22 Questions
What is the main purpose of a bill of exchange?
To pay for goods bought overseas on credit
What is the primary advantage of electronic transfer?
It makes payments faster, safer, and easier
What is unique about tele-banking?
It allows customers to access banking services over the phone
What is the main difference between tele-banking and internet banking?
Tele-banking is over the phone, while internet banking is online
What is ecommerce primarily used for?
Buying and selling goods and services over the internet
What is not a method of payment?
Tele-banking
What is the primary reason why barter was replaced by money?
To make exchange more convenient
What was the primary material used to make money in the early days?
Silver and gold
What is the term for money that is accepted as legal tender only up to a certain limit?
Limited legal tender
What is the function of money that allows for credit?
Means of deferred payment
What is the term for an official order or decree by someone in power?
Fiat
What is the term for money that is backed by the value of gold or silver?
Commodity-backed currency
What is the primary function of a central bank in a country?
To stabilize the economy
What is the term for a document that is used to transfer funds from a bank account?
Cheque
What is a characteristic of a medium of exchange?
It is a commonly accepted form of payment
What is legal tender?
Money that has been accepted by law to be a medium of exchange
What is a key difference between a cheque and a money order?
A cheque is not prepaid while a money order is prepaid
What is the main benefit of using a money order?
It provides safety and reliability due to being backed by large agencies or corporations
What is a bank draft?
A cheque that guarantees payment to the receiver from the issuing bank
What is the purpose of a bank draft?
To make international payments
What is another way to describe getting a bank draft?
Asking a bank to write a cheque for you
What is the main difference between a credit card and a debit card?
A credit card is a type of loan while a debit card is not
Study Notes
Near Money
- Cheques, credit cards, debit cards, electronic transfer, bills of exchange, money orders, and bank drafts are examples of near money.
Medium of Exchange
- A medium of exchange is a commonly accepted form of payment for goods and services.
Representative Money
- Representative money has no intrinsic value but is used as money to claim value.
Legal Tender
- Legal tender is money that has been accepted by law as a medium of exchange.
Cheques
- A cheque is an order to the bank to make payments to the payee stated on it.
Credit Cards/Debit Cards
- Credit cards allow the cardholder to make payments by presenting the card to the seller, and debit cards are issued against a customer's account balance.
Money Orders
- Money orders are a tool to transfer money or make payments and are prepaid, backed by large agencies or corporations, providing safety and reliability.
Bank Drafts
- A bank draft is a cheque that guarantees payment to the receiver from the issuing bank and can be made out in foreign currency.
Bills of Exchange
- A bill of exchange is used to pay for goods bought overseas on credit and is an order in writing from an exporter to an importer requiring payment of a certain sum of money at a fixed future date.
Electronic Transfer
- Electronic transfer is a system used to transfer funds electronically, making payments fast, safe, and easy.
Tele-Banking and Internet Banking
- Tele-banking and internet banking allow customers to access banking services remotely, including checking account balances and transaction history, opening a new account, and transferring funds.
Ecommerce
- Ecommerce is the buying and selling of goods and services using the internet, allowing for a full range of trading activities.
The Development of Money
Definition of Money
- Money is a commonly accepted instrument or medium of exchange, such as coins, bank notes, and paper notes.
History of Money
- The drawbacks of barter led to the development of money, with cowrie shells, cattle, salt, and sugar used as money in the past.
- Precious metals like silver and gold were used, but it became burdensome and heavy.
- Goldsmiths kept gold and issued receipts to precious metal owners, which became a representation of money.
Characteristics of Money
- Money should be:
- Generally acceptable
- Relatively scarce
- Easily divisible
- Homogenous in nature
- Fairly durable
- Portable
Functions of Money
- Money serves as:
- A medium of exchange
- A unit of account (pricing)
- A store of value (savings)
- A means of deferred payment (credit)
Legal Tender
- Legal tender is a medium of payment recognized by a legal system to be valid for meeting a financial obligation, such as paper currency and coins.
Fiat
- Fiat refers to an official order or decree by someone in power.
Limited Legal Tender
- Limited legal tender is money accepted as legal tender only up to a certain limit, such as coins.
Test your knowledge of financial instruments, including cheques, credit cards, debit cards, electronic transfers, and more.
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