Unit 2 Finance — Complete Study Guide
Chapter 12 — Income Management
1. Money and bank notes (Q1–2)
Money: Something accepted as payment for goods and services.
Legal tender: Money legally recognized for paying debts.
Canadian bank notes: Canadian paper currency issued by the Bank of Canada.
Canadian coins: Minted by the Royal Canadian Mint.
Counterfeiting: Making fake money.
Bank note security features: Special textures and other security features help prevent counterfeiting and make denominations easier to identify.
Purchasing power is how much money can buy. Inflation means prices generally increase, reducing purchasing power.
Consumer Price Index (CPI): Measures changes in the cost of a group of common products and services, including food, housing, transportation, clothing, and recreation.
2. Types of personal income (Q3–4)
Income is money received from employment, investments, sales, or other sources.
Employment income: Salary, wages, commission, piecework, and profit sharing.
Other income: Interest, dividends, allowances, gifts, inheritance, and part-time jobs.
Employee benefits: Medical insurance, paid holidays, sick days, and drug or dental coverage.
Type | Definition |
|---|---|
Gross income | Total income before deductions |
Disposable income | Income after tax, CPP, and EI deductions |
Discretionary income | Money remaining after paying necessities |
Calculation example
Gross income = $3,000
Deductions = $500
Necessities = $1,800
Disposable = $3,000 − $500 = $2,500
Discretionary = $2,500 − $1,800 = 700
3. Why people buy (Q5)
Your Chapter 12 slides list five factors:
Income and price
Status
Current trends
Customs and habits
Promotion
Your teacher's review asks for six. The sixth is not identified in the uploaded slides, so I won't invent it.
4. Smart purchasing (Q6–7)
Comparison shopping: Comparing prices, quality, features, and services to find the best value.
Clearance sales: Reduced prices to clear old or seasonal inventory.
Promotional sales: Reduced prices to advertise a product or attract customers.
Second-hand shopping: Buying previously owned goods; supports reducing, reusing, and recycling.
Impulse buying: Purchasing something suddenly without carefully considering whether you need it.
When should you buy? When you can afford the purchase, have compared your options, and the product meets your needs. Don't rush simply because something is on sale.
5. Personal budgeting (Q8)
A budget is a plan for spending and saving based on income and expenses.
A budget helps prevent overspending, manage money, and achieve financial goals.
Three steps to create a personal budget:
Calculate expected income.
Calculate fixed and variable expenses.
Calculate the money remaining.
Fixed expenses: Usually remain consistent, such as rent.
Variable expenses: Change from month to month, such as groceries or entertainment.
Financial goals should be realistic and achievable, whether short-term or long-term.
6. Business income and budgets (Q9)
Term | Definition |
|---|---|
Revenue | Total money earned from sales |
Gross income | Revenue minus cost of goods sold |
Net income | Gross income minus other business expenses |
Start-up budget | Plan for costs of opening a business |
Operating budget | Plan for ongoing business expenses |
Four steps of a business budget:
Calculate expected business income.
Calculate fixed and variable expenses.
Calculate the amount remaining.
Review the budget.
Chapter 13 — Banking
1. Financial institutions (Q10–12)
Financial institutions accept deposits, keep money safe, encourage saving, provide loans, and process transactions.
Examples include chartered banks, trust companies, credit unions, and caisses populaires.
Bank Act: Federal legislation establishing rules and regulations that banks must follow.
Chartered bank: A bank authorized by the federal government to operate.
Bank of Canada: Canada's central bank, which helps manage the money supply and support economic stability.
Branch banking: A system with a head office and interconnected branches.
Bank schedule | Definition | Examples from slides |
|---|---|---|
Schedule I | Canadian-owned banks | RBC, TD, BMO, CIBC, Scotiabank |
Schedule II | Foreign-owned bank subsidiaries | ICICI Bank Canada, Bank of China |
Schedule III | Authorized foreign bank branches | Bank of America, Citibank N.A. |
These examples follow your classroom slides, which include some historical classifications.
2. Other financial institutions
Trust companies: Manage and invest money and may provide loans and accounts.
Credit unions / caisses populaires: Financial cooperatives owned by members.
Insurance companies: Collect premiums from many customers to help cover the losses of those who make claims.
CDIC: Canada Deposit Insurance Corporation, which protects eligible deposits within coverage limits.
3. Bank accounts (Q13–14)
Transaction account: Used for everyday payments, deposits, and withdrawals.
Savings account: Used to save money and earn interest.
Combination account: Offers savings and transaction features.
Current account: Business account registered in the business's name.
Joint account: Account owned by two or more people.
Deposits and withdrawals: Money can be deposited or withdrawn at a branch or ABM. Other transactions can occur electronically.
PIN: Personal Identification Number used to securely access an account.
Bank reconciliation: Comparing your transaction records with the bank statement to identify differences and confirm balances.
4. Cheques (Q15)
Term | Meaning |
|---|---|
Drawer | Person writing the cheque |
Drawee | Bank responsible for paying |
Payee | Person receiving payment |
MICR | Machine-readable numbers at the bottom of a cheque |
Six essentials: Date, payee, drawee, drawer, amount, and account number.
A cheque also normally includes the drawer's signature and the amount written in numbers and words.
Cheque clearing: Processing the cheque and transferring money between financial institutions.
Cheque hold: A temporary delay while the bank verifies payment.
Stop payment: Request to prevent a cheque from being processed.
Cheque security: Watermarks, special inks, and fires can help prevent forgery.
5. ABMs and electronic banking (Q17)
ABM: Automated Banking Machine, used for deposits, withdrawals, and other banking transactions.
ATM: Automated Teller Machine. The terms ABM and ATM are often used interchangeably.
Shared ABM network: Allows customers to use machines connected through a shared banking network.
EF
TS: Electronic Funds Transfer System, which electronically moves money between accounts.
Interac Direct Payment: Allows consumers to pay businesses using debit cards.
Telephone banking: Banking by telephone.
Online banking: Accessing financial services through the internet.
Your slides describe shared networks and electronic payment systems but do not give a complete named list of ABM network types.
6. Other banking services (Q16)
Service | What it does |
|---|---|
Loan | Provides borrowed money that must be repaid |
Line of credit | Access to borrowing up to a predetermined limit |
Credit card | Allows purchases using credit |
Direct deposit | Transfers money directly into an account |
Money order | Payment guaranteed by the issuing institution |
Bank draft | Bank-issued payment often used for larger amounts |
Night depository | Allows deposits outside normal banking hours |
Overdraft protection | Covers approved transactions exceeding available funds |
Preauthorized payment | Automatically pays bills from an account |
Safety deposit box | Secure storage for valuables and documents |
Chapter 14 — Savings and Investing
1. Saving and investing (Q18–20)
Saving: Putting money aside for future use.
Investing: Using money to earn additional income or increase wealth.
People save for emergencies, short-term goals, long-term goals, and financial security.
A savings plan ensures money is regularly set aside to achieve financial goals.
Three factors to consider when choosing savings plans:
Earnings/yield: How much return the money produces.
Safety: How protected the money is from loss.
Liquidity: How easily the investment can be converted into cash.
2. Simple interest (Q21)
Simple interest is earned only on the original principal.
\[ I=P\times R\times T \]
P = principal
R = annual interest rate as a decimal
T = time in years
Example: 1,000 at 5% for 3 years.
\[ I=1000(0.05)(3)=\$150 \]
Total = $1,150
3. Compound interest (Q22)
Compound interest is earned on the principal and previously earned interest.
Example: $1,000 at 5% compounded annually.
Year | Starting balance | Interest | Ending balance |
|---|---|---|---|
1 | $1,000.00 | $50.00 | $1,050.00 |
2 | $1,050.00 | $52.50 | $1,102.50 |
3 | $1,102.50 | $55.13 | $1,157.63 |
Key difference: Simple interest stays the same each year. Compound interest generally grows each year.
4. Common savings plans (Q23, 25–27)
Your slides cover four main categories:
Savings plan | Purpose |
|---|---|
Savings account | Safely store money while earning interest |
Term deposit / GIC | Deposit a fixed amount for an agreed period |
RRSP | Save for retirement with tax advantages |
RESP | Save for post-secondary education |
GIC: Guaranteed Investment Certificate. Money is deposited for a specified term with a guaranteed return under its terms.
RRSP: Registered Retirement Savings Plan. Contributions can reduce taxable income, and investment growth is generally tax-deferred until withdrawal.
RESP: Registered Education Savings Plan. Helps families save for education and may qualify for government grants.
5. Common investments (Q24, 28–31)
Your lessons cover five main forms:
Government bonds
Corporate bonds
Stocks
Mutual funds
Real estate and collectibles (presented separately in the slides)
Bond: A loan an investor makes to a government or corporation. The issuer promises repayment under the bond's terms, usually with interest.
Stock: A share of ownership in a company.
Common stock | Preferred stock |
|---|---|
Usually provides voting rights | Usually no voting rights |
Dividends are not fixed | Often has fixed or predetermined dividends |
Greater potential for price growth | Often more stable than common stock |
Greater exposure to changes in company performance | Priority over common shareholders for dividends |
Mutual fund: Money collected from many investors and managed to purchase investments such as stocks and bonds.
Real estate: Land and property purchased for use, rental income, or possible increases in value.
Collectibles: Items that may increase in value due to rarity or demand.
6. Investment vocabulary
Shareholder: Someone who owns company stock.
Dividend: Distribution of company profits to shareholders.
Bull market: Period when stock prices are generally rising.
Bear market: Period when stock prices are generally falling.
Stock exchange: Marketplace where stocks are bought and sold.
Bid price: Highest price a buyer is willing to pay.
Ask price: Lowest price a seller is willing to accept.
Blue-chip stock: Stock of an established company with a history of stability.
Diversification: Spreading money across investments to reduce risk.
Why not put all your eggs in one basket? (Q33) Because investing everything in one company could cause major losses if that company performs poorly. Diversification spreads the risk.
7. Loans versus leases (Q32)
Loan: Borrowed money that must be repaid, usually with interest.
Lease: Agreement to rent an asset for an agreed time and price.
The key difference is that borrowing money to buy an asset can lead to ownership, while leasing generally provides the right to use it without ownership.
Chapter 15 — Credit
1. What is credit? (Q34–36)
Credit: The ability to use borrowed money or obtain goods and services now and pay later.
Creditor: Person or organization providing credit.
Debtor: Person or organization receiving credit and owing repayment.
Advantages of consumer credit: Immediate purchases, convenience, emergency funding, building a credit rating, and monthly statements.
Disadvantages: Interest charges, overspending, impulse purchases, and financial difficulties.
Businesses use credit to finance purchases, manage cash flow, and expand operations. Governments borrow money to fund public services.
2. Types of credit
Bank credit card: Issued by a bank for purchases up to an approved limit.
Retailer credit card: Issued for purchases associated with a retailer.
Travel and entertainment card: Used for expenses such as hotels and travel.
Installment sales credit: Requires a down payment and regular payments, often including finance charges.
3. Types of loans (Q40)
Type | Definition |
|---|---|
Term loan | Repaid through agreed payments over a fixed period |
Demand loan | Lender can request full repayment at any time |
Mortgage loan | Loan secured by property, commonly used to buy real estate |
Student loan | Loan to finance education |
Collateral: An asset pledged as security that a lender may claim if the borrower fails to repay.
Cost of credit depends on the amount borrowed, repayment period, interest rate, economic conditions, collateral, and creditworthiness.
4. Three Cs of credit (Q34)
Character: Will the borrower repay?
Capacity: Can the borrower afford repayment?
Capital: What valuable assets does the borrower have?
5. Credit ratings (Q37)
Credit rating: A measure of a borrower's creditworthiness and lending risk.
Credit bureau: Organization that collects and provides information about borrowers' credit histories.
To build good credit:
Pay bills on time.
Keep debts manageable.
Avoid carrying large credit card balances.
Make loan payments as agreed.
Avoid applying for excessive credit.
Your lesson also discusses getting a job, taking out a small loan, and using a qualified co-signer as ways students may begin establishing creditworthiness.
6. Credit crises (Q38–39)
Signs of a credit crisis include struggling to pay credit cards, using cash advances for everyday expenses, and not knowing how much debt you owe.
Ways to manage a credit crisis:
Contact creditors and explain the problem.
Work out a realistic repayment plan.
Pay overdue amounts when possible.
Stop unnecessary credit card spending.
Seek credit counselling.
Consolidation loan: Combines several debts into one loan, often to simplify repayment and potentially reduce interest costs.