Managing your money

Correct answer: A. Annual theatre subscription. Annual theatre subscription. In order to plan your monthly budget accurately, you need to take into account all the recurring monthly expenses. For any one-off - or non-monthly - expense, you need to calculate the monthly sum (if the theatre subscription lasts one year, you need to divide the total amount by the twelve months of the year, that is, consider one twelfth of the total amount).

Correct answer: C. Can be used for online purchases. Online purchases can only be made with payment cards.

Correct answer: A. Within 8 days if it is a local cheque. A cheque can be cleared within 8 days if the drawer and the payee have accounts in banks situated within the area covered by the same clearing house (local cheque), whereas an out-of-town cheque can be cleared within 15 days (outstation cheque). The cheque can also be cleared after these two periods of time, but in that case if the drawer's bank account lacks sufficient funds, the payee cannot recoup their loss.

Correct answer: D. Is guaranteed to be covered. The cashier's cheque is a safer payment method for the payee than the regular personal cheque, which may turn out to be 'unsecured' at the time of clearance (in the event of a lack of funds in the bank account from which it is 'drawn'). It is, in fact, a credit instrument for an amount that is already available in the bank when the cheque is issued. The cashier's cheque is guaranteed to be covered, because the bank blocks the sum.

Correct answer: A. You can only use a debit card when the sum you are spending is already available in your account. The debit card is a payment instrument issued by the bank where you have your current account. Any money spent or withdrawn is instantly charged to your bank account. This means that you can only use a debit card if the amount of money available in your account equals or exceeds the amount you are about to spend. The credit card allows you to purchase goods and services without having the necessary amount of money available in your account; that is because the amount you spend will be charged to your bank account at a later date.

Correct answer: C. Annual Percentage Rate. The Annual Percentage Rate (APR) is used for both bank accounts and loans. If you open a bank account, the APR is stated in the information leaflet that every bank must provide to prospective clients before they open a bank account. It gives a useful overview of the costs of the different accounts offered by the bank. It can be very different from the actual cost incurred at the end of the year, depending on the client's actual use of the account-related services. If you apply for a loan, the APR is expressed as a percentage of the loan and is stated on annual basis. It includes all the costs, so it is very useful for understanding which loan is most suited to your needs and what you can afford.

Correct answer: C. Over €110. Let's do the maths. You have deposited €100 (capital) which over one year accrue interest at the rate of 2%. After one year the sum amounts €102: €100 of initial capital plus €2 in (simple) interest. From the second year the €2 interest are added to the capital. Barring any other changes, by the end of the second year the sum deposited will have yielded €2.04 in interest: the 4 cents are the interest accrued on the €2 of interest that were added to the starting capital at the end of the first year. The same happens in the subsequent years and at the end of the fifth year the sum available in the account amounts to €110.41 euros (compound interest).

Correct answer: B. No, I will be able to buy a smaller amount. The interest rate cannot compensate for the decreased purchasing power brought about by inflation. Inflation is a price increase that is generalized, and not limited to some items. Due to inflation, a unit of currency (e.g. €1) allows you to purchase a smaller amount of goods and services; the actual (real) value of the unit of currency is lower than it used to be. In other words, the higher the inflation, the lower the purchasing power of money.

Correct answer: D. Compare the APR. The APR (Annual Percentage Rate) is the main instrument to ensure transparency in consumer credit contracts. It is an index harmonised at EU level and it allows for fast and easy comparison of all types of loans, including those offered by foreign financial institutions on the Italian market. The APR is expressed as an annual percentage of the sum borrowed; it includes all the costs and is therefore especially useful in understanding which type of loan is best suited to our requirements and means.

Correct answer: A. The shorter the mortgage duration, the higher the instalments and the lower the interest paid. An instalment is composed of capital plus interest. The total amount borrowed and the interest rate being equal, the shorter the mortgage duration, the higher the instalments, but the lower the amount of interest to be repaid. Let's take as an example a mortgage for €150,000 at a fixed rate of 2%. If the mortgage term is 20 years, the monthly instalment is €758.83 euros and the interest to be repaid amounts to a total of approximately €32,000. If the mortgage term is 40 years, the monthly instalment is lower (€454.24 euros), but the interest to be repaid is higher (nearly €63,000 in total).

Correct answer: B. It is safer to leave the money in your current account. In the event of a bank crisis, thanks to the bail-in mechanism, the Interbank Deposit Protection Fund and the Depositors' Guarantee Fund protect not only current accounts, but also time deposits (savings accounts), depository receipts, deposit accounts, and cashier's cheques. Coverage is limited to €100,000 per depositor, per bank, regardless of whether several banks belong to the same banking group.

Correct answer: C. Unlisted shares. Unlike listed shares, unlisted shares are not negotiated on a financial market (the buyer and seller bargain privately); this may make finding a buyer difficult (problems with transferability and marketability).

Correct answer: D. In several financial products, which show opposite trends. Diversifying your portfolio necessarily entails: firstly, varying your portfolio activity; secondly, spreading your investments among so-called 'low-correlation' asset classes, that is, assets whose returns do not alter (increase or decrease) in a similar fashion due to the occurrence of the same event.

Correct answer: B. The level of risk depends on the type of bond. There are many kinds of bonds. For subordinate (or 'junior') bondholders, in the event of liquidation, repayment is prioritized lower than secured bonds and other classes of 'senior' bonds. A subordinate bond pays higher returns than other classes, but also carries higher risk. In this respect, subordinate bonds can be considered a financial instrument that is halfway between secured bonds and shares. Investing in them requires special attention and expertise.

Correct answer: D. The Banking and Financial Ombudsman (Arbitro Bancario Finanziario - ABF). The Banking and Financial Ombudsman (ABF) is an alternative dispute resolution (ADR) system for customer complaints about banks and other financial intermediaries regarding banking and financial services. It is an alternative form of customer protection, and it is simpler, faster and cheaper than litigation in a court of law. The ABF is an independent and impartial authority. The Bank of Italy serves as its technical secretariat. After a verdict from the ABF, the complainant can still file a lawsuit.

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