Here, you will find summaries, questions, answers, textbook solutions, pdf, extras etc. of (Nagaland Board) NBSE Class 10 Financial Literacy Chapter 1: Savings and Investments. These solutions, however, should be only treated as references and can be modified/changed.
Summary
Saving and investment are essential components of personal finance. Saving refers to setting aside a portion of one’s disposable income for future use, while investment involves employing funds in financial or real assets with the expectation of deriving future benefits. Although often used interchangeably, these concepts have distinct differences in terms of purpose, time period, returns, and risk.
Saving is the excess of income over expenditure, intended to meet future expenses or investments. It is typically stored safely, such as in a bank account or a home locker, and earns a low or fixed return. Saving is generally for shorter periods and has low or negligible risk.
Investment, on the other hand, involves employing funds in assets like stocks, bonds, or real estate with the aim of making a profit. Investments are made for comparatively longer periods and offer varying returns based on market conditions and demand. Unlike savings, investments carry a higher risk due to the possibility of fluctuating asset values.
One form of short-term investment is speculation, where funds are invested for short periods with the aim of profiting from fluctuations in asset prices. Speculation carries high risk and is primarily driven by market trends.
Investing is crucial for several reasons, including generating returns in the form of dividends, interest, and capital appreciation, earning above inflation, safeguarding funds, obtaining tax advantages, and creating collateral security for future needs. The return on investment can be calculated using the holding period return formula.
The time value of money is an essential concept in finance, addressing how the value of money changes over time. Money received today is worth more than the same amount received in the future, as the purchasing power of money decreases over time due to inflation and other factors.
Interest is a charge for borrowing money, typically expressed as a percentage of the borrowed amount for a specific period. Simple interest is calculated only on the original amount borrowed, while compound interest is calculated on the original amount plus all unpaid accumulated interest. Compound interest highlights the power of compounding in wealth accumulation.
A Systematic Investment Plan (SIP) is a strategy that involves investing a fixed amount in financial assets at regular intervals, allowing for wealth accumulation and capital appreciation. SIPs offer several advantages, including the flexibility to decide the investment amount, the ability to invest small amounts, and tax benefits for specific schemes.
In summary, saving and investment are vital aspects of personal finance management. While saving involves setting aside money for future use and carries low risk, investment entails employing funds in assets to generate future benefits and carries a higher degree of risk. Understanding the differences between these concepts, along with the time value of money, interest, and systematic investment plans, can help individuals make informed financial decisions for long-term wealth accumulation and financial security.
Textual MCQs
1. _____ is the activity of setting aside a part of cash/kind for further use.
a) Investment
b) Savings
c) Variable expenses
d) Fixed expenses
Answer: b) Savings
2. Speculator makes use of the _____ in the movement of price of an asset
a) Stability
b) Fluctuation
c) Rise
d) Fall
Answer: b) Fluctuation
3. Time value of money is a concept that addresses the way the value of _____ changes over a period of time.
a) Life style
b) Currency
c) Money
d) budget
Answer: c) Money
4. _____ term investments are known as speculation.
a) Long
b) Short
c) Medium
d) Very long term
Answer: b) Short
5. _____ is the investment of a fixed amount in any of the financial assets at regular interval.
a) Speculation
c) Savings
b) Time Value of Money
d) Systematic Investment Plan
Answer: d) Systematic Investment Plan
Additional/extra MCQs
1. What is the first step to investments?
A. Saving B. Speculation C. Borrowing D. Risk-taking
Answer: A. Saving
2. What is the primary purpose of savings?
A. To make a profit B. To meet future expenses C. To speculate in the market D. To create collateral security
Answer: B. To meet future expenses
3. Which of the following is considered a real asset?
A. Debentures B. Mutual funds C. Gold D. Share warrants
Answer: C. Gold
36. A type of investment plan that allows the investor to buy units on a given date every month or every quarter is called a _________.
A. Fixed deposit B. Lump-sum investment C. Systematic Investment Plan (SIP) D. Recurring deposit
Answer: C. Systematic Investment Plan (SIP)
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