COMMERCE FORM THREE STUDY NOTES TOPIC 3-5

TOPIC 3: Marketing 
Meaning of the Term Market from "Marketing"
Define the term "market" from "marketing"
Marketing are activities of a company associated with buying and selling a product or service. It includes advertising, selling and delivering products to people. People who work in marketing departments of companies try to get the attention of target audiences by using slogans, packaging design, celebrity endorsements and general media exposure. The four 'Ps' of marketing are product, place, price and promotion.
Market:
  1. An area or place where buyers and sellers meet to transact, that is, to exchange goods and services, like the Kariakoo market in Dar es salaam Tanzania.
  2. is a situation or condition in which buyers and sellers transact or exchange goods and services. For exchange, trade through e-commerce whereby people can exchange goods through the internet.
FUNCTION OF MARKET
  • To facilitate transaction
  • Source of supply
  • Contact between buyers and sellers.
  • Increase production
FUNCTIONS OF MARKETING
  • Distribution;is about deciding how you'll get the goods or services you want to sell to the people who want to buy them. Having an idea for a product is great, but if you aren't able to get that product to the customers you aren't going to make money. Distribution can be as easy as setting up shop in the part of a city where your target customers are -- but in an increasingly interconnected world, distribution more often than not now means that you'll need to take your products or services to the customers.
  • Financing;It takes money to make money. As a business owner, an important function of marketing a product is finding the money through investments, loans, or your personal capital to finance the creation and advertising of your goods or services.
  • Market Research;Market research is about gathering information concerning your target customers. Who are the people you want to sell to? Why should they buy from you as opposed to a rival business? Answering these questions requires that you do some on-the-ground observation of the market trends and competing products.
  • Pricing;Setting the correct price for your product or service can be a challenge. If you price it too high, you might lose customers -- but if you price it too low you might be robbing yourself of profits. The "right" price normally comes through trial and error and doing some market research.
  • Product and Service Management;Once you've determined the target market and set the price of your product or service, the goal becomes to effectively manage the product or service. This involves listening to customers, responding to their wants and needs, and keeping your products and services fresh and up to date.
  • Promotion;Most business owners are familiar with the idea of promotion. Advertising your products and services is essential to attracting new customers and keeping existing customers coming back. As the marketplace changes, you'll want to respond appropriately by tailoring your promotion messages to new media (such as Facebook or Twitter), by sticking with more conventional outlets -- or by using a mix of the old and new.
  • Selling;While we tend to think of selling and marketing as being closely linked, selling is last on the list of the seven functions of marketing. This is because selling can happen only after you've determined the wants and needs of your customer base and are able to respond with the right products at the right price point and time frame.
Importance of marketing can be studied as follows:
  1. Marketing Helps in Transfer, Exchange and Movement of Goods: Marketing is very helpful in transfer, exchange and movement of goods. Goods and services are made available to customers through various intermediaries’ viz., wholesalers and retailers etc. Marketing is helpful to both producers and consumers.To the former, it tells about the specific needs and preferences of consumers and to the latter about the products that manufacturers can offer. According to Prof. Haney Hansen “Marketing involves the design of the products acceptable to the consumers and the conduct of those activities which facilitate the transfer of ownership between seller and buyer.”
  2. Marketing Is Helpful In Raising And Maintaining The Standard Of Living Of The Community:Marketing is above all the giving of a standard of living to the community. Paul Mazur states, “Marketing is the delivery of standard of living”. Professor Malcolm McNair has further added that “Marketing is the creation and delivery of standard of living to the society”.By making available the uninterrupted supply of goods and services to consumers at a reasonable price, marketing has played an important role in raising and maintaining living standards of the community. Community comprises of three classes of people i.e., rich, middle and poor. Everything which is used by these different classes of people is supplied by marketing.In the modern times, with the emergence of latest marketing techniques even the poorer sections of society have attained a reasonable level of living standard. This is basically due to large scale production and lesser prices of commodities and services. Marketing has infact, revolutionised and modernised the living standard of people in modern times.
  3. Marketing Creates Employment: Marketing is complex mechanism involving many people in one form or the other. The major marketing functions are buying, selling, financing, transport, warehousing, risk bearing and standardisation, etc. In each such function different activities are performed by a large number of individuals and bodies.Thus, marketing gives employment to many people. It is estimated that about 40% of total population is directly or indirectly dependent upon marketing. In the modern era of large scale production and industrialisation, role of marketing has widened.This enlarged role of marketing has created many employment opportunities for people. Converse, Huegy and Mitchell have rightly pointed out that “In order to have continuous production, there must be continuous marketing, only then employment can be sustained and high level of business activity can be continued”.
  4. Marketing as a Source of Income and Revenue: The performance of marketing function is all important, because it is the only way through which the concern could generate revenue or income and bring in profits. Buskirk has pointed out that, “Any activity connected with obtaining income is a marketing action. It is all too easy for the accountant, engineer, etc., to operate under the broad assumption that the Company will realise many dollars in total sales volume.However, someone must actually go into the marketplace and obtain dollars from society in order to sustain the activities of the company, because without these funds the organisation will perish.”Marketing does provide many opportunities to earn profits in the process of buying and selling the goods, by creating time, place and possession utilities. This income and profit are reinvested in the concern, thereby earning more profits in future. Marketing should be given the greatest importance, since the very survival of the firm depends on the effectiveness of the marketing function.
  5. Marketing Acts as a Basis for Making Decisions:A businessman is confronted with many problems in the form of what, how, when, how much and for whom to produce? In the past problems was less on account of local markets. There was a direct link between producer and consumer.In modern times marketing has become a very complex and tedious task. Marketing has emerged as new specialised activity along with production.As a result, producers are depending largely on the mechanism of marketing, to decide what to produce and sell. With the help of marketing techniques a producer can regulate his production accordingly.
  6. Marketing Acts as a Source of New Ideas:The concept of marketing is a dynamic concept. It has changed altogether with the passage of time. Such changes have far reaching effects on production and distribution. With the rapid change in tastes and preference of people, marketing has to come up with the same.Marketing as an instrument of measurement, gives scope for understanding this new demand pattern and thereby produce and make available the goods accordingly.
  7. Marketing Is Helpful In Development Of An Economy: Adam Smith has remarked that “nothing happens in our country until somebody sells something”. Marketing is the kingpin that sets the economy revolving. The marketing organisation, more scientifically organised, makes the economy strong and stable, the lesser the stress on the marketing function, the weaker will be the economy.
A market is defined as the sum total of all the buyers and sellers in the area or region under consideration. The area may be the earth, or countries, regions, states, or cities. OR An actual or nominal place where forces of demand and supply operate, and where buyers and sellers interact (directly or through intermediaries) to trade goods, services, or contracts or instruments, for money or barter.
The value, cost and price of items traded are as per forces of supply and demand in a market. The market may be a physical entity, or may be virtual. It may be local or global, perfect and imperfect. A market can be called the 'available market' - that of all the people in the area. Within the available market, there is the 'market minimum'- or the market size, which will buy goods without any marketing effort. This is the lowest sale that a company could get without any action on its part. In today's world, this level is sinking ever lower.
Various Types of Market
Identify the various types of markets
CLASSIFICATION OF MARKETS
a)Market types
  • Commodity market: market involving selling and buying of final goods and services that is goods that are ready for consumption. For example sells commodities like shoes, clothes etc
  • Factor market: market involving buying and selling of labour at a given wage rate.
  • Financial market: Involves selling and buying of financial assets such as security, bonds and treasury bills.
b)Market structure
In market economies, there are a variety of different market systems that exist, depending on the industry and the companies within that industry. It is important for small business owners to understand what type of market system they are operating in when making pricing and production decisions, or when determining whether to enter or leave a particular industry.
  • Perfect Competition;Perfect competition is a market system characterized by many different buyers and sellers. In the classic theoretical definition of perfect competition, there are an infinite number of buyers and sellers. With so many market players, it is impossible for any one participant to alter the prevailing price in the market. If they attempt to do so, buyers and sellers have infinite alternatives to pursue.
  • Monopoly;A monopoly is the exact opposite form of market system as perfect competition. In a pure monopoly, there is only one producer of a particular good or service, and generally no reasonable substitute. In such a market system, the monopolist is able to charge whatever price they wish due to the absence of competition, but their overall revenue will be limited by the ability or willingness of customers to pay their price.
  • Oligopoly;An oligopoly is similar in many ways to a monopoly. The primary difference is that rather than having only one producer of a good or service, there are a handful of producers, or at least a handful of producers that make up a dominant majority of the production in the market system. While oligopolists do not have the same pricing power as monopolists, it is possible, without diligent government regulation, that oligopolists will collude with one another to set prices in the same way a monopolist would.
  • Monopolistic Competition; Monopolistic competition is a type of market system combining elements of a monopoly and perfect competition. Like a perfectly competitive market system, there are numerous competitors in the market. The difference is that each competitor is sufficiently differentiated from the others that some can charge greater prices than a perfectly competitive firm. An example of monopolistic competition is the market for music. While there are many artists, each artist is different and is not perfectly substitutable with another artist.
  • Monopsony;Market systems are not only differentiated according to the number of suppliers in the market. They may also be differentiated according to the number of buyers. Whereas a perfectly competitive market theoretically has an infinite number of buyers and sellers, a monopsony has only one buyer for a particular good or service, giving that buyer significant power in determining the price of the products produced.
Product Planning and Development
Explain product planning and development
Marketing activities.
  • Product development is the process of designing, creating and marketing new products or services to benefit customers. Sometimes referred to as new product development, the discipline is focused on developing systematic methods for guiding all the processes involved in getting a new product to market.
Branding
Explain Branding
2.Branding is a marketing strategy that involves creating a differentiated name and image -- often using a logo and/or tag line -- in order to establish a presence in the consumer's mind and attract and keep customers.
Grading
Explain Grading
4. Grading is the process of sorting individual units of a product into well defined classes or grades of quality. The goods are graded or sorted out into different lots in accordance with the specified standards. The established standards lay down the grades of the product. In case of manufactured goods, goods can be of uniform quality. But agricultural products like fruits and vegetables, etc., vary in quality. Therefore, classes or grades of quality are set and different units of the product are sorted into the established standard grades. Thus, grading involves the division of products into classes made up of units possessing similar characteristics of size and quality.
Standardizing
Explain Standardizing
3. Standardization refers to the process of setting up basic measures or standards to which the products must conform and taking steps to ensure that the goods actually produced adhere to these standards. Standards reflect desirable features of a product in terms of its design, weight, colour, etc. Standardization means that goods are of a specified and uniform quality. Grading is the process of sorting individual units of a product into well defined classes or grades of quality.
Standardization and Grading are interdependent activities. Standardization lay down the standards or grade of quality. Grading involves classifying the products into specific lots as per the established standards.
Advantages of Standardization and Grading
Standardization and Grading are useful marketing functions as they offer the following advantages:
  1. Standardization and Grading facilitate buying and selling of goods by sample or description. When goods are of standardized quality, customers do not insist on detailed inspection.
  2. Standardized goods sell better and fetch a better price to the seller because customers have more faith in them.
  3. Standardization and Grading enable the producer to direct the goods of different qualities towards the market best suited to them. The task of middlemen becomes easy because they can communicate well the characteristics of standardized products to customers.
  4. Transportation, storage and advertising expenses can be reduced by handling different grades or lots.
  5. Standardized goods enjoy a wider market.
  6. Standardization and Grading facilitate trading of goods on the commodity exchange. Hedging, future trading and price comparisons become easy.
  7. Standardization and Grading helps in raising finance because standardized products enjoy a ready market and they are readily accepted as a collateral security for granting loans.
  8. Standardized products can be easily valued and their prices fluctuate less widely. This helps in making insurance claims in the event of loss or damages to the goods.
Packing and Packaging
Explain packing and packaging
What is Packing
  • Packing is the preparation of a product for storage or transportation. Packing can be simply defined as the process of wrapping or binding the product in a manner appropriate for transporting, handling or storing. In packing, we can use different processes like wrapping, cushioning, weatherproofing, sealing, etc. The process of packing depends on the nature of the product. For example, if the product is very fragile, we use multiple layers of bubble wraps. The noun packing refers to the material used to protect or cover the product and prevent it from moving around. Material such as bubble wrap, cardboard, cellophane, foam packagings, etc. are some examples of packing materials. The purpose of packing is to provide protection against damage, leakage, pilferage, etc. Though we are treating packing and packaging as two processes in this article, it is important to know that packing is part of the packaging.
What is Packaging
  • Packaging is the technique of enclosing or protecting products for sale or transport. Packaging includes the process of packing, but it does not stop there. It contains many more steps including sales promotion and marketing. Packaging is concerned with the manner in which a product is placed in a container in a safe, comfortable and attractive. It also deals with the appearance, design, colours that would attract consumers since it plays a major role in attracting the consumers.
  • In the past, packaging consisted of natural materials such as reed baskets, woven bags, clay jars, wooden barrels, etc. But in the contemporary society various synthetic items such as plastic and polythene are used for packaging.
Market Research
Explain Market research
Market research is the process of analyzing data to help you understand which products and services are in demand, and how to be competitive. Market research can also provide valuable insight to help you: Reduce business risks. Spot current and upcoming problems in your industry. Identify sales opportunities.
Merchandising
Explain Merchandising
Merchandising is the activity of promoting the sale of goods at retail.Merchandising activities may include display techniques, free samples, on-the-spot demonstration, pricing, shelf talkers, special offers, and other point-of-sale methods. According to American Marketing Association, merchandising encompasses "planning involved in marketing the right merchandise or service at the right place, at the right time, in the right quantities, and at the right price."
Meaning of the Term "Advertisement"
Explain the term "advertisement"
Advertising is a means of communication with the users of a product or service. Advertisements are messages paid for by those who send them and are intended to inform or influence people who receive them, as defined by the Advertising Association of the UK. Advertising is always present, though people may not be aware of it. In today's world, advertising uses every possible media to get its message through. It does this via television, print (newspapers, magazines, journals etc), radio, press, internet, direct selling, hoardings, mailers, contests, sponsorships, posters, clothes, events, colours, sounds, visuals and even people (endorsements). <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
The advertising industry is made of companies that advertise agencies that create the advertisements, media that carries the ads, and a host of people like copy editors, visualizes, brand managers, researchers, creative heads and designers who take it the last mile to the customer or receiver. A company that needs to advertise itself and/or its products hires an advertising agency. The company briefs the agency on the brand, its imagery, the ideals and values behind it, the target segments and so on. The agencies convert the ideas and concepts to create the visuals, text, layouts and themes to communicate with the user. After approval from the client, the ads go on air, as per the bookings done by the agency's media buying unit.
Objectives of Advertising
  1. To introduce a new product by creating interest for it among the prospective customers.
  2. To support personal selling programmed. Advertising may be used to open customers’ doors for salesmen.
  3. To reach people inaccessible to salesmen.
  4. To enter a new market or attract a new group of customers.
  5. To fight competition in the market and to increase the sales.
  6. To enhance the goodwill of the enterprise by promising better quality products and services.
Functions of Advertising:
Advertising has become an essential marketing activity in the modern era of large-scale production and severe competition in the market.
It performs the following functions:
  1. Promotion of Sales: Advertising promotes the sale of goods and services by informing and persuading the people to buy them. A good advertising campaign helps in winning customers and generating revenues.
  2. Introduction of New Products: Advertising helps in the introduction of new products in the market. A business enterprise can introduce itself and its products to the public through advertising. Advertising enables quick publicity in the market.
  3. Support to Production System: Advertising facilitates large-scale production. The business firm knows that it will be able to sell on a large-scale with the help of advertising. Mass production will reduce the cost of production per unit by making possible the economical use of various factors of production.
  4. Increasing Standard of Living: Advertising educates the people about the products and their uses. It is advertising which has helped people in adopting new ways of life and giving up old habits. It has contributed a lot towards the betterment of the standard of living of the society.
  5. Public Image: Advertising builds up the reputation of the advertiser. Advertising enables a business firm to communicate its achievements and its efforts to satisfy the customers’ needs to the public. This increases the goodwill and reputation of the firm.
  6. Support to Media: Advertising sustains press. Advertising provides an important source of revenue to the publishers of newspapers and magazines and the producers of T.V. programmes.
The Various Types of Advertisements
Point out the various types of advertisements
Types of advertising can be classified as follows:
According to the number of audience to be reached by the media
  • Indirect advertising: This is advertising to the public as a whole e.g by means of posters as it doesn’t appeal to any specific group of customers.
  • Direct advertising: This is advertising in which a product or service appeals only to a limited number of people e.g. advertising through the press aim at selling to those who read.
According to the type of goods, audience and customers behavior toward the product.
Informative Advertising
Informative advertising is often used when launching a new product, or for an updated or relaunched product. The objective is to develop initial demand for a good, service, organization, or cause. It is used when a new product is put on the market on when an old product has been re-launched or updated.
Informative advertising will tell the consumer and marketplace about the product, explain how it works, provide pricing and product information, and should build awareness for the product as well as the company. The image of the product and the company should be compatible and complementary. There should be enough information to motivate the consumer to take some sort of action.
Persuasive Advertising
Marketers use persuasive advertising to increase the demand for an existing good, service, or organization. The idea is persuade a target audience to change brands, buy their product, and develop customer loyalty. After the purchase, the quality of the product will dictate whether or not the customer will remain loyal or return to the previous brand.
Persuasive advertising is highly competitive when there are similar products in the marketplace, and products are competing for their share of the market. In this situation, the winning product will differentiate itself form the competition and possess benefits that are superior to, or compete strongly with, the competition. Comparative approaches are common place, either directly or indirectly.
Reminder Advertising
  • Reminder advertising reinforces previous promotional information. The name of the product, testimonials of past customers, public response, and sales techniques are repeated in the hopes of reminding past customers and garnering new ones. It is used to keep the public interested in, and aware of, a well-established product that is most likely at the end of the product life cycle.
  • https://www.boundless.com/marketing/textbooks/boundless-marketing-textbook/advertising-and-public-relations-13/the-advertising-campaign-88/informative-persuasive-and-reminder-advertising-438-219/images/coca-cola-mural/
Coca-Cola is an established brand which uses reminder advertising.
  • https://www.boundless.com/marketing/textbooks/boundless-marketing-textbook/advertising-and-public-relations-13/the-advertising-campaign-88/informative-persuasive-and-reminder-advertising-438-219/images/coca-cola-mural/
Generic Advertising is advertising designed to promote name recognition for a firm and securities as investments, but does not recommend specific securities. Generic advertising tends to use mass media as a way to promote the firm. TV, radio, billboard, magazine, newspaper and website ads are common forms of mass media. The ads highlight the name of the firm, and perhaps the firm's contact information as well, and are designed to generate public awareness of the firm. They will not, however, mention specific recommendations that the firm is currently making or has made in the past.
Advantages and Disadvantages of Advertisements
Mention the advantages and disadvantages of advertisements
Significance of Advertising:
Advertising helps in spreading information about the advertising firm, its products, qualities and place of availability of its products and so on. It helps to create a non-personal link between the advertiser and the receivers of the message.
The significance of advertising has increased in the modern era of large scale production and tough competition in the market. Advertising is needed not only to the manufacturers and traders but also to the customers and the society. The benefits of advertising to different parties are discussed in the following paragraphs.
Benefits to Manufacturers and Traders:
It pays to advertise. Advertising has become indispensable for the manufacturers and distributors because of the following advantages:
  1. Advertising helps in introducing new products. A business enterprise can introduce itself and its products to the public through advertising.
  2. Advertising develops new taste among the public and stimulates them to purchase the new product through effective communication.
  3. Advertising assists to increase the sale of existing products by entering into new markets and attracting new customers.
  4. Advertising helps in creating steady demand of the products. For instance, a drink may be advertised during summer as a product necessary to fight tiredness caused by heat and during winter as an essential thing to resist cold.
  5. Advertising helps in meeting the forces of competition in the market. If a product is not advertised continuously, the competitors may snatch its market through increased advertisements. Therefore, in certain cases, advertising is necessary to remain in the market.
  6. Advertising is used to increase the goodwill of the firm by promising improved quality to the customers.
  7. Advertising increases the morale of the employees of the firm. The salesmen feel happier because their task becomes easier if the product is advertised and known to the public.
  8. Advertising facilitates mass production of goods which enables the manufacturer to achieve lower cost per unit of product. Distribution costs are also lowered when the manufacturer sells the product directly to the customers. Advertising also facilitates distribution of the product through the retailers who are encouraged to deal in the advertised products.
Benefits to Customers:
Advertising offers the following advantages to customers:
  1. Advertising helps the customers to know about the existence of various products and their prices. They can choose from the various products to satisfy their wants. Thus, they cannot be exploited by the sellers.
  2. Advertising educates the people about new products and their diverse uses.
  3. Advertising increases the utility of existing products for many people adding to the amount of satisfaction which they are already enjoying.
  4. Advertising induces the manufacturers to improve the quality of their products through research and development. This ensures supply of better quality products to the customers.
Benefits to Society:
The whole society is benefited because of advertisement in the following ways:
  1. Advertising provides employment to persons engaged in writing, designing and issuing advertisements, and also those who act as models. Increased employment brings additional income with the people which stimulate more demand. Employment is further generated to meet the increased demand.
  2. Advertising promotes the standard of living of the people by increasing the variety and quality in consumption as a result of sustained research and development activities by the manufacturers.
  3. Advertising educates the people about the various uses of different products and this increases their knowledge. Advertising also helps in finding customers in the international market which is essential for earning foreign exchange.
  4. Advertising sustains the press, and other media. It provides an important source of income to the press, radio and television network. The customers are also benefitted because they get newspapers and magazines at cheaper rates. The publishers of newspapers and magazines are benefitted because of increased circulation of their publications. Lastly, advertising also encourages commercial art.
The Factors to be Considered when Choosing Advertising Media
Explain the factors to be considered when choosing advertising Media
ADVERTISING MEDIA
Is the means through which the advertisement is purveyed to the public.The term media refers in this context to the channels of communication used by the advertising industries e.g newspapers, television,radio etc.
Newspaper
  • Newspaper advertising can promote your business to a wide range of customers. Display advertisements are placed throughout the paper, while classified listings are under subject headings in a specific section.
  • You may find that a combination of advertising in your state/metropolitan newspaper and your local paper gives you the best results.
Magazine
  • Advertising in a specialist magazine can reach your target market quickly and easily. Readers (your potential customers) tend to read magazines at their leisure and keep them for longer, giving your advertisement multiple chances to attract attention. Magazines generally serve consumers (by interest group e.g. women) and trade (industry/business type e.g. hospitality).
  • If your products need to be displayed in colour then glossy advertisements in a magazine can be ideal - although they are generally more expensive than newspaper advertisements.
  • Magazines do not usually serve a small area such as a specific town. If your target market is only a small percentage of the circulation, then advertising may not be cost-effective.
Radio
  • Advertising on the radio is a great way to reach your target audience. If your target market listens to a particular station, then regular advertising can attract new customers.
  • However, sound has its limitations. Listeners can find it difficult to remember what they have heard and sometimes the impact of radio advertising is lost. The best way to overcome this is to repeat your message regularly - which increases your costs significantly. If you cannot afford to play your advertisement regularly, you may find that radio advertising does not generate strong results.
Television
  • Television has an extensive reach and advertising this way is ideal if you cater to a large market in a large area. Television advertisements have the advantage of sight, sound, movement and colour to persuade a customer to buy from you. They are particularly useful if you need to demonstrate how your product or service works.
  • Producing a television advertisement and then buying an advertising slot is generally expensive. Advertising is sold in units (e.g. 20, 30, 60 seconds) and costs vary according to:
  • The time slot
  • The television programme
  • Whether it is metro or regional
  • If you want to buy spots on multiple networks.
Directories
  • Directories list businesses by name or category (e.g. Yellow Pages phone directories). Customers who refer to directories have often already made up their mind to buy - they just need to decide who to buy from.
  • The major advantage of online directories over print directories is that if you change your business name, address or telephone number, you can easily keep it up to date in the directory. You can also add new services or information about your business.
  • If your target market uses print and online directories, it may be useful to advertise in both, although print directories are being used less.
Outdoor and transit
  • There are many ways to advertise outside and on-the-go. Outdoor billboards can be signs by the road or hoardings at sport stadiums. Transit advertising can be posters on buses, taxis and bicycles. Large billboards can get your message across with a big impact. If the same customers pass your billboard every day as they travel to work, you are likely to be the first business they think of when they want to buy a product.
  • Even the largest of billboards usually contain a limited amount of information; otherwise, they can be difficult to read. Including your website address makes it easy for customers to follow up and find out more about your business. Outdoor advertising can be very expensive especially for prime locations and supersite billboards.
Direct mail, catalogues and leaflets
  • Direct mail means writing to customers directly. The more precise your mailing list or distribution area, the more of your target market you will reach. A direct mail approach is more personal, as you can select your audience and plan the timing to suit your business. A cost effective form of direct mail is to send your newsletters or flyers electronically to an email database. Find out more about direct mail.
  • Catalogs, brochures and leaflets can also be distributed to your target area. Including a brochure with your direct mail is a great way to give an interested customer more information about your products and services. Learn more about leaflet marketing using letterbox drops andhandouts.
Online
  • Being on the internet can be a cost-effective way to attract new customers. You can reach a global audience at a low cost. Many customers research businesses online before deciding whom to buy from.
  • A well-designed website can entice customers to buy from you. There are a number of ways you can promote your business online via paid advertising or to improve your search engine rankings. Learn more about doing business online.
  • Other ways to advertise your business online include promoting your products or services on social media sites, blogs and search engines and other websites that your target audience visits. Find out more about social media.
OUTDOOR ADVERTISING
Outdoor advertising means exhibitions of advertisements at street corners, railways stations, bus stands, on moving vehicles etc intended to attract the ready attention of the passers by. reach your customers where they spend so much of their time behind the wheel.
Benefits of outdoor advertising
  • Immediate Awareness
  • Your customers will be immediately aware of your message
  • Tourists and Travelers Depend on Outdoor Advertising
  • Full Color Eye Catching Design as big as the Great Outdoors
  • http://www.parkoutdoor.com/advantages.aspx - America On the Road
  • Make Outdoor a Major Part of Your Media Mix
  • Increased Sales with Just One Glance
Advertising mail, also known as direct mail (by its senders), junk mail (by its recipients), or ad mail, is the delivery of advertising material to recipients of postal mail. The delivery of advertising mail forms a large and growing service for many postal services, and direct-mail marketing forms a significant portion of the direct marketing industry. Some organizations attempt to help people opt out of receiving advertising mail, in many cases motivated by a concern over its negative environmental impact.
Advertising mail includes advertising circulars, coupon envelopes (Money Mailer, Valpak), catalogues, CDs, “pre-approved” credit card applications, and other commercial merchandising materials delivered to homes and businesses. It may be addressed to pre-selected individuals, or unaddressed and delivered on a neighbourhood-by-neighbourhood basis. https://en.wikipedia.org/wiki/Advertising_mail - cite_note-3
Factors Governing of Advertising MediaSelection
Selection of a suitable medium for advertising is really a complex problem to the advertiser. There area number of kinds and classes of media in the modern advertising. Hence, the advertising media selection means not only the choice of the right classes of media out also the individualmedium within the class or classes. Besides there is no single medium that is bestsuited for all advertisers. In reality, a medium which is best suited for one may be almostuseless for another. The medium once employed for advertising a particular productitself may be found unsuited subsequently. Therefore, the right choice of a medium callsfor a careful analysis. If the medium is unsuited the whole amount of money spent onthe advertising campaign shall turn to be a waste.
The advertiser, therefore, while selecting the media, should consider the followingfactors:
  1. Class of the audience: Firstly, the advertiser must note the class of theaudience to be influenced by the medium. The audience can be classified into differentgroups by their social status, age, income, educational standard, religion, culturalinterests. They may also be divided into men and women.
  2. Extent of coverage: Secondly, the advertiser must consider the number ofaudience to be covered by the medium. Every media has a general as well as aneffective circulation. The general circulation is made up of the total number of peoplewho read or subscribe to the media. The effective circulation is the number prospectivecustomers who read it and the number of those who influences sales, though they maynot buy for themselves. Effective circulation must be considered while estimating thenumber of people to be covered. The extent to which the medium reaches the sameaudience as that covered by some other media i.e., the percentage of over-lapping mustalso be taken into account.
  3. Nature of the product: Nature of the product itself is a principal factorgoverning the selection of the medium. Products can be classified into various kinds –consumer’s products and manufacturer’s products etc.
  4. Nature of the competition: The nature of the competition exerts greaterinfluence of the selection of the media. If the competition is stiff utmost care is needed inthe selection of medium and a larger advertising budget is also required. In many caseswhere the advertising copy is similar or the choice of the media solely determines theeffectiveness of the campaign as compared with that of the other competitors.
  5. Reputation of the medium: Newspapers and magazines can offer a beautifulillustration for the reputation of the media. There are a few newspapers and magazineswhich have international reputation with a high readership. Advertisements in suchmagazines and newspapers are generallyrecognizedand believed as true. Suchadvertisements also add prestige to the product.
  6. Cost of the media: Cost of the medium in most cases, is an important factor inthe selection of the medium. Advertisements in certain media are expensive. Forinstance, TV and Radio advertisements. Magazines and newspaper advertisements aregenerally considered as less expensive. Yet, certain magazines and newspapers,having larger circulation and high reputation charge higher rates. The rates also differdepending upon the space occupied and the preferential positions. The first page of anewspaper is rarely missed by the reader. Hence they have more attention value, thanthe advertisements presented anywhere inside the newspaper.
  7. Time and location of buying decisions: The location of the audience and thetime by which it should reach them must also be looked into. This consideration alsoenables the advertiser to keep his retail outlets in the proximity of the customers.
The Different Types of Marketing Institutions in Tanzania e.g. BET, Chamber of Commerce
Explain the different types of marketing institutions in Tanzania e.g. BET, chamber of commerce
Some of Marketing institutions in Tanzania :
BET (BOARD OF EXTERNAL TRADE)-It is a board Established to promote external trade.
Roles of the board of external trade
  • conducting marketing research
  • providing trade information to exporters
  • training of personnel in foreign trade
  • Consultancy service in product adaptation, packaging,costing ang pricing.
Exercise 1
QUIZ
  • Discuss the advantages of advertising to a firm.
  • Explain the functions of marketing in business.
TOPIC 4: Money 

The Historical Background of Money
Expalin the historical background of money
Commerce plays a fundamental role in the satisfaction of human wants. In primitive societies, the producers themselves were the consumers. Hence; they were compelled to provide themselves with foods, shelter and clothes. Under such circumstances, the question of commercial transactions or exchange of goods and services did not arise. But slowly heir wants started to increase in size and in number. They were no longer able to satisfy all their wants, so they began exchanging he commodities produced with those produced by others.
Meaning of the Term "Barter System"
Define the term "barter system"
The exchange of goods for goods was known as barter system of trade. However, barter trade could not persist for a long period of time due to the following demerits:
Merits and Demerits of "Barter System"
Point out merits and demerits of "barter system"
DEMERITS OF BARTER SYSTEM.
  • Lack of Double Coincidence of Wants:Barter transactions can be possible only when two persons desiring exchange of commodities should have such commodities which are mutually needed by each other. For example, if Fatma wants cloth, which Tully has, then Fatma should have such commod­ity which Tully wants. In the absence of such coincidence of wants, there will be no exchange. How­ever, it is very difficult to find such persons where there is coincidence of wants. One had to face such difficulties in barter economy because of which this system had to be abandoned.
  • Indivisibility of some commodities:The second difficulty of barter exchange relates to the exchange of such commodities which cannot be divided. For example, a person has a cow and he wants cloth, food grains and other items of consumption. Under such a condition, exchange can be possible only when he dis­covers a person, who is in need of a cow and has all such commodities, but it is very difficult to get such a person. Then how to affect the exchange.Similarly the second problem relates to the exchange of such commodities which cannot be divided into pieces, because in this kind of situation, a big commodity like cow cannot be divided into small pieces for making payment of the goods of smaller value.
  • Lack of a Common Measure of Value:The biggest problem in the barter exchange was the lack of common measure of value i.e., there was no such commodity in lieu of which all commodities could be bought and sold. In such a situation, while facilitating the exchange of a commodity its value was to be expressed in all commodities, such as one yard cloth is equal to ½ kilogram of potato etc. It was a very difficult proposition and made exchange virtually impossible. Now, with the discovery of money, this difficulty has been totally eliminated.
  • Lack of Store of Value:In a barter economy, the store of value could be done only in the form of commodities. However, we all know that commodities are perishable and they cannot be kept for a long time in the store. Because of this difficulty, the accumulation of capital or store of value was very difficult and without the accumulation of capital, economic progress could not be made. It is because of this reason that as long as barter system continued, significant progress was not made in the world anywhere.
MERITS OF BARTER SYSTEM
  • The risk of theft is lower in barter system than the risk of using money. Almost all modern forms of money can easily be stolen and are more vulnerable to theft than commodities.
  • The value of commodities tends to be stable over a long period of tme, unlike the value of money which depreciates in value after a certain period of time. Due to depreciation in value, money plays little role as a future store of value.
  • Barter trade is very useful in non-monetary economies, where money is too scarce to be used as a medium of exchange. For example, in rural areas barter trade is widely applied due to scarcity of money.
Meaning of "Money"
Give a definition of "money"
Money is anything which is generally acceptable as a medium of exchange and acts at the same time as a measure of value and store of value. OR Money is anything which is generally acceptable to used as a means of settling debts.
Qualities of Good Money
Following are the qualities of good money:
  • General acceptanceThe essential quality of good money is that it should be acceptable to all, without any hesitation in the exchange for goods and services.
  • PortabilityIt is also an important quality of good money that is should be easily transferable from one place to another for doing business and making payment. The paper money is easier to carry because it has minimum possible wait than metallic money.
  • Storability;Money should be storable and it should not be depreciate with time. If the money used is perishable it will lose its value in few days. Paper money has this quality of storability.
  • Divisibility;Good money is that which could be divided into small units without losing any value.
  • Durability;Money should be durable. It should not lose its value with the passage of time. The gold and silver coins do not wear out quickly and quality of money remains the same.
  • Economy;It is important quality of good money that it should be made economically. If there is heavy cost on issuing more money that is not good money. Good money is that has low cost and more supply. Paper money has this quality of economy able by a society as a medium of exchange and means of settling debts.
The Functions of Money
Mention the functions of money
Money is often defined in terms of the threefunctionsorservices that it provides. Money serves as amedium of exchange, as astore of value, and as aunit of account.
  • Medium of exchange: Money's most important function is as a medium of exchange to facilitate transactions. Without money, all transactions would have to be conducted bybarter, which involves direct exchange of one good or service for another. The difficulty with abarter systemis that in order to obtain a particular good or service from a supplier, one has to possess a good or service of equal value, which the supplier also desires. In other words, in a barter system, exchange can take placeonlyif there is adouble coincidence of wantsbetween two transacting parties. The likelihood of a double coincidence of wants, however, is small and makes the exchange of goods and services rather difficult. Money effectively eliminates the double coincidence of wants problem by serving as a medium of exchange that is accepted in all transactions, by all parties, regardless of whether they desire each others' goods and services.
  • Store of value: In order to be a medium of exchange, money must hold its value over time; that is, it must be a store of value. If money could not be stored for some period of time and still remain valuable in exchange, it would not solve the double coincidence of wants problem and therefore would not be adopted as a medium of exchange. As a store of value, money is not unique; many other stores of value exist, such as land, works of art, and even baseball cards and stamps. Money may not even be the best store of value because it depreciates with inflation. However, money is moreliquidthan most other stores of value because as a medium of exchange, it is readily accepted everywhere. Furthermore, money is an easily transported store of value that is available in a number of convenient denominations.
  • Unit of account:Money also functions as a unit of account, providing acommon measure of the valueof goods and services being exchanged. Knowing the value or price of a good, in terms of money, enables both the supplier and the purchaser of the good to make decisions about how much of the good to supply and how much of the good to purchase.
Difference between Inflation and Deflation
Distinguish inflation from deflation
INFLATION
This is persistent increase in the general price level.
Inflation rate is a rate which price increase it is expressed in terms of percentage
  • Inflation rate=price in current year-price in previous year x100 / Price in previous year
For example, if the current year price for commodity X is Tsh 200 and the base year price is Tsh 100.
  • =200-100x100 / 100
  • =100%
Causes of Inflation
  • Excessive demand for goods and services.
  • When demand for goods increase while supply remains constant it underscores a rise in price and if the rise is persistent it results in inflation.
  • Shortage of goods and services.
  • Increase in cost of production
  • Increase in government spending
  • Illegal activities such as smuggling causes artificial shortage of goods and therefore rise in the prices of goods consequently inflation occurs.
  • Natural calamities.
DEFLATION
This is the persistent decrease in price level.
Causes of Deflation
  • Excessive supply: when supply of goods exceeds the demand for goods it cause a decrease in prices.
  • Decrease in effective demand: when the effective demand for the product declines in results to the fall in the price level.
  • Decrease in the money supply: a decrease in money supply affects the purchasing power of the people and leads to the fall in the price level.
  • Increase in government revenue: when the government reduces spending on expenditures such as wages, security and education it affects incomes of the people and their purchasing power consequently a fall in the prices of goods and services.
Exercise 1
QUIZ
  • Money is as money does.” Discuss.
  • Briefly discuss barter system.
TOPIC 5: Banking 

Historical Background of Banking
Explain the historical background of banking
Banking can be defined as the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn a profit. However, with the passage of time, the activities covered by banking business have widened and now various other services are also offered by banks. The banking services these days include issuance of debit and credit cards, providing safe custody of valuable items, lockers, ATM services and online transfer of funds across the country / world. It is well said that banking plays a silent, yet crucial part in our day-to-day lives. The banks perform financial intermediation by pooling savings and channelizing them into investments through maturity and risk transformations, thereby keeping the economy’s growth engine revving.
Banking business has done wonders for the world economy. The simple looking method of accepting money deposits from savers and then lending the same money to borrowers, banking activityencourages the flow of money to productive use and investments. This in turn allows the economy to grow. In the absence of banking business, savings would sit idle in our homes, the entrepreneurs would not be in a position to raise the money, ordinary people dreaming for a new car or house would not be able to purchase cars or houses.
What is a bank?
In simple words, we can say that Bank is a financial institution that undertakes the banking activity i.e. accepts deposits and then lends the same to earn certain profit.
HISTORICAL BACKGROUND OF BANKING.
The world bank is said to have been derived from an Italian word ( banco) which means bench.the early bankers transacted their business on benches in market places. when failed, his bench was broken up by people and this has given rise to the word banco rotto or bankrupt..the band industries is nearly as old as civilization.
Modern banking began to develop between the year 1200-1600.in Italy large banking firms were established in Florence,rome,venice and other Italian cities.
ORIGIN OF BANKS IN TANZANIA
In Tanzania the first foreign bank to open its branch was the national bank india which established its business in Zanzibar in year 1892.in year 1915,the standard bank,barcklays bank and grand lays established their services in the country.
The Types and Functions of Banks
Explain the types and functions of banks
TYPES OF BANKS
Central bank: this is a government bank which is established to assist the state in controlling its money. It’s also gives financial advice to the government and acts as a banker for the commercial.
Functions of a Central Bank:
A central bank performs the following functions, as given by De Kock and accepted by the majority of economists.
  1. Regulator of Currency: The central bank is the bank of issue. It has the monopoly of note issue. Notes issued by it circulate as legal tender money. It has its issue department which issues notes and coins to commercial banks. Coins are manufactured in the government mint but they are put into circulation through the central bank. Central banks have been following different methods of note issue in different countries. The central bank is required by law to keep a certain amount of gold and foreign securities against the issue of notes. In some countries, the amount of gold and foreign securities bears a fixed proportion, between 25 to 40 per cent of the total notes issued. In other countries, a minimum fixed amount of gold and foreign currencies is required to be kept against note issue by the central bank. This system is operative in India whereby the Reserve Bank of India is required to keep Rs 115 crores in gold and Rs 85 crores in foreign securities. There is no limit to the issue of notes after keeping this minimum amount of Rs 200 crores in gold and foreign securities. The monopoly of issuing notes vested in the central bank ensures uniformity in the notes issued which helps in facilitating exchange and trade within the country. It brings stability in the monetary system and creates confidence among the public. The central bank can restrict or expand the supply of cash according to the requirements of the economy. Thus it provides elasticity to the monetary system. By having a monopoly of note issue, the central bank also controls the banking system by being the ultimate source of cash. Last but not the least, by entrusting the monopoly of note issue to the central bank, the government is able to earn profits from printing notes whose cost is very low as compared with their face value.
  2. Banker, Fiscal Agent and Adviser to the Government: Central banks everywhere act as bankers, fiscal agents and advisers to their respective governments. As banker to the government, the central bank keeps the deposits of the central and state governments and makes payments on behalf of governments. But it does not pay interest on governments deposits. It buys and sells foreign currencies on behalf of the government. It keeps the stock of gold of the government. Thus it is the custodian of government money and wealth. As a fiscal agent, the central bank makes short-term loans to the government for a period not exceeding 90 days. It floats loans, pays interest on them, and finally repays them on behalf of the government. Thus it manages the entire public debt. The central bank also advises the government on such economic and money matters as controlling inflation or deflation, devaluation or revaluation of the currency, deficit financing, balance of payments, etc. As pointed out by De Kock, “Central banks everywhere operate as bankers to the state not only because it may be more convenient and economical to the state, but also because of the intimate connection between public finance and monetary affairs.”
  3. Custodian of Cash Reserves of Commercial Banks: Commercial banks are required by law to keep reserves equal to a certain percentage of both time and demand deposits liabilities with the central banks. It is on the basis of these reserves that the central bank transfers funds from one bank to another to facilitate the clearing of cheques. Thus the central bank acts as the custodian of the cash reserves of commercial banks and helps in facilitating their transactions. There are many advantages of keeping the cash reserves of the commercial banks with the central bank, according to De Kock. In the first place, the centralisation of cash reserves in the central bank is a source of great strength to the banking system of a country. Secondly, centralised cash reserves can serve as the basis of a large and more elastic credit structure than if the same amount were scattered among the individual banks. Thirdly, centralised cash reserves can be utilised fully and most effectively during periods of seasonal strains and in financial crises or emergencies. Fourthly, by varying these cash reserves the central bank can control the credit creation by commercial banks. Lastly, the central bank can provide additional funds on a temporary and short term basis to commercial banks to overcome their financial difficulties.
  4. Custody and Management of Foreign Exchange Reserves: The central bank keeps and manages the foreign exchange reserves of the country. It is an official reservoir of gold and foreign currencies. It sells gold at fixed prices to the monetary authorities of other countries. It also buys and sells foreign currencies at international prices. Further, it fixes the exchange rates of the domestic currency in terms of foreign currencies. It holds these rates within narrow limits in keeping with its obligations as a member of the International Monetary Fund and tries to bring stability in foreign exchange rates. Further, it manages exchange control operations by supplying foreign currencies to importers and persons visiting foreign countries on business, studies, etc. in keeping with the rules laid down by the government.
  5. Lender of the Last Resort: De Kock regards this function as a sine qua non of central banking. By granting accommodation in the form of re-discounts and collateral advances to commercial banks, bill brokers and dealers, or other financial institutions, the central bank acts as the lender of the last resort. The central bank lends to such institutions in order to help them in times of stress so as to save the financial structure of the country from collapse. It acts as lender of the last resort through discount house on the basis of treasury bills, government securities and bonds at “the front door”. The other method is to give temporary accommodation to the commercial banks or discount houses directly through the “back door”. The difference between the two methods is that lending at the front door is at the bank rate and in the second case at the market rate. Thus the central bank as lender of the last resort is a big source of cash and also influences prices and market rates.
  6. Clearing House for Transfer and Settlement: As bankers’ bank, the central bank acts as a clearing house for transfer and settlement of mutual claims of commercial banks. Since the central bank holds reserves of commercial banks, it transfers funds from one bank to other banks to facilitate clearing of cheques. This is done by making transfer entries in their accounts on the principle of book-keeping. To transfer and settle claims of one bank upon others, the central bank operates a separate department in big cities and trade centres. This department is known as the “clearing house” and it renders the service free to commercial banks. When the central bank acts as a clearing agency, it is time-saving and convenient for the commercial banks to settle their claims at one place. It also economises the use of money. “It is not only a means of economising cash and capital but is also a means of testing at any time the degree of liquidity which the community is maintaining.”
  7. Controller of Credit: The most important function of the central bank is to control the credit creation power of commercial bank in order to control inflationary and deflationary pressures within this economy. For this purpose, it adopts quantitative methods and qualitative methods. Quantitative methods aim at controlling the cost and quantity of credit by adopting bank rate policy, open market operations, and by variations in reserve ratios of commercial banks. Qualitative methods control the use and direction of credit. These involve selective credit controls and direct action. By adopting such methods, the central bank tries to influence and control credit creation by commercial banks in order to stabilise economic activity in the country. Besides the above noted functions, the central banks in a number of developing countries have been entrusted with the responsibility of developing a strong banking system to meet the expanding requirements of agriculture, industry, trade and commerce. Accordingly, the central banks possess some additional powers of supervision and control over the commercial banks. They are the issuing of licences; the regulation of branch expansion; to see that every bank maintains the minimum paid up capital and reserves as provided by law; inspecting or auditing the accounts of banks; to approve the appointment of chairmen and directors of such banks in accordance with the rules and qualifications; to control and recommend merger of weak banks in order to avoid their failures and to protect the interest of depositors; to recommend nationalisation of certain banks to the government in public interest; to publish periodical reports relating to different aspects of monetary and economic policies for the benefit of banks and the public; and to engage in research and train banking personnel etc..
FUNCTION OF COMMERCIAL BANKS.
The functions of commercial banks are explained below:
Primary functions
  • Collection of deposits
  • Making loans and advances
Collection of deposits: The primary function of commercial banks is to collect deposits from the public. Such deposits are of three main types: current, saving and fixed.
A current account is used to make payments. A customer can deposit and withdraw money from the current account subject to a minimum required balance. If the customer overdraws the account, he may be required to pay interest to the bank. Cash credit facility is allowed in the current account.
Savings account is an interest yielding account. Deposits in savings account are used for saving money. Savings bank account-holder is required to maintain a minimum balance in his account to avail of cheque facilities.
Fixed or term deposits are used by the customers to save money for a specific period of time, ranging from 7 days to 3 years or more. The rate of interest is related to the period of deposit. For example, a fixed deposit with a maturity period of 3 years will give a higher rate of return than a deposit with a maturity period of 1 year. But money cannot be usually withdrawn before the due date. Some banks also impose penalty if the fixed deposits are withdrawn before the due date. However, the customer can obtain a loan from the bank against the fixed deposit receipt.
Loans and advances: Commercial banks have to keep a certain portion of their deposits as legal reserves. The balance is used to make loans and advances to the borrowers. Individuals and firms can borrow this money and banks make profits by charging interest on these loans. Commercial banks make various types of loans such as:
  1. Loan to a person or to a firm against some collateral security;
  2. Cash credit (loan in installments against certain security);
  3. Overdraft facilities (i.e. allowing the customers to withdraw more money than what their deposits permit); and
  4. Loan by discounting bills of exchange..
Secondary functions
  • Agency services
  • General utility services
Agency Services: The customers may give standing instruction to the banks to accept or make payments on their behalf. The relationship between the banker and customer is that of Principal and Agent. The following agency services are provided by the bankers:
  1. Payment of rent, insurance premium, telephone bills, installments on hire purchase, etc. The payments are obviously made from the customer’s account. The banks may also collect such receipts on behalf of the customer.
  2. The bank collects cheques, drafts, and bills on behalf of the customer.
  3. The banks can exchange domestic currency for foreign currencies as per the regulations.
  4. The banks can act as trustees / executors to their customers. For example, banks can execute the will after the death of their clients, if so instructed by the latter.
General Utility Services: The commercial banks also provide various general utility services to their customers. Some of these services are discussed below:
  1. Safeguarding money and valuables: People feel safe and secured by depositing their money and valuables in the safe custody of commercial banks. Many banks look after valuable documents like house deeds and property, and jewellery items.
  2. Transferring money:Money can be transferred from one place to another. In the same way, banks collect funds of their customers from other banks and credit the same in the customer’s account.
  3. Merchant banking: Many commercial banks provide merchant banking services to the investors and the firms. The merchant banking activity covers project advisory services and loan syndication, corporate advisory services such as advice on mergers and acquisitions, equity valuation, disinvestment, identification of joint venture partners and so on.
  4. Automatic Teller Machines (ATM): The ATMs are machines for quick withdrawal of cash. In the last 10 years, most banks have introduced ATM facilities in metropolitan and semi-urban areas. The account holders as well as credit card holders can withdraw cash from ATMs.
  5. Traveler’s cheque: A traveler’s cheque is a printed cheque of a specific denomination. The cheque may be purchased by a person from the bank after making the necessary payments. The customer may carry the traveler’s cheque while travelling. The traveler’s cheques are accepted in banks, hotels and other establishments.
Credit Cards: Credit cards are another important means of making payments. The Visa and Master Cards are operated by the commercial banks. A person can use a credit card to withdraw cash from ATMs as well as make payments to trade establishments.
A savings bank is a financial institution whose primary purpose is accepting savings deposits and paying interest on those deposits.
They originated in Europe during the 18th century with the aim of providing access to savings products to all levels in the population. Often associated with social good these early banks were often designed to encourage low income people to save money and have access to banking services. They were set up by governments or by or socially committed groups or organisations such as with credit unions. The structure and legislation took many different forms in different countries over the 20th century.
  • The advent of internet banking at the end of the 20th century saw a new phase in savings banks with the online savings bank that paid higher levels of interest in return for clients only having access over the web.
The Various Bank Accounts and How they Operate
Identify the various bank accounts and how they operate
TYPES OF BANKING ACCOUNTS
Checking account: A checking account offers easy access to your money for your daily transactional needs and helps keep your cash secure. Customers can use a debit card or checks to make purchases or pay bills. Accounts may have different options or packages to help waive certain monthly service fees. To determine the most economical choice, compare the benefits of different checking packages with the services you actually need.
  • Savings account: A savings account allows you to accumulate interest on funds you’ve saved for future needs. Interest rates can be compounded on a daily, weekly, monthly, or annual basis. Savings accounts vary by monthly service fees, interest rates, method used to calculate interest, and minimum opening deposit. Understanding the account’s terms and benefits will allow for a more informed decision on the account best suited for your needs.
  • Certificate of Deposit (CD): Certificates of deposit, or CDs, allow you to invest your money at a set interest rate for a pre-set period of time. CDs often have higher interest rates than traditional savings accounts because the money you deposit is tied up for the life of the certificate – which can range from a few months to several years. Be sure you do not need to draw on those funds before you open a CD, as early withdrawals may have financial penalties.
  • Money market account: Money market accounts are similar to savings accounts, but they require you to maintain a higher balance to avoid a monthly fee. Where savings accounts usually have a fixed interest rate, these accounts have rates that vary regularly based on money markets. Money market accounts can have tiered interest rates, providing more favorable rates based on higher balances. Some money market accounts also allow you to write checks against your funds, but on a more limited basis.
  • Individual Retirement Accounts (IRAs): IRAs, or individual retirement accounts, allow you to save independently for your retirement. These plans are useful if your employer doesn’t offer retirement benefits or you want to save more than your employer-sponsored plan allows. These accounts come in two types: the traditional IRA and Roth IRA. The Roth IRA is popular because the funds can be withdrawn tax-free in many situations. Others prefer traditional IRAs because these contributions are tax-deductible. Both accounts have contribution limits and other requirements you may need to discuss with your tax advisor before choosing your account.
Difference between the Main Means of Payments: Cheques; Bills of Exchange; Promissory Notes; Postal Orders
Differentiate the main means of payments: Cheques; Bills of exchange; Promissory notes; Postal orders
Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument."
Characteristics Of Cheque <!-- [if !supportLineBreakNewLine]--> <!--[endif]-->
  1. An Unconditional Order The drawer or the depositor should not lay down any condition in the cheque.
  2. Drawn upon A Specified Banker The drawer issues cheque directing to a particular bank having deposit in it to pay the amount of cheque.
  3. Signed By The Maker The cheque should be signed by the account holder.
  4. Amount In Words And Figures The amount of cheque should be mentioned in words and figures.
  5. Payable On Demand The amount of cheque must be paid by the bank as soon as it is presented at its counter.
Different Kinds / Types of Cheques
  1. Bearer Cheque;When the words "or bearer" appearing on the face of the cheque are not cancelled, the cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein or to any other else who presents it to the bank for payment. However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the bank.
  2. Order Cheque;When the word "bearer" appearing on the face of a cheque is cancelled and when in its place the word "or order" is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed (transferred).
  3. Uncrossed / Open Cheque;When a cheque is not crossed, it is known as an "Open Cheque" or an "Uncrossed Cheque". The payment of such a cheque can be obtained at the counter of the bank. An open cheque may be a bearer cheque or an order one.
  4. Crossed Cheque;Crossing of cheque means drawing two parallel lines on the face of the cheque with or without additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee's account.
  5. Anti-Dated Cheque;If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as "anti-dated cheque". Such a cheque is valid upto three months from the date of the cheque.
  6. Post-Dated Cheque;If a cheque bears a date which is yet to come (future date) then it is known as post-dated cheque. A post dated cheque cannot be honoured earlier than the date on the cheque.
  7. Stale Cheque;If a cheque is presented for payment after three months from the date of the cheque it is called stale cheque.
BILLS OF EXCHANGE :A written, unconditional order by one party (the drawer) to another (the drawee) to pay a certain sum, either immediately (a sight bill) or on a fixed date (a term bill), for payment of goods and/or services received. The drawee accepts the bill by signing it, thus converting it into a post-dated check and a binding contract.
A bill of exchange is also called a draft but, while all drafts are negotiable instruments, only "to order" bills of exchange can be negotiated. According to the 1930 Convention Providing A Uniform Law For Bills of Exchange and Promissory Notes held in Geneva (also called Geneva Convention) a bill of exchange contains: (1) The term bill of exchange inserted in the body of the instrument and expressed in the language employed in drawing up the instrument.
What is a 'Promissory Note'
  • A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on demand or at a specified future date. A promissory note typically contains all the terms pertaining to the indebtedness by the issuer or maker to the note's payee, such as the amount, interest rate, maturity date, date and place of issuance, and issuer's signature. The 1930 international convention that governs promissory notes and bills of exchange also stipulates that the term “promissory note” should be inserted in the body of the instrument and should contain an unconditional promise to pay.

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