Functions and Role of Money

Flashcards covering key concepts and definitions related to the functions and role of money.

Functions of Money

Includes unit of account, means of exchange, store of value, and legal tender.

Unit of Account

Used to place a value on goods and services, helping to compare their value.

Means of Exchange

Facilitates buying and selling of goods and services, replacing bartering.

Store of Value

Preserves value over time; allows saving and spending later.

Legal Tender

Form of payment that is legally recognized for debts, goods, and services.

Risk-averse

An individual who avoids risk and prefers saving to secure financial safety.

Risk Taker

An individual who is willing to assume risks for potentially greater rewards.

Life Stages

Different phases in life affecting financial priorities, e.g., childhood, adolescence, young adulthood, middle age, and older age.

Interest Rates

The cost of borrowing money; low rates encourage borrowing, high rates promote saving.

Cash

Physical notes and coins used as a medium of exchange.

Debit Card

Linked to a bank account, used for purchases; funds are directly withdrawn.

Credit Card

Used for borrowed money to make purchases that must be repaid later.

Cheque

A written order directing a bank to pay money to a recipient.

Electronic Transfer

Instantly sends money from one account to another through digital systems.

Direct Debit

An automatic payment arrangement where money is taken from a bank account at regular intervals.

Standing Order

An automated payment of a fixed amount regularly to a third party.

Pre-paid Cards

Cards preloaded with money for spending, limiting the amount spent.

Contactless Card

Allows payment by tapping the card without a PIN for small amounts.

Mortgage

A loan specifically for purchasing property, with the property as collateral.

Pension

A savings plan providing income after retirement.

Investment

Allocating resources, usually money, for profit.

Insurance

A financial service providing protection against financial loss.

National Savings and Investment

A government institution offering saving and investment options.

Bank of England

The UK central bank that regulates monetary policy and financial stability.

Financial Conduct Authority (FCA)

Regulates financial markets and protects consumer interests.

Individual Voluntary Arrangement (IVA)

A formal agreement to pay back a portion of debts over time.

Bankruptcy

A legal process for individuals unable to pay outstanding debts.

Break-even Analysis

Determining the sales quantity at which revenues equal costs.

Cashflow Statement

A financial document detailing cash inflows and outflows over a period.

Depreciation

The reduction in value of an asset over time due to wear and tear.

Net Assets

Total assets minus total liabilities, indicating the financial health of a business.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations.

Liquidity Ratios

Metrics used to determine an organization’s ability to pay off its short-term debts.

Mark Up

The amount added to the cost of a product to determine its selling price.

Return on Capital Employed (ROCE)

Measures a company's profitability and the efficiency with which its capital is employed.

Consumer Credit Legislation

Laws protecting consumers when borrowing money or purchasing on credit.

Debt Counsellors

Professionals who provide advice to individuals struggling with debt.