Financial terms
What is INFLATION?
Increase of prices of goods, usually measured by year and measured in %
EXAMPLE: Inflation is 3%, which means the shoes that cost 100 EUR last year are 103 EUR this year.
What is typically the difference between saving products (savings account, termed deposit) and investment products (mutual funds, ETFs, stocks, ..)?
Banking products are safer - investments can lose value and banking products are insured
Note: there are some very specific exceptions
What is a mortgage and why it usually has lower interest than regular consumer loan?
Loan for a house.
Because you put your house as collateral = if you don't pay, they take and sell the house.
What is liability insurance?
Insurance that works in case you do damage to somebody else.
What is the difference between net and gross wage? Which one is usually on the ads when companies hire people?
The taxes and other payments you pay. On the ads, you will see the gross wage (as the company doesn't know what tax-deductable benefits you have so they cannot say what your net wage will be)
What is a difference between a stock and a bond?
Bond: Loan to a company (or a government), that pays fixed interest.
Stock: A share of a company, the price of the share changes depending on how well the company performs. If company increases profit, price of share usually goes up as well.
You see an offer "borrow 1.000 EUR for 1 month, pay 0 interest." How can the loan company earn on this?
(more correct answers)
1. They expect you to not be able to pay on time and they offer extension with interest and fees.
2. Because they will make you a client and then try to promote more loans and other products to you and wait for you to take the bait.
Name at least 2 things that influence cost of personal insurance (personal insurance = life insurance, disability insurance, accident insurance, ...)
age, job, BMI, health status, hobbies, family history
You calculate the estimate value of everything they own (can be difficult with companies, luxury real estate or luxuries in general, rare collectibles etc.), deduct the loans they have.
Example:
Bank accounts: 50.000 EUR
Stocks and bonds: 50.000 EUR
Real estate: 150.000 EUR
Mortgage: -100.000 EUR
NET WORTH = 150.000 EUR.
What is diversification?
Not putting all money in 1 investment, but putting it in different assets.
Which product has (usually) the highest interest?
car loan
credit card
mortgage
consumer loan
credit card
Which situation creates the biggest financial loss?
1. burglary of a house
2. Death of an income-bringer.
3. Full disablity of an income-bringer.
4. Total crash of a car.
Disability.
In case of death, the expenses of the family drop, and they can sell the properties of the person.
Car and burglary create a one-time cost.
The same item can either be an asset/investment (producing money), or liability (costing money) - name an example and explain.
Examples:
Flat - I can either live in it, or rent it
Car - I can use it to travel for fun, or as Uber driver
Rate the investments depending on expected interest from lowest to highest:
Savings account
Stocks
Termed deposit
Bonds
1. Savings account 1-3%,
2. Termed deposit 2-4%,
3. Bonds 3-5%,
4. Stocks 8-10%
I have a loan of 10.000 EUR with the interest of 6% per year. Monthly payment is 500 EUR. In the first month, how much money out of 500 EUR payment went to pay off the loan?
450 EUR
Interest: 6% of 10.000 EUR = 600 EUR/year = 50 EUR/month. Payment is 500, minus 50 for interest, 450 is paid off.
Name at least 5 types of insurance other then life/disability.
serious illness/accident, incapacity, accident, hospital staying, travel insurance, liability insurance, car insurance, casco
What is compound interest?
Regular interest: you get 5% every year from original amount each year.
Compount interest: First year you get 5%, the next year you get 5% of the 105%.
Name at least 7 forms of investments other than stocks and bonds.
crypto, art, collectibles (paintings, veteran cars), commodities (gold, silver, oil, ...), real estate, ETFs, futures, ...
Three part question. You take a mortgage of 100.000 EUR for 30 years. Your payment is 550 EUR/month.
1. How much do you pay to the bank?
2. Why it can still be worth it?
3. When is it NOT worth it?
1. 550*12*30 = 198.000 EUR
2. The estimated value of the house will be 430.000 (couting 5% price increase), so you "get" the money back you gave to the bank.
3. When the alternative (renting) is much cheaper. If rent is 200 EUR, you can easily invest 350 EUR/month instead and live in rental place, without having the costs (repairs).
Name at least 3 situations, when insurance company will reject to pay you money (or pay significantly less) even though the insured event happened.
1. fraud - you put incorrect information when starting the insurance/claiming the benefit
2. illegal action - for example if you hurt yourself or the car in a car while driving under influence
3. war/terrorist attack
4. active participation in high-risk activity that insurance company forbids in conditions
5. pre-insurance condition (if you had the medical problem/damage of item before insurance started)
6. anything that the insurance company writes in their conditions as "exception" (for example suicide for death insurance in the first years of the contract)