needs

Which statement accurately reflects the responsibilities involved in borrowing?

Borrowers can disregard payment terms if they experience hardship.

Only the interest must be paid without repaying the borrowed amount.

The borrower must return the principal and pay the lender's interest. (correct)

The borrower is not responsible for repaying the principal amount.

What key factor must be assessed when setting a budget?

The difference between income and savings Signup and view all the answers

Which of the following options best categorizes the concept of 'donation'?

An act of contributing to social causes without expecting anything in return Signup and view all the answers

What component of borrowing refers to the original amount of money borrowed?

Principal Signup and view all the answers

Which of the following best explains the relationship between investment risk and expected return?

Higher risk generally corresponds to higher expected returns. Signup and view all the answers

What is one of the major risks associated with online shopping?

Personal data leaked or stolen Signup and view all the answers

What is a potential consequence of failing to repay debts?

Lower credit scores Signup and view all the answers

In terms of responsible money management, what is crucial for understanding spending habits?

Identifying luxuries from necessities Signup and view all the answers

Which strategy is crucial for ensuring safe online shopping?

Using secure payment methods Signup and view all the answers

Among the general financial services offered by institutions, which is mainly used for risk mitigation?

Insurance Signup and view all the answers

What is an example of a responsibility of consumers when shopping online?

To gain a better understanding of cybersecurity Signup and view all the answers

Which of the following is NOT considered a coping strategy for online shopping risks?

Providing personal data freely Signup and view all the answers

What issue does intellectual property rights specifically address in the context of online shopping?

Counterfeit goods and infringing works Signup and view all the answers

Which statement about the relationship between investment risk and return is true?

Higher expected returns are usually associated with higher risks. Signup and view all the answers

What is a common characteristic of fraudulent investment tactics?

Investments are presented with low risk and high return. Signup and view all the answers

Which strategy is least effective in preventing investment fraud?

Staying aware of personal emotions while investing. Signup and view all the answers

What should individuals be cautious about when they come across an investment opportunity?

Opportunities that require quick decisions without proper research. Signup and view all the answers

What is a fundamental goal of investing?

To generate an increase in wealth. Signup and view all the answers

What is a potential consequence of failing to repay debts acquired through credit cards?

Lower credit scores Signup and view all the answers

Which of the following is NOT a question to consider before borrowing money?

Will it enhance my credit score? Signup and view all the answers

What differentiates savings deposits from time deposits?

Time deposits offer higher interest rates Signup and view all the answers

Which of the following services is categorized under loan services?

Personal loan Signup and view all the answers

Which type of insurance generally covers the risk of unforeseen medical expenses?

Medical insurance Signup and view all the answers

What is the difference between a shareholder and a creditor when investing?

A shareholder invests in company shares, whereas a creditor invests in company bonds. Signup and view all the answers

Which of the following describes compound interest?

Interest calculated on the principal and any previous interest earned. Signup and view all the answers

What does the term 'overspending' signify?

When consumption surpasses basic needs and financial capability. Signup and view all the answers

What is a key characteristic of fraudulent online stores that sets them apart from legitimate retailers?

They sell items at significantly reduced prices without prior establishment. Signup and view all the answers

Which of the following is NOT a recommended strategy for assessing the credibility of an online seller?

Relying solely on customer reviews from their website. Signup and view all the answers

In cybersecurity, which component is least likely to be considered part of its coverage?

Service innovation management Signup and view all the answers

Which of the following best defines 'intellectual property'?

Intangible property rights that give ownership over ideas and inventions. Signup and view all the answers

What is one of the primary methods buyers can use to mitigate risks when shopping online?

Use cash-on-delivery payment methods when applicable. Signup and view all the answers

How should sellers approach verifying payments to avoid falling victim to check fraud schemes?

Verify the available balance before confirming payment. Signup and view all the answers

What distinctive action do perpetrators often take in check fraud schemes?

They impersonate genuine buyers and alter invoice details. Signup and view all the answers

Study Notes

Different Uses of Money

Money can be put to different uses: consumption, savings, investment, and donations.

Setting Priorities and Budgeting for Consumption Items

Distinguish between needs and wants:
- Needs are essential for basic living; life would be difficult without them.
- Wants are not essential for daily living; life without them will not be significantly affected, although one's mood might be affected.
Rational consumption: Buying needs first, and then wants if there is extra money.
Overspending: Buying items even if you don’t have extra money.
A proper budget is set: income - savings = expenditure

Responsibilities, Costs, and Risks of Borrowing

Borrowing involves:
- Principal: The money borrowed from the lender (creditor) by the borrower (debtor).
- Interest: The return received by the lender from the borrower or the cost of borrowing for the borrower.
- Borrowing period: The time frame within which the borrower is obligated to repay the principal and interest.
Cost of borrowing: The interest rate associated with the loan.
Risks of not repaying debt: Lower credit scores, bankruptcy, and stress.

General Financial Services Provided by Financial Institutions

Financial institutions offer various services: deposits, loans, insurance, and investment products for individuals.

Deposit Services

Savings deposits (活期存款) allow withdrawals at any time but have a relatively low interest rate.
Time deposits require holding the money for a predetermined period before withdrawal, typically in exchange for higher interest rates.

Loan Services

Credit card lending: Use the credit card, and pay back later.
Personal loans: Loans for personal use.
Mortgages: Loans for housing.
Overdraft: Loans for temporary use to prevent overdrawing from an account.

Insurance Services

Life insurance: pays a benefit to beneficiaries upon death.
Medical insurance: covers medical expenses.
Accident insurance: provides coverage for accidents and injuries.
Travel insurance: covers unexpected events while travelling.
Home insurance: protects against damage or losses to a home.
Critical illness insurance: provides financial coverage for serious illnesses.

Investment Services

Investment in stocks and bonds: Stocks offer potential for higher returns but also carry higher risks.

Investment Risks and Returns

Risk: The potential that the actual return might differ from the expected return.
Investment risk and return are positively correlated: Higher risk typically comes along with a higher expected return.
Be wary of investment products that claim “low risk, high return”.

Online Shopping and Security

Risks of online shopping:
- Online scams on unreliable websites.
- Personal data leakage or theft.
- Products not matching descriptions.
- Overspending and debt.
Coping strategies:
- Use credible online shopping platforms.
- Employ secure payment methods.
- Protect personal information.
- Be mindful of return arrangements for online purchases.
- Guard against online shopping addiction.
Respect for intellectual property rights: Counterfeit goods and infringing works are issues in online shopping.
Combat online crimes: Online shopping crimes can harm individuals and society.

Key Vocabulary

Investing: Holding company shares makes someone a shareholder, and owning company bonds turns them into a creditor.
Spending: Overspending: When consumption exceeds an individual’s basic needs and affordability.
Loan terms:
- Principal: The amount of money a lender provides.
- Interest: The return received by the lender or the borrower’s cost.
- Interest rate: The interest expressed as a percentage of the principal.
- Borrowing period: The loan duration.
- Accumulated amount: The total of principal and interest combined.
- Compound interest: Interest calculated on both principal and accumulated interest.
Stocks and shares:
- Dividend: The return earned from owning a company's stock.
- Inflation: A persistent rise in the price level over time.
Intellectual property and finance:
- Intellectual property: Intangible property rights.
- Return: An increase in wealth.
- Risk: The possibility or uncertainty of loss.
Cybersecurity: Involves securing network infrastructure, services, operations, and information. Cybersecurity is essential for a safe and healthy information society.

Credit Card

A credit card is a non-cash payment method where the amount borrowed is not paid immediately, but instead becomes a debt with the issuing company.
Risks of being unable to repay debts: Lower credit scores, bankruptcy, and stress.

Questions to ask before borrowing:

Is the reason for borrowing reasonable?
Are there alternative options to borrowing?
Can you handle the risk of being late on payments?
Is the borrowing amount appropriate?

Financial services offered by financial institutions:

Deposit services:
- Savings deposits (活期存款): allowing withdrawals at any time, with relatively low interest rates.
- Time deposits: require holding the funds for a predetermined period, typically with higher interest rates than savings deposits.
Loan services:
- Credit card lending: Using a credit card to borrow and pay back later.
- Personal loans: Loans used for personal purposes.
- Mortgages: Loans for buying housing.
- Overdraft: A temporary loan to prevent overdrawing an account.
Insurance services:
- Life insurance: Covers the financial needs of beneficiaries upon the policyholder’s death.
- Medical insurance: Covers medical expenses.
- Accident insurance: Provides financial protection against accidents and injuries.
- Travel insurance: Protects against unexpected events during travel.
- Home insurance: Offers coverage against damage or losses to a home.
- Critical illness insurance: Provides financial support in case of serious illnesses.
Investment services:
- Stocks: Offer potential for higher returns but also carry higher risks.
- Bonds: Generally considered less risky than stocks.

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Description

This quiz explores the various uses of money, including consumption, savings, investment, and donations. It delves into the importance of setting priorities and budgeting for consumption items, as well as the responsibilities and risks associated with borrowing. Test your knowledge on rational consumption and effective budgeting!