LIBF Unit 3 Topics 1, 2, 3, 4, 5, 6, & 7 Exam
Questions With Complete Answers
Assets - ANSWER Things that a person or a business owns. For a person their assets might
include property, jewellery or financial products such as company shares.
Bank rate - ANSWER The interest rate that the Bank of England uses when it lends money to
other banks. Financial services providers take account of the Bank rate when they decide how
to set interest rates on their own products.
Bankruptcy - ANSWER A situation in which a person cannot pay their debts and is the subject
of a court order that shares out their assets between their creditors.
Budget - ANSWER A plan of expected incomings and outgoings over a set time period such
as a month. The Budget is also the term given to the government's annual spending plan,
which the Chancellor sets out in the House of Commons each year.
Cash-flow forecast - ANSWER A plan of expected incomings and outgoings over several time
periods, such as the next three months or a year.
Cash-flow modelling - ANSWER A software program that can predict the medium- and
long-term impact of different decisions and events on an individual's income, expenditure
and savings plans.
,Contingency plan - ANSWER A plan to deal with unexpected changes in income or
expenditure.
Credit card - ANSWER A card that allows the holder to make purchases face to face, online or
over the phone, and to withdraw cash from an ATM. Unlike a debit card, where the money is
taken from the holder's own account, transactions are paid by the card provider. The card
holder repays the amount owed to the provider either in one payment or in instalments. The
provider charges interest on cash withdrawals from the time the withdrawal is made and on
purchases after a certain period.
Credit union - ANSWER A mutual organisation (that is, owned by its members) that provides a
range of financial products to members, eg savings accounts and personal loans.
Deficit - ANSWER Where expenditure exceeds income.
Discretionary expenditure - ANSWER Spending on products and services that people want
now, and savings towards items they aspire to buy in the future; it is spending or saving that
people can choose to do or not.
Disposable income - ANSWER The amount of money left over once mandatory and essential
expenditure has been paid out.
Essential expenditure - ANSWER Spending on items required to live, eg rent or mortgage
repayments, food and drink, water supplier, gas and electricity.
,Financial capability - ANSWER Being able to manage personal finances effectively.
Fixed interest - ANSWER Paying the same rate of interest until the end of the savings,
investment or loan term.
Flexible financial planning - ANSWER Making financial plans to cover wants, needs and
aspirations over the medium to long term, which make allowance for unexpected expenses
and changes in circumstance (eg by including saving and insurance).
Hire purchase - ANSWER A type of secured consumer credit, to finance items such as cars and
furniture, which involves the borrower repaying over a number of years.
Income protection insurance - ANSWER A policy that allows people to manage the risk of loss
of earnings over a long term. It pays out a monthly income to insured people who have
suffered an accidental injury or long-term illness and who are therefore unable to work.
Individual savings account (ISA) - ANSWER An account that pays interest tax-free on savings
up to a certain level. In 2014 the rules were changed, with a higher limit on the amount that
can be saved tax free. Savers can choose to save the entire amount in cash, or in stocks and
shares, or in a mixture of the two.
Inflation - ANSWER A general rise in prices, which means that the purchasing power of money
falls.
, Insolvency - ANSWER A situation in which a person cannot repay what they owe because their
debts are greater than their assets.
Insurance - ANSWER Products that give financial protection against certain events. For
example, someone who has travel insurance might be able to claim back the cost of a holiday
if they have to cancel through illness.
Investments - ANSWER Money paid into financial products; the aim is that the value of the
product will grow over time and so the person will eventually receive back more money than
they paid in. Investments are a way of saving over the medium or long term.
Mandatory expenditure - ANSWER Compulsory outgoings; they do not necessarily apply to
everyone but if they do apply, they must be paid.
Money-purchase pension scheme - ANSWER A pension scheme in which the value of the fund
available at retirement is based on the contributions made by an employee (and their
employer, in workplace schemes), which are invested. Also known as defined-contribution
schemes.
Mortgage - ANSWER A loan taken out to pay for a property, usually over a long term such as
25 years.
Mortgage payment protection insurance - ANSWER An insurance policy intended to cover
Questions With Complete Answers
Assets - ANSWER Things that a person or a business owns. For a person their assets might
include property, jewellery or financial products such as company shares.
Bank rate - ANSWER The interest rate that the Bank of England uses when it lends money to
other banks. Financial services providers take account of the Bank rate when they decide how
to set interest rates on their own products.
Bankruptcy - ANSWER A situation in which a person cannot pay their debts and is the subject
of a court order that shares out their assets between their creditors.
Budget - ANSWER A plan of expected incomings and outgoings over a set time period such
as a month. The Budget is also the term given to the government's annual spending plan,
which the Chancellor sets out in the House of Commons each year.
Cash-flow forecast - ANSWER A plan of expected incomings and outgoings over several time
periods, such as the next three months or a year.
Cash-flow modelling - ANSWER A software program that can predict the medium- and
long-term impact of different decisions and events on an individual's income, expenditure
and savings plans.
,Contingency plan - ANSWER A plan to deal with unexpected changes in income or
expenditure.
Credit card - ANSWER A card that allows the holder to make purchases face to face, online or
over the phone, and to withdraw cash from an ATM. Unlike a debit card, where the money is
taken from the holder's own account, transactions are paid by the card provider. The card
holder repays the amount owed to the provider either in one payment or in instalments. The
provider charges interest on cash withdrawals from the time the withdrawal is made and on
purchases after a certain period.
Credit union - ANSWER A mutual organisation (that is, owned by its members) that provides a
range of financial products to members, eg savings accounts and personal loans.
Deficit - ANSWER Where expenditure exceeds income.
Discretionary expenditure - ANSWER Spending on products and services that people want
now, and savings towards items they aspire to buy in the future; it is spending or saving that
people can choose to do or not.
Disposable income - ANSWER The amount of money left over once mandatory and essential
expenditure has been paid out.
Essential expenditure - ANSWER Spending on items required to live, eg rent or mortgage
repayments, food and drink, water supplier, gas and electricity.
,Financial capability - ANSWER Being able to manage personal finances effectively.
Fixed interest - ANSWER Paying the same rate of interest until the end of the savings,
investment or loan term.
Flexible financial planning - ANSWER Making financial plans to cover wants, needs and
aspirations over the medium to long term, which make allowance for unexpected expenses
and changes in circumstance (eg by including saving and insurance).
Hire purchase - ANSWER A type of secured consumer credit, to finance items such as cars and
furniture, which involves the borrower repaying over a number of years.
Income protection insurance - ANSWER A policy that allows people to manage the risk of loss
of earnings over a long term. It pays out a monthly income to insured people who have
suffered an accidental injury or long-term illness and who are therefore unable to work.
Individual savings account (ISA) - ANSWER An account that pays interest tax-free on savings
up to a certain level. In 2014 the rules were changed, with a higher limit on the amount that
can be saved tax free. Savers can choose to save the entire amount in cash, or in stocks and
shares, or in a mixture of the two.
Inflation - ANSWER A general rise in prices, which means that the purchasing power of money
falls.
, Insolvency - ANSWER A situation in which a person cannot repay what they owe because their
debts are greater than their assets.
Insurance - ANSWER Products that give financial protection against certain events. For
example, someone who has travel insurance might be able to claim back the cost of a holiday
if they have to cancel through illness.
Investments - ANSWER Money paid into financial products; the aim is that the value of the
product will grow over time and so the person will eventually receive back more money than
they paid in. Investments are a way of saving over the medium or long term.
Mandatory expenditure - ANSWER Compulsory outgoings; they do not necessarily apply to
everyone but if they do apply, they must be paid.
Money-purchase pension scheme - ANSWER A pension scheme in which the value of the fund
available at retirement is based on the contributions made by an employee (and their
employer, in workplace schemes), which are invested. Also known as defined-contribution
schemes.
Mortgage - ANSWER A loan taken out to pay for a property, usually over a long term such as
25 years.
Mortgage payment protection insurance - ANSWER An insurance policy intended to cover
