Basics of Financial Literacy

Some savings and investment choices have the potential for higher earnings. However, these may also be difficult to convert to cash when you need the funds. This problem refers to:

• Inflation risk

• Income risk

• Personal risk

• Liquidity risk

Opportunity cost refers to:

• money needed for major consumer purchases.

• the trade-off of a decision.

• the amount paid for taxes when a purchase is made.

• current interest rates.

The time value of money refers to:

• personal opportunity costs such as time lost on an activity.

• financial decisions that require borrowing funds from a financial institution.

• changes in interest rates due to changes in the supply and demand for money in our economy.

• increases in an amount of money as a result of interest.

If you have just started working, one of the first things you should do is

• Start investing for retirement

• Set aside money for a dream vacation

• Build up an emergency fund

• Build up a 60:40 investment portfolio

Which of the following economic trends affect personal financial planning?

• Inflation

• Fiscal policy

• Volatility in financial markets

• All of the above

What is the impact of inflation on financial planning?

• It has no impact

• It reduces the purchasing power of money

• Inflation is a major input for deciding monetary policy

• Inflation leads to people changing jobs more frequently

Which of the following is/are correct in terms of ranking from low risk to high risk investment options?

• T-bills, Corporate Bonds, Bank FDs, Equity Mutual Funds, Direct Equity, Cryptocurrencies

• T-bills, Bank FDs, Equity Mutual Funds, Direct Equity, Corporate Bonds, Cryptocurrencies

What is the difference between risk capacity and risk attitude?

• Risk capacity is how much one can lose and risk attitude is the measures one can take to mitigate risk

• Risk capacity is ability to take risk and risk attitude is willingness to take risk

• Risk capacity and risk attitude are the same

• Risk capacity is the riskiness of a bond issuer while risk attitude is the compensation provided by way of interest

If each of the following persons had the same amount of annual income, who would need the greatest amount of life insurance?

• A young widow with two young children

• A young single woman without any children

• An elderly retired man, with a wife who is also retired

• A young married man without children

Imagine that the interest rate on your savings account is 6 percent a year and inflation is 8 percent a year. After one year, would the money in your account have more purchasing power than it does today, exactly the same or less than today?

• More than today

• Exactly the same

• Less than today

• Don't Know