Background To Business

Question 1

Economic activity

Answer 1

Activities that are aimed at satisfying our needs. Usually food, clothing and shelter

Question 2

Direct production

Answer 2

Meeting ones need without the aid of others or the facility of money

Question 3

Subsistence economy

Answer 3

Proving just enough to survive but not to improve their way of life. These men were often referred to as hunter gatherers

Question 4

Surplus

Answer 4

an amount of something left over when requirements have been met; an excess of production or supply.

Question 5

Trade

Answer 5

The exchange of surplus goods for the surplus of others

Question 6

Barter

Answer 6

The exchange of one thing for another without the use of money

Question 7

Token money

Answer 7

Items such as shells, teeth’s and grains that were used in the earlier day as a role of money.

Question 8

The characteristics of money

Answer 8

Homogenous
Divisible
Portable
Scarcity
Acceptable
Exchangeable
Durable

Question 9

Money has four functions

Answer 9

A medium of exchange- easier to exchange
A measure of value- can be used to star prices for goods
A store of value- can be saved for later retrieval
A standard for postponed payment- it can be earned at one time and spent at another

Question 10

Bill of exchange

Answer 10

It is made out by a creditor of goods whom requires the debtor to pay a sum of money on demand or at a future date (usually three months). The importer can obtain credit on the transaction and instead of waiting for the payment, the creditor can sell the billl at a discount or use it as collateral. The creditor makes a careful sale and is assured of payment and the buyer gets time to pay the debt.

Question 11

Documentary credit

Answer 11

Also known as letters is the most secure method for international trade. This enables the exporter to obtain payment before the documents of ownership are released to the importer. The importer arranges for their bank to guarantee that the payment will be made when documents of title are handed over. In this way, both the exporter and importer are safeguarded and encouraged to trade.

Question 12

Electronics funds transfer

Answer 12

The electrical method of exchanging money without any paper money changing hands. It can take place within a single institution or across multiple institutions such as banks and other financial services providers through computer based systems
There examples are credit cards, standing orders and debit cards

Question 13

Credit cards

Answer 13

These are issued to the cardholder by a bank or credit card company. They enable the holder to buy things without any cash and pay at a later date with interest or pay full interest with no charges made. During this procedure, the card holder shows their their card to the point of sale terminals and verified the card with a pin. They are issued with a credit card receipt for the cost of the purchase

Question 14

Debit card

Answer 14

These are offered to members at a bank so that they can make trade abroad and directly with their account to make instant payment to a trader without a Cheque or cash.

Question 15

Standing order

Answer 15

Also known as a bankers order. It is convenient when a regular amount of money has to be paid for example a monthly installment. It cancels the need to write a Cheque and post it every month. The bank transfers the money from the person making the order to the person relying on the order. This cancels out the worry of a Cheque getting delayed in the mail. Therefore the money is transferred to the account on time.

Question 16

Direct debit

Answer 16

This occurs when the holder of an account gives someone permission to withdraw amounts of money from their accounts at regular intervals. The amount may be varied by the account holder. adjusted charges can be made without the interference of the account holder since they have permission to draw from the account.

Question 17

Direct deposits

Answer 17

This is normally used by employers to pay the wages of many employees. Payments are deposited into the account of the employees via EFT. This saves the employers time of counting money and writing Cheques and the employee does not have to worry about walking home with a substantial amount of money on pay day

Question 18

E- commerce

Answer 18

This term is given to the buying and selling of products and services through an electronic medium such as the internet. Payments of transactions are immediately effected by the facilities of tele-banking. This encourages the use of e commerce

Question 19

Tele-banking

Answer 19

Short for telephone banking, this refers to a facility provided by banks that enables bank customers to use an appropriate type of telephone to access some services such as account balances, transfer of funds to another account, payment of bills and making some enquires about their accounts. It is useful because it is run for 24 hours but is slowly getting replaced by electronic banking.

Question 20

Cheques

Answer 20

A slip of paper that is filled out and signed by a bank customer to instruct to their bank what is to be done to the money in their account, for example pay money to another person. Despite the e transferring method Cheques are still useful.

Question 21

Money order

Answer 21

This is similar to a Cheque and is used to make payments. These printed order of payment of a specified sum is facilitated by a bank or post office. They are how ever pre paid and is only actioned after a buyer has paid for the money order. Because the issuer has already been paid, money orders are guaranteed to be paid.

Question 22

Bank drafts

Answer 22

These are a form of Cheques drawn on the issuing bank itself rather than the bank customers bank account. This makes the bank draft as good as cash because the bank guaranteed it for their customers who has paid the value of the draft into the bank in advance. Bank drafts are commonly used by banks when they deal with each other or when a creditor is seller is unwilling to accept an ordinary Cheque from a debtor or buyer in another city or country. In local transactions a certified managers Cheque or cashiers Cheque serves the same purpose

Question 23

Telegraphic money transfer (TT)

Answer 23

Telegraphic money transfers are used when the sender needs to send money typically to an overseas destination where someone at the destination is demanding a cash payment or Somone who needs cash urgently. Today it is normally used through EFT but companies such as western union and money gram still uses it

Question 24

M-money

Answer 24

Often referred to mobile wallet, m-money is essentially an app running on a mobile device such as a smart phone, tablet or smartwatch that lets users store send and receive money. The user can pay safely pay using their mobile device