Development of money and banking module 7

Question 1

what were the contributing factors to the development of money

Answer 1

• Barter
• Laws requiring compensation for crimes of violence
• Custom payment for the ‘loss of a daughter’ to the family by prospective spouses
• Authorities asking subjects for taxes
• Religious obligations in the form of either payment or sacrifices

Question 2

what is barter

Answer 2

the exchange of goods for other goods

Question 3

why where some items preferred to be bater items than others

Answer 3

they could be easily be stored and they had a high density value, they were portable and durable

Question 4

what were the primitive form of money and where did the originate from

Answer 4

Wampum - traditional shell beads of Eastern Woodlands tribes of indigenous people of North America

Disc-shaped fei stones - found in Yap, an island in the Caroline Island in the West Pacific.

Cowrie shells - used in much of Africa and Asia

Cattle - used in Africa, could be counted

Manilas - ornamental metallic objects worn as jewellery in West Africa

Whale teeth - Fiji

Question 5

What does the road of money consist of and describe these things

Answer 5

Harvest collection points - Baking formed this way in Ancient Mesopotamia. The royal palaces and temples stored grain and other goods. Receipts began to be used. In Egypt they did the same thing but the owner sent a written request for their deposit of grain (a portion of which was payment) Soon this was use as a more general method of paying debt to others including tax collectors, religious leaders and traders.

Precious metals - in most ancient world basic unit of money was stater, meaning “balancer” or “weigher”. Talent is Greek unit of measurement which weighs 60 lbs

Tool currency - the Chinese use spades, hoes and knives as coins. this was in use when early European coin evolved. Ancient Greeks use iron nails, Britons used sword blades. These things had low value and could be copied easily.

Modern coinage - has it roots in Lydia and Asia Minor where seals (a decorative ring with a pattern on it) were placed on metal. over time became regular in form and weight between the periods 640 - 630 BC. coinage the spread to mainland Greece and Persia (Iran)

Greek and Persian coinage - 6 silver obols = 1 silver drachma. 407 BC Sparta captured Athenian silver mines at Laurion, released slaves. Led to shortage of coins, so in 406 and 405 BC cheaper bronze plated silver coins introduced. Silver coins held onto by people, bronze coins were used. conquests of Alexander the Great brought about monetary uniformity over much of known world. Roman emperors used coins extensively for propaganda, 1 historian claimed that coins were used to record messages which emperor + advisers desire to commend to population of empire

Question 6

how and why did paper money come about

Answer 6

metals used for coins made the metal less than value minted on the coin, paper money evolved. No longer a need to make money valuable. the note would be exchanged for that much gold or silver. E.g old British pound not / pound sterling was redeemable for 1 lbs of sterling silver.

Question 7

who are the latest South African notes endorsed by

Answer 7

the governor of the South African Reserve Bank.

Question 8

what do banks do

Answer 8

they serves as intermediaries between customers who save money and customers who borrow money.

Question 9

what do some banks do that others don’t

Answer 9

• some banks have large number of customers through businesses, small businesses and individuals. they have network of banks throughout the country with many branches in the larger cities and a branch in most towns.
• others deal only with large customers, such as big institutions and companies and very wealthy institutions. they don’t offer regular branch services.

Question 10

what are the four main banking institutions in SA

Answer 10

• ABSA Bank - Amalgamated Banks of South Africa
• Standard Bank
• FNB - First National Bank
• Nedbank

Question 11

What are depositors

Answer 11

these are customers who save. they supply money to banking institutions an in return are paid interest.

Question 12

what is borrowed money called

Answer 12

loan or credit

Question 13

what is the principal amount

Answer 13

the actual amount borrowed

Question 14

what happens to individuals who are unable to pay cash for goods of services

Answer 14

the bank lends them money and in return the borrower has to pay interest which is calculated on the principal amount.

Question 15

what is credit

Answer 15

money that has been borrowed. when something is purchased on credit it is not yet paid for. in other word money is spent before it is earned.

Question 16

what are interest rates

Answer 16

the percentages of the money deposited or the principal amount of a loan.

E.g If interest of 15% per annum is paid on a loan of R 10000 then what is paid in interest after a year is 15% of R 10000 = R 1500

Question 17

what is compound interest

Answer 17

often interest isn’t calculated at beginning of a loan, but rather on the balance of the debt after every monthly repayment.

READ PAGE 6

Question 18

if the same amount is paid off at the end of each month, what do you notice about the interest paid.

Answer 18

because interest is only charged on the outstanding balance, the interest that you will be charged each month will become less.

Question 19

what make compound interest calculations more complex

Answer 19

interest rates seldom remain the same and the rise / fall depending on the demand for credit and the supply thereof.

Question 20

what is the term

Answer 20

the length of time that a loan or deposit is made for. often long term loans carry higher interest rates as banks consider such loans more risky. money , which is however invested in the bank for lengthy periods of time, assists the bank in their financial planning as a result they often offer more favourable interest rates.

Question 21

what is collateral

Answer 21

• something of value that bank can take if borrower is unable to pay monthly instalments after having been granted a loan

Question 22

describe a credit status

Answer 22

• each individual / company is assessed on their ability to repay loans before credit is granted
• high risk individuals / companies are hardly ever granted credit as they are unlikely to be able to pay monthly instalments.

Question 23

who are credit bureaus

Answer 23

people who keep records of people / companies who have been granted credit.

Question 24

what does it mean to be blacklisted

Answer 24

people who fail to meet their commitments will be blacklisted. chances are them being granted further credit is then limited

Question 25

what is the money market shortage

Answer 25

amount of money lent out by banks daily isn’t likely to be same amount deposited by clients. if amount lent out is more than amount deposited banks forced to borrow difference. gap between the two is called money market shortage.

Question 26

describe the SA reserve bank’s (any reserve bank’s) objectives and what it does

Answer 26

The Reserve Bank has 2 main objectives

• attempts to protect value of the rand in the interest of balanced and sustained economic growth in SA
• also oversees the banking institutions to ensure that SA has a well-functioning financial system.

Question 27

what is the repo rate

Answer 27

• when money market shortage exists, as in pic on p 7, financial institutions then required to from other banks / Reserve Bank. the reserve banks willingness to supply these institutions with credit is called the repurchase rate or repo rate

Question 28

what is the marginal lending rate

Answer 28

• each day repo rate estimated by reserve bank. should bank require more than its usual share of this estimate, reserve bank offers credit at a higher rate called the marginal lending rate. this discourages banks from borrowing excessive amounts.

Question 29

what is the first step to personal banking

Answer 29

to discus your needs with a banking official and he will advise you what account(s) best suit(es) your needs

Question 30

describe a savings account

Answer 30

a savings account is an interest bearing account. savings accounts are linked to to ATM cards. they are often referred to as debit cards. these accounts require clients to always have a minimum balance. some banks offer special savings accounts for children.

Question 31

describe a credit card account

Answer 31

a credit card account is only able to be opened by people that banks consider to be creditworthy. credit cards are able to be used in place of cash. E.g for a transaction to take place the card is swiped and the account is electronically debited. if you don,t have money in your card account, you are able to spend up to your credit limit. you are expected to pay off negative balances monthly.

Question 32

describe a cheque account

Answer 32

a cheque is a special piece of paper that has persons banking details printed on it. When a cheque is written out the person or company to whom it is written out to, deposits it into their banking account. their bank then claims the cash from the account holder’s account. this takes a few days to go through

Question 33

what are the different types of cheques and describe each one

Answer 33

A not transferable cheque must be deposited into the banking account of the person / company that it is written out to.

A not negotiable cheque must be paid into a banking account, but it need not be the account of the person / company that the cheque is made out to.

A cash cheque can be changed into cash at any bank or by any person who is willing to exchange the cheque for cash.

READ P 9 - 10 in module

Question 34

describe fixed deposits

Answer 34

it is a sum of money that is invested for a period of time. Example 3 months, 6 months, 8 months, etc. Banks offer slightly higher interest for these investments. once invested, clients may not withdraw money until the term of the fixed deposit has expired.

Question 35

describe the changes in banking

Answer 35

in past to do a banking transaction, one had to go to bank during banking hours and do over the counter transaction.

bank books for accounts. teller had to stamp and indicated deposit withdrawal and do calculations manually. all banking had to be done during banking hours and most banks closed at 15:30 which made getting to your home branch difficult. there was never any ‘security glass’ and most of the clients knew the tellers very well. with the introduction of ATM’s most of this changed. banking was now available after banks closed and eventually 24/7. at first you couldn’t withdraw from other banks’ ATM’s but now people can. subsequent to this tele banking as well as the introduction to internet banking made banking far more accessible. with these innovations most banking is electronic. this speeds up payment of accounts. with each new form of banking, criminals developed new ways defrauding clients. currently the 4 major banks are investigating finger print technology as a means of making banking safe.