development of trading intrument Flashcards
advantages of money order
- acceptable form of payment.
- can be used by persons without a bank account.
features of money order
method of payment that shows the amount of money to be paid to the person or business stated on the order
disadvantages of money order
a bank fee is attached to the money order.
features of bank draft
method of payment that can be issued in foreign currency
advantages of bank draft
- Guaranteed by the bank issuing the draft
- Allows for transferring of large sums of money across territories.
disadvantages of bank draft
a bank fee is attached to the bank draft
features of telegraphic money order
- A feature of e-banking that allows for funds to be transferred to a person’s account electronically.
- Referred to as electronic money transfers
advantages of telegraphic money order
facilities the quick payment of salaries from one organisation to multiple banks.
disadvantages of telegraphic money order
subject to delay arising out of problems with the technology.
eg. crashing
features of credit card
- A credit facility offered by a bank.
- The customer in using the card takes a loan from the bank to repay with interest.
advantages of credit card
- The customer has access to money that can be used emergency situations.
- moneyless transactions.
disadvantages of credit card
- 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.
features of cheques
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.
advantages of cheques
- 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.
disadvantages of cheques
- subject to fraud such as false signatures.
- lack of funds to encase cheque from drawer leading to “bounce” cheque.
features of bill of exchange
- 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.
advantages of bill of exchange
- allows for a credit facility to be allowed from the imports.
- The exporter has options in terms of executing the bill.
disadvantages of bill of exchange
- not readily used by small businesses.
features of promissory note
- 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
advantages of using promissory note
- demonstrates trust in the business transaction.
- Can be used in situations where persons do not have access to bank loans.
disadvantages of promissory notes
- Can prove to be risky if parties to the contract are not genuine.
features of documentary credit
- 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.
advantages of documentary credit
- 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
disadvantages of documentary credit
- The importer must specify the conditions under which the goods will be accepted.
i.e items must be in good condition.
