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No. It's an option for applications submitted before 9 July 2012.
For the visa extension on the second occasion, do I need to demonstrate the minimum threshold of £18,800 again, and is this requirement applicable for a period of 6 months or 12 months?
Yes, depending on the category you're in.
Possibly. She needs at least A2 for first extension and at least B1 for settlement. It's usually better to do a B1 test straight away.