business btec flashcards

what are the functions of money

Unit of account- eg pounds

Means of exchange- that it’s worth something to both parties

Store of value- can turn it into value

Legal tender- legally accepted by government+country

How are the personal attitudes towards risk and reward, borrowing, spending and saving a way in which the role of money is affected and influenced?

Borrowing and spending on a credit card carry greater risk

Saving and spending what you have carries low risk

With greater risk comes greater reward, people perceive this differently

How is the role of money affected by life stages

In childhood money is saved, low risk due to no income reliance on parents

In Adolescence spending will see an increase due to new financial needs (going out) may start working

As a young adult saving will reduce to minimum as money may be needed for new factors such as university

At middle age the level of borrowing will decrease and there will be reducing financial needs this is where the greatest risk of money will occur

During old age less financial risk occurs, there is a reduction in financial dependency

How can culture affect the role of money?

Islamic finance, shariah finance states that money cannot be made from money itself but through legitimate trade in goods and services so interest cannot be charged but money will still be made by banks on land in a different way

How can life events affect the role of money?

Can make people take more risk with money in times like weddings as value is detracted and loans will be used as money is seen as more of a unit of account

Or the opposite risk can decrease during fear of redundancy as people look to save due to fear of the future would look to would avoid loans

How can external influences affect the role of money?

A big external event would be the economy, during growth and boom periods spending, interest rates and levels of borrowing will increase with saving decreasing where as in recessions and slumps the opposite will occur

How can interest rates affect the role of money?

As interest rates rise so would the cost of borrowing and the reward for saving

As interest rates lower so would the cost of borrowing and therefore the reward of saving would as well

Why should someone look to plan expenditure

To avoid debt, control costs, avoid legal action, remain solvent, maintain a good credit rating, avoid bankruptcy, to manage money to fund purchases, to generate income and savings, to set financial targets and goals, to provide insurance against loss or illness and to counter the effects of inflation