Financial Instruments Quiz
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Questions and Answers

What is the main purpose of a bill of exchange?

  • To provide tele-banking services
  • To pay for goods bought overseas on credit (correct)
  • To facilitate electronic fund transfers
  • To engage in ecommerce activities

    • What is the primary advantage of electronic transfer?

  • It reduces the need for physical currency
  • It is a more secure payment method
  • It makes payments faster, safer, and easier (correct)
  • It eliminates the need for bills of exchange

    • What is unique about tele-banking?

  • It provides ecommerce services
  • It allows customers to access their accounts online
  • It allows customers to access banking services over the phone (correct)
  • It enables customers to transfer funds electronically

    • What is the main difference between tele-banking and internet banking?

    <p>Tele-banking is over the phone, while internet banking is online</p> Signup and view all the answers

    What is ecommerce primarily used for?

    <p>Buying and selling goods and services over the internet</p> Signup and view all the answers

    What is not a method of payment?

    <p>Tele-banking</p> Signup and view all the answers

    What is the primary reason why barter was replaced by money?

    <p>To make exchange more convenient</p> Signup and view all the answers

    What was the primary material used to make money in the early days?

    <p>Silver and gold</p> Signup and view all the answers

    What is the term for money that is accepted as legal tender only up to a certain limit?

    <p>Limited legal tender</p> Signup and view all the answers

    What is the function of money that allows for credit?

    <p>Means of deferred payment</p> Signup and view all the answers

    What is the term for an official order or decree by someone in power?

    <p>Fiat</p> Signup and view all the answers

    What is the term for money that is backed by the value of gold or silver?

    <p>Commodity-backed currency</p> Signup and view all the answers

    What is the primary function of a central bank in a country?

    <p>To stabilize the economy</p> Signup and view all the answers

    What is the term for a document that is used to transfer funds from a bank account?

    <p>Cheque</p> Signup and view all the answers

    What is a characteristic of a medium of exchange?

    <p>It is a commonly accepted form of payment</p> Signup and view all the answers

    What is legal tender?

    <p>Money that has been accepted by law to be a medium of exchange</p> Signup and view all the answers

    What is a key difference between a cheque and a money order?

    <p>A cheque is not prepaid while a money order is prepaid</p> Signup and view all the answers

    What is the main benefit of using a money order?

    <p>It provides safety and reliability due to being backed by large agencies or corporations</p> Signup and view all the answers

    What is a bank draft?

    <p>A cheque that guarantees payment to the receiver from the issuing bank</p> Signup and view all the answers

    What is the purpose of a bank draft?

    <p>To make international payments</p> Signup and view all the answers

    What is another way to describe getting a bank draft?

    <p>Asking a bank to write a cheque for you</p> Signup and view all the answers

    What is the main difference between a credit card and a debit card?

    <p>A credit card is a type of loan while a debit card is not</p> Signup and view all the answers

    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 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 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 is money accepted as legal tender only up to a certain limit, such as coins.

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    Test your knowledge of financial instruments, including cheques, credit cards, debit cards, electronic transfers, and more.

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