development of trading intrument

Question 1

advantages of money order

Answer 1

• acceptable form of payment.
• can be used by persons without a bank account.

Question 2

features of money order

Answer 2

method of payment that shows the amount of money to be paid to the person or business stated on the order

Question 3

disadvantages of money order

Answer 3

a bank fee is attached to the money order.

Question 4

features of bank draft

Answer 4

method of payment that can be issued in foreign currency

Question 5

advantages of bank draft

Answer 5

• Guaranteed by the bank issuing the draft
• Allows for transferring of large sums of money across territories.

Question 6

disadvantages of bank draft

Answer 6

a bank fee is attached to the bank draft

Question 7

features of telegraphic money order

Answer 7

• A feature of e-banking that allows for funds to be transferred to a person’s account electronically.
• Referred to as electronic money transfers

Question 8

advantages of telegraphic money order

Answer 8

facilities the quick payment of salaries from one organisation to multiple banks.

Question 9

disadvantages of telegraphic money order

Answer 9

subject to delay arising out of problems with the technology.
eg. crashing

Question 10

features of credit card

Answer 10

• A credit facility offered by a bank.
• The customer in using the card takes a loan from the bank to repay with interest.

Question 11

advantages of credit card

Answer 11

• The customer has access to money that can be used emergency situations.
• moneyless transactions.

Question 12

disadvantages of credit card

Answer 12

• The card attract maintenance fee from the banks well as interest on borrowed money.
• Can lead to persons abusing the use of credit facility.
• Technology problems such as identity theft.

Question 13

features of cheques

Answer 13

The person paying the money orders the bank to pay the amount indicated on cheques to a business or person named on a cheque the bank on which it is drawn.

Question 14

advantages of cheques

Answer 14

• Allows persons to issue cheques instead of money.
• Variety of cheques types available:
• Open cheques : can be easily encased at the bank which the cheque is drawn.
• Crossed cheque : two vertical or diagonal lines are drawn on the cheques : usually encounters a waiting period (deposited in payees account) to be enchased.
• Managers cheque : issued when large sums of money are transacted.

Question 15

disadvantages of cheques

Answer 15

• subject to fraud such as false signatures.
• lack of funds to encase cheque from drawer leading to “bounce” cheque.

Question 16

features of bill of exchange

Answer 16

• A document used to settle debts in trade.
• An order that requires the person to whom it is addressed to pay an amount of time a specified party.
• Many be used in situations of credit facilities to importers.
• The document can be counted by a bank; kept until maturity or sold to a third party.

Question 17

advantages of bill of exchange

Answer 17

• allows for a credit facility to be allowed from the imports.
• The exporter has options in terms of executing the bill.

Question 18

disadvantages of bill of exchange

Answer 18

• not readily used by small businesses.

Question 19

features of promissory note

Answer 19

• This is an unconditional promise by a borrower or buyer to pay a sum of money ti a lender or seller at some specified time. The note is made in writing

Question 20

advantages of using promissory note

Answer 20

• demonstrates trust in the business transaction.
• Can be used in situations where persons do not have access to bank loans.

Question 21

disadvantages of promissory notes

Answer 21

• Can prove to be risky if parties to the contract are not genuine.

Question 22

features of documentary credit

Answer 22

• A facility where by an exporter requires the importers to pay using documentary credit.
• This ensures payment for goods before title documents are handed over.

Question 23

advantages of documentary credit

Answer 23

• payment is made as long as documentary evidence of the transaction is made.
• A means if security for an exports who is not familiar with an importer

Question 24

disadvantages of documentary credit

Answer 24

• The importer must specify the conditions under which the goods will be accepted.

i.e items must be in good condition.