Specimen Paper A - Unit 2 - Practices of Managing Money (FIS)

A sensible minimum amount for an emergency fund for most families would be three to six months':

Collective funds are typically offered by:

For a young adult, which of the following would typically be classed as a long-term financial plan? Saving for:

An example of unearned income is:

An increase in interest rates could lead to a budget deficit for an individual with which of the following financial products?

If the pound weakens against the euro then:

Increased company profits generally lead to:

Which of the following is a way to pay regular bills that vary in amount?

Which of the following is a correct definition of 'value for money'?

Which of the following taxes is included in the price of many of the goods we buy?

Which of the following transactions is likely to incur a service charge?

An impact of reduced consumer spending is increased levels of:

An example of a good debt is:

Which of the following payment methods makes it harder to stick to a budget?

Which of the following is a legal option that can be used by those with unmanageable debts and an income of less than £50 per month after household expenses?

Case Study 1 Joe and Natalie have been married for two years and live in a small flat. Natalie runs a mobile hairdressing business and is self-employed. Last year she earned an income of £17,000 and incurred business expenses of £2,000. Joe owns a second property, which he inherited from his aunt. He rents this property out through an agency and receives £600 a month rental income from the agency directly into his current account. Joe is a construction worker and earns a salary of £18,000. His contract states that he must work 38 hours a week; if he works more than 38 hours a week he may claim overtime. The workers at Joe’s firm also receive a quarterly bonus when jobs are completed on time. Joe’s last monthly payslip included the following information:  Tax code: 1185L  Basic pay: £1,500  Overtime: £500 Question: Which of the following sources of income will not appear on Joe's payslip?

Case Study 1 Joe and Natalie have been married for two years and live in a small flat. Natalie runs a mobile hairdressing business and is self-employed. Last year she earned an income of £17,000 and incurred business expenses of £2,000. Joe owns a second property, which he inherited from his aunt. He rents this property out through an agency and receives £600 a month rental income from the agency directly into his current account. Joe is a construction worker and earns a salary of £18,000. His contract states that he must work 38 hours a week; if he works more than 38 hours a week he may claim overtime. The workers at Joe’s firm also receive a quarterly bonus when jobs are completed on time. Joe’s last monthly payslip included the following information:  Tax code: 1185L  Basic pay: £1,500  Overtime: £500 Question: Because Natalie is self-employed she will pay tax based on her:

Case Study 1 Joe and Natalie have been married for two years and live in a small flat. Natalie runs a mobile hairdressing business and is self-employed. Last year she earned an income of £17,000 and incurred business expenses of £2,000. Joe owns a second property, which he inherited from his aunt. He rents this property out through an agency and receives £600 a month rental income from the agency directly into his current account. Joe is a construction worker and earns a salary of £18,000. His contract states that he must work 38 hours a week; if he works more than 38 hours a week he may claim overtime. The workers at Joe’s firm also receive a quarterly bonus when jobs are completed on time. Joe’s last monthly payslip included the following information:  Tax code: 1185L  Basic pay: £1,500  Overtime: £500 Question: What form will Joe's employer send to him after the end of each tax year to confirm his annual earnings and deductions?

Case Study 1 Joe and Natalie have been married for two years and live in a small flat. Natalie runs a mobile hairdressing business and is self-employed. Last year she earned an income of £17,000 and incurred business expenses of £2,000. Joe owns a second property, which he inherited from his aunt. He rents this property out through an agency and receives £600 a month rental income from the agency directly into his current account. Joe is a construction worker and earns a salary of £18,000. His contract states that he must work 38 hours a week; if he works more than 38 hours a week he may claim overtime. The workers at Joe’s firm also receive a quarterly bonus when jobs are completed on time. Joe’s last monthly payslip included the following information:  Tax code: 1185L  Basic pay: £1,500  Overtime: £500 Question: According to Joe's payslip, how much tax-free income is he entitled to in the current tax year?

Case Study 2 Karen and Ian have decided to update their kitchen. Their dream kitchen will cost £12,000 to buy. They have £12,300 in a savings account earning interest at a rate of 3.5% per annum. They are thinking about using these savings but are considering other options as they are concerned that this course of action would use up most of their emergency fund. They are worried that, in the event of a further recession, one or both of them might lose their jobs. If they did use their existing savings, they would want to immediately start putting money aside each month to build them back up again. The other options are: - using their joint credit card with a variable interest rate of 18.9%, making the minimum repayments each month and then whatever extra they can afford. - taking up the store credit offer of paying nothing for 12 months and then paying off the kitchen over 4 years at a fixed rate of 9.9%. - taking out a personal loan at a fixed rate of 8.9% for 5 years. Question: Which of the following would be the cheapest way for Karen and Ian to buy their new kitchen?

Case Study 2 Karen and Ian have decided to update their kitchen. Their dream kitchen will cost £12,000 to buy. They have £12,300 in a savings account earning interest at a rate of 3.5% per annum. They are thinking about using these savings but are considering other options as they are concerned that this course of action would use up most of their emergency fund. They are worried that, in the event of a further recession, one or both of them might lose their jobs. If they did use their existing savings, they would want to immediately start putting money aside each month to build them back up again. The other options are: - using their joint credit card with a variable interest rate of 18.9%, making the minimum repayments each month and then whatever extra they can afford. - taking up the store credit offer of paying nothing for 12 months and then paying off the kitchen over 4 years at a fixed rate of 9.9%. - taking out a personal loan at a fixed rate of 8.9% for 5 years. Question: Which of the available options would have the least impact on Karen and Ian's financial budget in the short term?

Case Study 2 Karen and Ian have decided to update their kitchen. Their dream kitchen will cost £12,000 to buy. They have £12,300 in a savings account earning interest at a rate of 3.5% per annum. They are thinking about using these savings but are considering other options as they are concerned that this course of action would use up most of their emergency fund. They are worried that, in the event of a further recession, one or both of them might lose their jobs. If they did use their existing savings, they would want to immediately start putting money aside each month to build them back up again. The other options are: - using their joint credit card with a variable interest rate of 18.9%, making the minimum repayments each month and then whatever extra they can afford. - taking up the store credit offer of paying nothing for 12 months and then paying off the kitchen over 4 years at a fixed rate of 9.9%. - taking out a personal loan at a fixed rate of 8.9% for 5 years. Question: Which of the available options would cause the most damage to Karen and Ian's budget in the event of interest rate rises?

Case Study 2 Karen and Ian have decided to update their kitchen. Their dream kitchen will cost £12,000 to buy. They have £12,300 in a savings account earning interest at a rate of 3.5% per annum. They are thinking about using these savings but are considering other options as they are concerned that this course of action would use up most of their emergency fund. They are worried that, in the event of a further recession, one or both of them might lose their jobs. If they did use their existing savings, they would want to immediately start putting money aside each month to build them back up again. The other options are: - using their joint credit card with a variable interest rate of 18.9%, making the minimum repayments each month and then whatever extra they can afford. - taking up the store credit offer of paying nothing for 12 months and then paying off the kitchen over 4 years at a fixed rate of 9.9%. - taking out a personal loan at a fixed rate of 8.9% for 5 years. Question: Although they are right to be concerned about a future recession, Karen and Ian might be interested to learn that consumer spending tends to:

Case Study 3 Shona has a full-time job earning £25,000 a year. She currently lives with her mum and dad and pays them £200 a month in rent. She has calculated that if she lived in a flat of her own, she would spend £12,000 a year on mortgage payments and other bills, leaving her with plenty of disposable income. Her mum has checked over her figures but is concerned that Shona’s finances would become stretched if interest rates were to rise. Shona has a one-year loan for £1,000 with an annual interest rate of 8%. Shona’s mum has suggested that Shona meet with a financial adviser to talk about what would happen if she became ill and was not able to meet her mortgage payments. Question: How much interest is Shona paying on her personal loan each month?

Case Study 3 Shona has a full-time job earning £25,000 a year. She currently lives with her mum and dad and pays them £200 a month in rent. She has calculated that if she lived in a flat of her own, she would spend £12,000 a year on mortgage payments and other bills, leaving her with plenty of disposable income. Her mum has checked over her figures but is concerned that Shona’s finances would become stretched if interest rates were to rise. Shona has a one-year loan for £1,000 with an annual interest rate of 8%. Shona’s mum has suggested that Shona meet with a financial adviser to talk about what would happen if she became ill and was not able to meet her mortgage payments. Question: Whose legal responsibility is it to check that Shona will be able to continue to afford her monthly mortgage repayments if interest rates rise?

Case Study 3 Shona has a full-time job earning £25,000 a year. She currently lives with her mum and dad and pays them £200 a month in rent. She has calculated that if she lived in a flat of her own, she would spend £12,000 a year on mortgage payments and other bills, leaving her with plenty of disposable income. Her mum has checked over her figures but is concerned that Shona’s finances would become stretched if interest rates were to rise. Shona has a one-year loan for £1,000 with an annual interest rate of 8%. Shona’s mum has suggested that Shona meet with a financial adviser to talk about what would happen if she became ill and was not able to meet her mortgage payments. Question: If interest rates were to rise before she took out the mortgage, what impact would this have on Shona's ability to borrow?

Case Study 3 Shona has a full-time job earning £25,000 a year. She currently lives with her mum and dad and pays them £200 a month in rent. She has calculated that if she lived in a flat of her own, she would spend £12,000 a year on mortgage payments and other bills, leaving her with plenty of disposable income. Her mum has checked over her figures but is concerned that Shona’s finances would become stretched if interest rates were to rise. Shona has a one-year loan for £1,000 with an annual interest rate of 8%. Shona’s mum has suggested that Shona meet with a financial adviser to talk about what would happen if she became ill and was not able to meet her mortgage payments. Question: If Shona started to miss payments on her personal loan, which of the following would be the first legal step taken by her loan provider? To apply for:

Case Study 4 Sue and Deepak have just retired and both receive a full state pension. Deepak also receives a pension from his previous employer. However, due to Sue’s state of health they are mostly housebound. Their daughter has left home and she has a son aged two. Sue and Deepak want to make sure that their grandson is well provided for; they have set aside £100 a month for this financial goal. They have been speaking to a financial adviser from their local building society who, because of Sue’s mobility issues, came to visit them in their own home. He explained that he would only be able to recommend a product from the building society’s own product range, but was sure that he would have a suitable savings account for their grandson. Question: What type of financial adviser do Sue and Deepak have?

Case Study 4 Sue and Deepak have just retired and both receive a full state pension. Deepak also receives a pension from his previous employer. However, due to Sue’s state of health they are mostly housebound. Their daughter has left home and she has a son aged two. Sue and Deepak want to make sure that their grandson is well provided for; they have set aside £100 a month for this financial goal. They have been speaking to a financial adviser from their local building society who, because of Sue’s mobility issues, came to visit them in their own home. He explained that he would only be able to recommend a product from the building society’s own product range, but was sure that he would have a suitable savings account for their grandson. Question: Given their stage in the life cycle, which of the following is likely to be a priority for Sue and Deepak?

Case Study 4 Sue and Deepak have just retired and both receive a full state pension. Deepak also receives a pension from his previous employer. However, due to Sue’s state of health they are mostly housebound. Their daughter has left home and she has a son aged two. Sue and Deepak want to make sure that their grandson is well provided for; they have set aside £100 a month for this financial goal. They have been speaking to a financial adviser from their local building society who, because of Sue’s mobility issues, came to visit them in their own home. He explained that he would only be able to recommend a product from the building society’s own product range, but was sure that he would have a suitable savings account for their grandson. Question: Given their circumstances, what type of banking is least suitable for Sue and Deepak?

Case Study 4 Sue and Deepak have just retired and both receive a full state pension. Deepak also receives a pension from his previous employer. However, due to Sue’s state of health they are mostly housebound. Their daughter has left home and she has a son aged two. Sue and Deepak want to make sure that their grandson is well provided for; they have set aside £100 a month for this financial goal. They have been speaking to a financial adviser from their local building society who, because of Sue’s mobility issues, came to visit them in their own home. He explained that he would only be able to recommend a product from the building society’s own product range, but was sure that he would have a suitable savings account for their grandson. Question: Which of the following would be the most appropriate way to transfer £100 each month into their grandson's savings account?

Case Study 5 Priscilla and John are both self-employed. John struggles to pay his bills even though he typically earns £30,000 per year. He earns enough to meet his financial needs, but his earnings are irregular, which causes a cash-flow problem. Therefore, he sometimes uses the overdraft facility on his current account. Priscilla also earns around £30,000 but her income is more regular. She is in her 50s and is thinking about working less. She is financially secure, her mortgage is paid off, and she has money left over each month. She is thinking about going to see a financial adviser to discuss what her financial priorities should now be. Question: Which of the following personal circumstances makes it harder for John to make financial plans than Priscilla?

Case Study 5 Priscilla and John are both self-employed. John struggles to pay his bills even though he typically earns £30,000 per year. He earns enough to meet his financial needs, but his earnings are irregular, which causes a cash-flow problem. Therefore, he sometimes uses the overdraft facility on his current account. Priscilla also earns around £30,000 but her income is more regular. She is in her 50s and is thinking about working less. She is financially secure, her mortgage is paid off, and she has money left over each month. She is thinking about going to see a financial adviser to discuss what her financial priorities should now be. Question: Given her stage in the life cycle, which of the following is likely to be Priscilla's main priority?

Case Study 5 Priscilla and John are both self-employed. John struggles to pay his bills even though he typically earns £30,000 per year. He earns enough to meet his financial needs, but his earnings are irregular, which causes a cash-flow problem. Therefore, he sometimes uses the overdraft facility on his current account. Priscilla also earns around £30,000 but her income is more regular. She is in her 50s and is thinking about working less. She is financially secure, her mortgage is paid off, and she has money left over each month. She is thinking about going to see a financial adviser to discuss what her financial priorities should now be. Question: Which of the following is a way in which Priscilla could make best use of her monthly financial surplus?

Case Study 5 Priscilla and John are both self-employed. John struggles to pay his bills even though he typically earns £30,000 per year. He earns enough to meet his financial needs, but his earnings are irregular, which causes a cash-flow problem. Therefore, he sometimes uses the overdraft facility on his current account. Priscilla also earns around £30,000 but her income is more regular. She is in her 50s and is thinking about working less. She is financially secure, her mortgage is paid off, and she has money left over each month. She is thinking about going to see a financial adviser to discuss what her financial priorities should now be. Question: Which financial tool could help John by enabling him to predict how much cash will be in his bank account at any given point in time?