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C
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Products, Production, Producer and Consumers
Products are the goods and services produced by a company, to satisfy needs and wants of
customers
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Producer is a person or company who produces products to satisfy need and wants
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Creation of Utility
Utility of form: Any activity that changes the form of a product so that it becomes more
useful to the consumer for example conversion of wood into more useful furniture
...
Utility of time: Any activity that causes the availability of a product on time when it is
needed, for example availability of wheat throughout the year
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Wants are those goods and services which are not compulsory for living but makes life
easier
...
Advantages of Specialization
• Concentration on work increases
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• Mechanization can occur
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• Less time consuming
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• Mass production
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P
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C
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• Interdependency increases
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• Machinery replaces labor
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• Demotivated staff
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Specialization at region level occurs when a particular region in a country devotes its self in
producing certain types of products, which is used by all the country
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Specialization at firm level occurs when a firm is divided into departments and within
departments individual workers have their own specialized duty
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Primary production is obtaining raw materials or food from nature
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Includes Genetic Industries for example farming, forestry and fishing
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Secondary Production
•
•
•
•
Second Stage of Production
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Includes Manufacturing, Processing and Constructing
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Tertiary Production
•
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Third (last) Stage of Production
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Commercial Services
All services which are related to distribution of goods and services from producers to
customers for example communication, finance, insurance, retailers and wholesalers
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Suthaharan : Commerce – G
...
E (Ordinary Level) 3
Direct Personal Services
Provision of personal services directly to the consumer without anyone else involved for
example teacher, actor and tailor
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Note: Production is completed only when goods reach point of consumption
...
Climate: A farmer must ensure that crop is planted to a area where climatic conditions
allow the production of that crop for example temperature and rainfall
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Nature of land: A farmer must select land which is flat and fertile
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Access to markets: A farmer must have a farm near to the market or customers, because
most of agricultural products are perishable (for example sugar cane)
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4
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5
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Manufacturing Unit
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5
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How are manufacturing and tertiary activities inter-related?
•
•
•
•
Manufacturing is concerned with producing goods from raw materials, tertiary activities
are concerned with the distribution of finished goods from the factory to the final
consumer
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Manufacturing would not be able to take place as goods would be stockpiled and so it is
dependent on tertiary activities to get the goods to the right person at the right time
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P
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C
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g
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Tertiary activities are also concerned with trading in services, advertising and
communicating these services and so is not entirely inter-related with manufacturing
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g
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Foreign Trade is buying and selling of goods and services across the globe
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1
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3
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5
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Aids to Trade
Banking
Transport
Communication
Insurance
Warehousing
Advertisement
Function
Provides Finance and Services
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To transmit and receive information quickly
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Provides storage facilities
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Comparison of Home Trade and Foreign Trade
Similarities between Home Trade and Foreign Trade
1
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2
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3
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4
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5
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Dissimilarities between Home Trade and Foreign Trade
Home Trade
Foreign Trade
Done across the globe
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Done within national boundaries
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2
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Same units of measurements
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3
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4
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Import/Export taxes are involved
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No taxes are involved
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6
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Different culture and languages
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Same culture and language
Mode of payment is online transfer, bill of
8
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exchange etc
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Suthaharan : Commerce – G
...
E (Ordinary Level) 5
The Retail Trade
Chapter 3
Home Trade
Home trade consists of buying and selling of goods with the aim of making profit among people
of the same country
...
Wholesale Trade
Wholesale trade deals with the bulk buying of goods from various manufacturers and the breaking
down of this bulk into smaller quantities which is then sold to the retailer
...
Retail Trade
Retail trade deals with the buying of goods in small quantities from the wholesaler and selling of
goods in yet smaller quantities to the final consumer
...
Channel of Distribution
•
This is the way in which goods are delivered from the producer to the customer
...
Ends when the form of good is changed
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Producer to the consumer
Expensive, technical, perishable, exclusively made for one customer
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Producer to retailer to consumer
Large scale retailer, producer’s own outlet, suitable for perishable items for example
bakery
...
Producer to wholesaler to retailer to consumer
Standardized, consumer items, low value and high shelf life, suitable when demand
of products are seasonal or the production is seasonal
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Producer to agent to wholesaler to retailer to consumer
Only incase of international trade
...
For example imported cars and cosmetics
Factors affecting choice of Channel of Distributions
1
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Producer philosophy
Exclusive distribution (distribution at certain shops)
Extensive distribution (distribution at every shop)
3
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Suthaharan : Commerce – G
...
E (Ordinary Level) 6
4
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Nature of product
Perishable: small channel
Long shelf life: long channel
6
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Size of market
Small: small channel
Large: long channel
8
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2
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4
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6
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Further bulk breaking, and selling in smaller quantities
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They sell to the end customer
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Might provide home delivery (small scale retailers)
...
Might provide informal credit to trustworthy customers (small scale retailers)
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Provides after sale services to the customers
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Provides information to the customers about the new products and schemes
...
Inform the wholesaler or producer about the reaction of market towards a certain
product
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Deals with complaints from customers
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Warehousing
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Display products to the customers
Large Scale Retailers
1
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2
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3
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5
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e
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9
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10
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C
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•
•
•
•
•
•
•
Same product line is sold through all the shops
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Stock is bought centrally
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Most operate as public limited companies
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Prices are clearly marked
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Each department specializes in particular line of goods
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Operates as limited companies
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Variety chain store
• Contains features of both multiple shops and department store
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Sells by self-service, goods openly displayed and prices clearly marked
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Offers self-service
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Hyper Market
•
•
•
•
Are very large supermarket
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Offers low prices, as they buy in bulk
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Mail order business
•
•
•
•
Run by manufacturers or the owners of departmental stores
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Business will advertize extensively in newspapers
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Catalogue contains diagram, specifications and reference number of goods
available
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Price lists contains the prices of goods mentioned in catalogue against
its reference number
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Suthaharan : Commerce – G
...
E (Ordinary Level) 8
•
•
Goods are ordered by mail, e-mail or telephone
...
•
Orders accepted either by C
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D
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W
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(cash with
order)by credit card
...
•
It can make use of inexpensive premises e
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warehouse rather than use shop
premises in a busy street
...
g
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It can serve customers all over the country and probably in many parts of the world
...
g
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Advantages of Large Scale Retailers
To Business
1
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3
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5
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High Rate of Turnover-Economy of scale can be achieved
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Low competition due to high capital requirement
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They will get discounts because they purchase in bulk
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To Customers
1
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Generally customers can get low rates
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Benefit of one stop shopping
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Extra facilities like ATM and post office
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6
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8
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Mail order business sell under money back guarantee
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Customers can enjoy arm chair shopping via mail order
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2
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4
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High fixed cost (large expenses)
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Management problems
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Business has to give incentives to customers which can be a burden on the business
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Business has to allocate certain area for non-productive activity (play area,
parking lot)
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Normally self service is offered and there are chances of shop lifting
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Mail order business can expect refund claims which is loss to the business
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 9
To Customers
1
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2
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3
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4
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6
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7
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Small Scale Retailers/Independent Retailer
•
•
•
•
•
Dependant on wholesaler for their supply
...
Capital can be raised from personal sources (savings and loans)
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Normally do not employ latest equipment
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They need variety (different brands)
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Transport to the shop is provided by the wholesaler
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Wholesaler advices small scale retailers on shop layouts
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2
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4
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Personal services
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Opening hours (open early in morning and closed late at night)
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Some shoppers do not like change so they go to the small shop because they
have always done
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Free home delivery
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1
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3
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5
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7
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By offering variety
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By properly advertizing and giving incentives
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By changing location
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P
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C
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Knowledge about the industry
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Capital requirement
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Defensive: locating away from competition
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Self Service
•
Products are displayed on open shelves
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Generally used in large scale retailing especially supermarkets
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Lesser requirement of shop staff
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More sales in given time
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More sales due to impulse buying
...
4
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To Customers
1
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2
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3
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4
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Disadvantages
To Retailers
1
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2
...
3
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To Customers
1
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2
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3
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Suthaharan : Commerce – G
...
E (Ordinary Level) 11
Branding and Packing
•
•
•
Branding means the selling of goods under the trade mark or brand name of
manufacturer
...
Brand Name= Name and Brand Mark= Symbol
...
•
Branding is only possible if packing is done
...
Products can be differentiated
...
Market share can be created
...
Adds value to the product
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Assists in handling of products
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Information about the product can be written
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Attracts customers
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Some packing can be reused
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Advertisement can be done
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Easy to handle
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Brand assures uniform quality
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With packing awareness is created
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Customer is well informed about the product by advertisement
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Some wrappers can be reused
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Shopping has become easier
...
Brands needs to be advertise and advertisement can be burden on resources
...
Sometimes branding increases competition and competition puts pressure on
firms profit
...
Imitation brands reduce profit
...
2
...
4
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Cost of packing an advertisement is added to the price of product
...
Imitation brands
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 12
After Sale Service
•
•
•
All the services provided by the retailer, manufacturer, or the agent to support
customers after the sale has been made
...
Warranty is provided by the produced as a guarantee of quality of a product
...
•
In warranty items with faulty performance will be repaired or replaced free of charge
within warranty period
...
Better image
...
More revenue with more sales
...
Support
...
Spare parts are available
...
Warranty
...
Capital requirement
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Management problems
...
Parts repaired in warranty are a loss to the business
...
Warranty is added to the cost from customers
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Warranty is available only for limiter period
...
•
Often placed at cinemas, parks and supermarkets
...
Advantages
To Retailers
1
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2
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3
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P
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C
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Adds convenience
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Available all the time
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Self service
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Disadvantages
To Retailers
1
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2
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3
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4
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5
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To Customers
1
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2
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Shopping Complex
•
•
One multi-storey building, with many different shops, each belonging to different
owners
...
Advantages
To Retailers
1
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2
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3
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To Customers
1
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2
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3
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4
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Disadvantages
To Retailers
1
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2
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3
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To Customers
1
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2
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3
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P
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C
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Accurate billing
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Quick billing
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Better business control
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Integrated software can be used
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Labour cost is saved through automatic billing
...
Security against shop lifting
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Accuracy in bills
...
2
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Disadvantages
To Retailers
1
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2
...
3
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To Customers
1
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2
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E-commerce
•
•
Also known as Electronic Commerce, Internet Commerce and
Web commerce
...
Advantages
To Retailers
1
...
3
...
5
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Wide market
...
No requirement of retail outlet
...
Products can be displayed and specified on web
...
To Customers
1
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2
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P
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C
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Capital cost increases
...
Expenses of developing and operating websites
...
Dependence on skilled labor
...
Market is limited
...
Fraud
...
Customers can check product only after it is delivered to them
...
Impersonalized way of buying
...
All franchises are decorated in the same style
...
Name is spread without much investment
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Gets franchising fee from the franchisee
...
Has right to control certain activities of franchisee
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Training by the franchisor
...
Less advertisement is required
...
Convenience, easily located
...
Guarantee of quality
...
Any bad business practice of franchisee can damage franchisor’s image
...
Responsibilities of training and educating franchisee
...
Heavy amount is to be paid to franchisors as franchising fee
...
Loss of some business controls
...
Agreement is valid upto certain period
...
No separate identification of franchisee
...
Franchising is not determinant of success
...
Limited choice of product
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 16
Store Cards
1
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Advantages
To Retailers
1
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2
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3
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4
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To Customers
1
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2
...
3
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Electronic Point of Sale (EPOS)
Electronic Funds Transfer System (EFTS)
EPOS or EFTS refers to the computer-based systems used to perform financial transactions
electronically
...
Accuracy in billing
...
Minimum cash handling in case of EFTS
...
Increased sales in case of EFTS
...
Security of cash
...
Purchasing power increases
...
Minimum cash handling
...
Get itemized bill
...
More capital
...
Skilled labor required
...
In case of EFTS, retailer has to pay bank charges
...
Irrational buying
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 17
The Wholesale Trade
Chapter 4
Introduction
Wholesale trade deals with the bulk buying of goods from various manufacturers and the
breaking down of this bulk into smaller quantities which is then sold to the retailer
...
Functions
1
...
3
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Buys in bulk from different producers
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Bears the risk, if products are damaged, spoilt or stolen
...
5
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6
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7
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8
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9
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10
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Comparison of Large Scale Retailers and Wholesalers
Similarities
1
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2
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3
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Dissimilarities
1
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3
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5
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Large Scale Retailers
Wholesalers
Sells to SSR
...
Can sell in smaller quantities
...
Sell on cash
...
Normally do not provide home delivery
...
Impersonalized services
...
Can perform branding and advertisement
...
SSR= Small Scale Retailers
P
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C
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2
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4
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6
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Producers are relieved of storage of products
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Due to purchase in bulk, production line are cleared
...
Feed back of market
...
2
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4
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6
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Variety is provided from different producers
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Wholesaler provide transportation
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Pack and grade before selling to SSR
...
Warehousing is done by wholesaler
...
2
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4
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6
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Convenience (products are available to SSR through wholesaler)
...
Continuous availability of products
...
Customer demand is met
...
2
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4
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Large scale retailers
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Banks provide easy loans and thus Large scale retailers
...
Transportation and inventory management has become easy
...
2
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4
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6
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High value items (producers directly to customers)
...
Products are highly technical (training secrets)
...
Products are very perishable (for example bakery)
...
Small market
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 19
Instances where wholesalers are still involved
1
...
3
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5
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Standardized items
...
Unbranded items (farm products)
...
Producers do not have resources
...
Recent Trends in Wholesaling
Cash-and-carry wholesalers
•
•
•
•
It is a wholesale supermarket, where retailers can buy goods in bulk at low
prices
...
Generally located in commercial areas
...
Cheap goods due to self service
...
No restriction on purchase of a minimum quantity
...
•
Under this agreement all parties agree to work under a common name and symbol
...
All are responsible for their own profit and loss
...
Cheap source of supply
...
Advantages to wholesaler:
Assured amount of turnover
...
Administrative cost becomes low
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 20
Documents in Home Trade
Chapter 5
Documents in Home Trade
Why Documents are needed?
1
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3
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5
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To record business transactions
...
Legal Requirements
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Common Features in Documents
1
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t
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2
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3
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4
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5
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6
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Letter of Enquiry
Issued by: Buyer
Issued to: Seller
Purpose: To enquire about price, specifications, availability and terms of payment of goods
...
Contains:
a) The prices of goods
...
c) Costs of carriage of the goods
...
Catalogue
Issued by: Seller
Issued to: Buyer
Purpose: Substitution to the quotation
...
Price list
Issued by: Seller
Issued to: Buyer
Purpose: Send with the catalogue, it contains the prices of goods mentioned on the
catalogue
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 21
Order
Issued by: Buyer
Issued to: Seller
Purpose: Issued to place an order for goods
...
b) Description of each items
...
d) The address to which the consignment is to be sent
...
It is usually sent with the goods so that buyer can check
the goods delivered
...
Invoice
Issued by: Seller
Issued to: Buyer
Purpose: To claim the amount of goods supplied, stating also the type, quantity, price and
terms of payment
...
It informs the transactions between the buyer and seller To
Differences between Invoice and Statement of Account
Invoice
1
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2
...
4
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Carries certain date
...
Does not tell the outstanding balance
...
Statement of Account
Summary of transactions
...
Do contain such information
...
No such information
...
To reduce amount
receivable from the buyer
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 22
Customer Credit
Chapter 6
Introduction
Credit is an arrangement by which a buyer can take possession of something now
and pay for it later or over time
...
2
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4
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To earn additional money
...
When the product sales is on decline
...
Details of the asset to be bought/sold
...
Repayment period
...
Interest rate charged
...
Rights and responsibilities of both parties
...
Informal Credit
•
•
•
•
•
Credit is given without any written agreement
...
Small amounts are involved
...
Normally offered by the retailer to their trustworthy customer
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 23
Credit Cards
•
A plastic card with a magnetic tape or with a micro
chip on it issued by commercial banks to their credit
worthy customers on request
...
•
Features:
1
...
2
...
3
...
4
...
5
...
•
Advantages:
Advantages to Card Holder:
1
...
2
...
3
...
4
...
5
...
Advantages to Bank:
1
...
2
...
Advantages to Retailers:
1
...
2
...
3
...
•
Disadvantages:
Disadvantages to Card Holders:
1
...
2
...
3
...
4
...
5
...
Disadvantage to Bank:
1
...
Disadvantages to Retailer:
1
...
2
...
P
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C
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Available only for current accounts
...
•
•
Long Term Credit
•
•
•
•
•
Amount of Credit is large
...
Repayment is made in instalments
...
Collateral securities are involved
...
Lessor: One who owns the asset and lets other (lessee) use it
...
•
•
Hire Purchase
•
A leasing agreement in which the lessor lets the lessee use an asset for a certain time
period (less that the life of the asset) upon a certain installment (rental) with an
option to purchase the asset by paying the amount or return the good to lessor, after
the lease period
...
The lessor will own the asset till the last installment has been paid and the total
value of the asset is recovered
...
The asset is sold to the lessor on the bases of market price and lessee gets the full
amount in lump sum
...
• Possession will remain with lessee
...
• Lessee can not sell the asset till the instalment are paid and asset comes under
his ownership
...
Extended Credit/Deferred payment
•
•
•
•
•
It is suitable for items with low resale value
...
Customer can sell the asset any time
...
If customer defaults making payment the financer has the right to sue him
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 25
Comparison between Bank Loan and Leasing
Bank Loan
Leasing
Cheaper source of finance
Collateral security is involved
Good is actually sold
In case of payment defaults bank can not
repossess the good
5
...
2
...
4
...
Encourages the sale of expensive goods
...
Can cause general increase in price level
...
Increases turnover and thus profit
...
If seller finances the installment-buying then
capital requirement is increased
...
Enables stocks to be cleared
...
If buyer defaults in making payment then
stock going out-of-date
...
3
...
3
...
To the Buyer
1
...
1
...
2
...
2
...
P
...
C
...
Reasons for Consumer Protection
1
...
3
...
5
...
Inability of consumers to asses claims of advertisers
...
Safeguarding the religious beliefs of consumers
...
Consumers Rights
1
...
2
...
3
...
4
...
5
...
6
...
7
...
8
...
9
...
10
...
Self Care, consumers sh ould check the following:
• Price
• Quantity
• Expiry Date
• Ingredients
2
...
3
...
g
...
4
...
5
...
6
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 27
Business Units: Private Sector
Chapter 8
Business Organization
An organization which uses resources to produce goods and services to satisfy human needs
and wants
...
Finances are provided by personal sources of owner
...
Public Sector Organization
•
•
Which are owned and controlled by the government
...
•
Generally run to provide people with basic necessities, at a affordable price
...
Even
if the debts are caused by other partners
...
Types of Private Sector Organizations
Sole Trader
Owner: One, with or without assistance of employs
...
Liability: Unlimited
...
Scale of operation: Very small
...
Tax Burdon: Low
...
Advantages:
1
...
3
...
5
...
Simple formation
...
Owner is his own boss
...
Low taxes
...
P
...
C
...
2
...
4
...
Uncertain life
...
All burden of management is on the owner
...
Capital: Small to medium
...
Limited in case of limited partnership but
at least one partner should be with unlimited liability
...
Scale of operation: Small to medium
...
Investment of capital: Cash (money), Kind (providing asset to the company), Expertise (skill)
...
2
...
4
...
Responsibilities can be shared
...
Low taxes
...
2
...
4
...
Unlimited liability of some owners
...
Unwise decision of one partner becomes obligations of other partners
...
There can be disputes in decision making
...
Capital: Medium to large
...
Liability: Limited to its registered capital
...
Scale of operation: Medium to large
...
Cooperate tax on declared profit of business and on dividends to the
shareholders
...
P
...
C
...
2
...
4
...
Responsibilities can be shared
...
Long and certain life
...
2
...
4
...
Difficult formation
...
Difficult management
...
High Tax rate
...
Capital: Large (raised by selling shares to general public)
...
Formation: Complex done under company law
...
Life: Long and certain
...
Tax: High tax rate
...
Memorandum of Associations
i
...
ii
...
iii
...
iv
...
3
...
2
...
Internal management of the company
...
Rights and responsibilities of Directors and Shareholders
...
Appointment of legal advisors and auditors
...
Quorum of Annual General Meeting
...
Profit sharing
...
certificate issued to business to act as a limited company
P
...
C
...
Shares
Are issued by public limited company to general pubic
...
2
...
Holder of
debenture becomes the lender to the business
...
2
...
4
...
6
...
Redeemable over a time upto 20-25 years
...
management by electing BOD
...
dividends
...
debenture certificate
...
Interest is not related to profit earned
...
in full before ordinary share holders
...
True owners of business, can take part in
AGO
...
Rate of dividend is higher
...
Rate depends on profit earned
...
4
...
5
...
Preference Shares
Just investors, can not take part in AGO
...
Fixed rate of dividend, irrespective of the profit
earned
...
I case of liquidation, ranks after debenture
holders
...
of shares issued X Rate of dividend
Difference between Private and Public Limited Companies
Private
1
...
3
...
5
...
Owners: 2-50
Capital: Medium to Large
Shares issued to selected people
...
Financial data can be kept secret
...
Public
Owners:7- Unlimited
Capital: Large
Shares issued to general people
...
Financial data has to be publicized (prospectus)
...
P
...
C
...
Return on capital: Members are given fixed rate of interest on their share whether
profits are earned or not
...
Scale or operation: Large
...
Registered under Cooperative
Ordinance
...
Aim: Profit is not the main aim
...
2
...
4
...
Professional management
...
Separate legal entry
...
Inefficient control
...
Inability to compete
...
Limited return on capital
...
Ownership of shares is limited to certain amount
...
Function: Generate items of utility at a very low rate
...
Large scale business organizations
...
Promotion of public interest
...
Government has a control over essential goods and services
...
Non Profitable business
...
Difficult management
...
Suthaharan : Commerce – G
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E (Ordinary Level) 32
The Monetary System
Chapter 10
Money
Money is anything that is generally accepted as payment for goods and services and
repayment of debts
...
Money act as a medium of exchange
Money is used as an intermediary for trade, in order to avoid the inefficiencies of a
barter system, which are sometimes referred to as the 'double coincidence of wants
problem'
...
It’s a measure of Value
A unit of account is a standard numerical unit of measurement of the market value of
goods, services, and other transactions
3
...
Money is a standard of deferred payment
...
Characteristics of the Money
1
...
Stability of Value
3
...
Divisibility
5
...
Uniformity
Types of Money
1
...
Base Metals
3
...
Bank Money
P
...
C
...
Importance of Bank
1
...
3
...
Safekeeping for cash
...
Provides finances
...
Types of Banks
Central Bank
•
•
One central bank in each country
...
•
Designing and enforcement of monetary system (a policy related to interest rates
and money supply to control economy)
...
Makes policies for controlling activities of commercial banks
...
Manages foreign exchange reserves
...
•
•
•
•
•
Commercial Bank
•
•
Private owned and profit seeking
...
Services of Commercial Bank
1
...
3
...
Accepting deposits
...
Means of Payment
...
1
...
1
...
Current Account
1
...
Savings Account
1
...
Fixed Deposit Account
P
...
C
...
Suitable for those who
wishes to save small
sums of money
...
Opened with minimum
deposit
...
Earns low interest
...
No need to pay bank
charges
...
Money can be deposited
and withdrawn any time
...
Certain limit of
withdrawing money
...
-
-
-
-
-
-
Fixed Deposit Account
Suitable for those who have
extra money to be set aside
to earn interest
...
Earns high interest
...
Amount of deposit remains
fixed
...
Money can not be
withdrawn until a specific
period expires
...
Current Account
Useful for businesses who
needs safe method to make
and receive payments
...
Earns no interest
...
Money can be deposited and
withdrawn any time
...
-
- -
-
-
-
-
-
2
...
1
...
2
...
Bank Loan
•
Is a lending facility offered by the bank to meet long term financial requirements
of borrower
...
•
If sanctioned, loan amount is paid to the borrower through a cross cheque/cashier
or manager’s cheque which can be deposited on any bank in which borrower
maintains an accounts
...
A bank considers the following before granting the loan
...
Purpose of loan
...
Credit worthiness of the borrower (CIB)
...
Amount of loan
...
Duration of loan
...
Collateral security
...
3
...
Also known as running finance facility
...
Only available for current account
P
...
C
...
Customer must have a current
account
...
Offered for short term period
...
Provided to help cash flow
problem
...
Interest is charged on availed
amount
...
Interest rate is higher
...
Bank statement will show debit
balance
...
Bank will create charge against
current assets
...
Money paid into the borrower’s
account reduces its debt
...
Offered for long term period
...
Interest is charged on principal amount
outstanding
...
After loan amount is deposited in to the bank,
Bank Statement will show credit balance
...
Loan is repaid by standing orders
...
Means of Payments
•
•
•
•
Payer: One who is making payment
...
Drawer: The one who signs the cheque
...
3
...
Cheques
1
...
a
...
b
...
If the first payee
want to give the cheque to another person he must endorse the cheque to him
with his sign
...
Crossed cheque is a cheque which cannot be cashed over a counter but must be
paid into a account
...
2
...
4
...
Minimum cash handling
...
Track record of payment can be maintained
...
Sometimes it is a legal obligation
...
2
...
4
...
Payments through cheques means limited hard cash
...
Not suitable for petty purchases
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 36
Cheque can be deposited in any account
...
Cheque can not be negotiated with bank
...
Balance not available in payers (drawers) account
...
There is some discrepancy in amount written in words and in figures
...
There is some cutting/over writing on the cheque
...
Tempered cheque
...
Cheques issued form frozen account
...
Signatures do not tally
...
Stale cheque (older than six months)
...
Post dated cheque
...
Cheque issued from a person reported dead
...
Payment is stopped by payer
...
Cheque issued by insane person
...
2
...
4
...
6
...
Keep careful records of customers who have caused problems
...
Take the person to court
...
Do not accept cheques beyond the limit of the card (see below)
...
P
...
C
...
2
...
•
•
•
•
The payer approaches the bank with the request and payment in cash or through
cross cheques in favour of the bank
...
At is a secured means of payment
...
3
...
Standing Order
• Suitable especially for annuity payment for example hire purchase
...
Payer gives bank written instructions
...
Payments are made automatically
...
2
...
Disadvantages::
1
...
2
...
3
...
Direct Debit
•
•
Same as Standing Order except that payments of varying amounts at irregular
intervals can be made
...
3
...
Credit Transfer
• Suitable for making payments to a number of payees at the same time
...
• Payer gives information of payees in written to the bank
...
•
Advantages:
1
...
2
...
3
...
• Disadvantages:
1
...
2
...
3
...
Bank Giro
•
It allows payment to be made at any branch of any bank to any branch of any bank in
the country
...
•
A payer can deposit money by cash or through cross-cheque into a payee account by
filling a “bank giro credit slip”
...
•
P
...
C
...
7
...
• Used for both local and especially more common in international transactions
...
•
Payer has to fill in ‘online deposit slip’ by mentioning payees account number
and branch name and code
...
Remittance will be made in a few minutes
...
•
•
•
4
...
1
...
4
...
Foreign Exchange
•
In additional to central bank, commercial banks also buy and sell foreign exchange
...
3
...
•
•
Acts as a summary of all the transactions that account holder makes
...
4
...
Credit Cards
Discussed in detail in chapter 6-Consumer credit
...
5 Debit Cards
•
A plastic card with a magnetic tape or with a
micro chip on it, issued by commercial banks
to their account holders
...
•
4
...
ATM and ATM Cards
•
ATM (Automated Teller Machines) is a
computerized telecommunications device that
provides customers a method of financial
transactions in a public space without the need for a
human clerk or bank teller
...
•
ATM card is a plastic card which is issued by the
bank to its account holders on their request
...
P
...
C
...
Mini Bank Statement
...
Utility Bills payment
...
Balance enquiry
...
Balance Transfer (BTF)
...
Deposit Money
...
4
...
Telebanking
•
A special facility which is offered by the banks to their account holders
on their request
...
This normally includes bill payments for bills from major billers
(e
...
for electricity)PIN is used to access the bank account
...
o Checking Bank balance
...
o Requesting cheque books
...
8
...
over the Internet
through a bank
...
PIN code is used for authentication
...
4
...
Lockers
•
A facility offered by the banks to their customers on their request to deposit their
valuables in Bank Lockers
...
•
Valuables kept may be under a insurance cover provided by the bank upto certain
limit
...
10
...
•
A facility offered by the bank to account holders to deposit money after bank
timings
...
11
...
• Used to add money into one’s own account
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 40
Capital Markets
Chapter -13
Capital Markets
The means by which large amounts of money (capital) are raised by companies, government
and other organization for long term use
...
The Borrowers
Someone who receives some think on the promise to return it or its equivalent
...
Households – To purchase a house
Companies – To build a new factory, To buy plant and machinery, To finance takeovers
The government – To meet the day to day expenses, To conduct various construction
works
...
Households and companies save
money for many reasons
...
2
...
4
...
6
...
Once the stock is
purchased, the owner becomes a shareholder of the company that issued the share
...
P
...
C
...
The performance of the company
2
...
The development of new products or techniques
4
...
General Economic atmosphere
6
...
Raising capital for business
2
...
Facilitating company growth
4
...
Corporate governance
6
...
Government capital raising for development projects
8
...
The administration of taxation
Share index
A stock market index is a method of measuring a section of the stock market
...
P
...
C
...
Balance Sheet: Shows the financial position of a business at a certain point in time
...
Profit and loss account: Operational results of a business during a certain period in time
...
Shows where sources of finance have been spent
...
•
Fixed assets are those assets which will remain in use of business for more than one year
...
Examples: Land, Building, Machines, Furniture,
Equipment and Vehicles
...
Example: Stock of raw materials, Debtors (amount of sales on credit),
bank balance and cash in hand
...
•
Long Term Liabilities are those liabilities which are to be repaid after one year
...
Example: Creditor (money the business as to pay against credit purchases of raw material)
...
Capital Owned/Equity Capital/Net worth of Business
Amount of money that business owes to its owner at a certain point in time
...
Fixed Capital
Amount of money that business has issued to acquire fixed assets at a certain point in time
3
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 43
P
...
C
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 45
Communication
Chapter 15&16
Introduction
Communication is the process of conveying information from a sender to a receiver with
the use of a medium
...
Importance of communication in commerce
1
...
3
...
5
...
Minimizes confusion and misunderstanding between buyer and seller
...
Business can get reliable and cheap information about their market
...
6
...
7
...
Elements of Effective Communication
1
...
3
...
Sender
...
Mode of communication
...
Mode of communications
Verbal/Oral
•
•
•
•
•
Face to Face
...
Telephone
...
Seminar/conference
...
Quick
...
Normally cheap
...
Facial expressions can be seen
...
Message can be distorted
...
No proof or record
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 46
Written
•
•
•
•
•
•
Postal mail
...
Internet
...
Intranet
...
Advantages
1
...
2
...
3
...
Disadvantages
1
...
2
...
3
...
Postal Office
•
•
Message is physically transferred
...
1
...
• Each letter costs on the basis of weight and distance
...
Record of info can be kept
...
• Disadvantages:
Slow
...
Only be used by literate people
2
...
Extra fees is pa id to ensure delivery and with compensate for loss
...
Wide coverage
...
Compensation in case of loss of mail
...
Slow
...
P
...
C
...
Express Mail:
• Used to send documents in urgency
...
•
Advantages:
Speedy
...
•
4
...
•
Suitable for those who want to receive frequent mail and d o not want to
show their identity or address
...
Post boxes are located in post office premises
...
•
All mail to a certain post box will be dropped in the post box by the post
office and a representative of the business will collect is personally
...
Franked Mail/Prepaid Mail:
• This service is available on request
...
• On request customer will get a franking machine
...
• Franking machine is equipped with a meter
which counts on the stamps printed
...
• Saves time and money if outgoing mail is frequent
...
Air Mail:
• Used when documents/letters are to be send abroad (generally)
...
• Sender has to pay extra cost
...
Parcel Service:
• For sending and receiving cargo of small size or weight
...
•
Cargo accepted by the post office and they issue an acknowledge/
consignment note
...
Cargo number can be used to track he cargo
...
P
...
C
...
Means of Payment:
Money Order: For larger amounts
...
National Giro: For making payments in someone’s account
...
Saving Account:
Can be operated and maintained at certain branches of post offices
...
Insurance:
Post offices act as insurer to cover certain risks
...
Agency Service:
Post offices as agent to accept and make payments on behalf of others
...
1
...
Easily available
...
Speedy
...
Disadvantages
Facial expressions can not be seen
...
No record
...
Mobile Phones:
Advantages
Can be carried any where
...
SMS
...
Internet
...
Enables travellers to keep in touch with his office
...
Informational can be distorted in case of weaker signals
...
Battery needs t o be charged
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 49
4
...
Modern banking is dependant on internet
...
Has increased international trade
...
5
...
6
...
One must get an email address to use this facility
...
Quick
Cheap
C
...
and B
...
C
...
Sender and receiver both required email
Information can be distorted
...
2
...
4
...
6
...
Cost
...
Accuracy of information
...
Nature of information
...
Distance
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 50
Advertisement
Chapter 17
Introduction
Advertising is a form of communication that typically attempts to persuade potential
customers to purchase or to consume more of a particular brand of product or service
...
2
...
4
...
Higher sales
...
Information on improvement or change in product
...
Improve company’s image
...
Aimed to create demand of new product
...
To Remind
•
•
To remind people of existing products
...
Types of Advertising
Informative Advertisement
•
•
Informing the public of a new products
...
Persuasive Advertisement
Telling people that a particular brand is superior to all other brands
...
Competitive Advertisement
•
•
Carried out by different producers encouraging public to buy their brand
...
P
...
C
...
1
...
Noise
3
...
Suspense
5
...
Adventure
7
...
Motherly love
9
...
Offers
11
...
Contract
13
...
Endorsement of famous personalities
Advertising Media
Newspaper
Advantages
Wide coverage
...
Different rates depending on size
and location of ads
...
Disadvantages
Wasteful circulation
...
Short life
...
Magazines
Advantages
Long life
...
Targeted
...
Low cost per exposure
...
Infrequent
...
Suitable only for literate people
...
Audio impact
...
Targeted
...
Disadvantages
No visual impact
...
Ads fail to get attention
...
Television
Advantages
₃ Audio and Visual impact
...
₃ Wide coverage
...
Wasteful circulation
...
P
...
C
...
2
...
4
...
6
...
Type of message
...
Target
...
Government policy
...
Includes detail or not
...
Teenagers/Housewives/Professionals
...
Does government allow such types of ads
...
•
Creates advertising plan by taking basic information about client’s business,
marketing strategies, budget and target market
...
Media Department
•
•
Makes sure that the message reaches the required market
...
Production Department
Responsible for set designing and shooting of ad
...
Government Legislation
2
...
The advertising has following purposes
• To attract new buyers and try to expand customer base
...
• To create an organization's recognition among consumers
...
• To bring into notice the changes, special offers or current developments of
the interest of the consumers
...
• To carry out public relations and public service program
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 53
Transportation
Chapter 18
Introduction
Transportation is the movement of people and goods from one place to another
...
2
...
4
...
Assists trading
...
Improves standard of living
...
International trade is not possible without transportation
...
Efficient transportation system is important for distribution of goods in right form
...
Cheap for shorter distances
...
Quick for shorter distances
...
Door to Door delivery
...
Minimum documents involved
...
It is flexible
...
6
...
Disadvantages
1
...
2
...
3
...
4
...
5
...
6
...
7
...
Rail Transport
Advantages
1
...
2
...
3
...
4
...
5
...
6
...
P
...
C
...
Involves documentation
...
Need for loading and unloading cargo many times
...
Trains can not go any w here
...
Move only according to schedule
...
High costs for short distances and small quantities
...
Located out of cities so depends on road transportation
...
High capital cost of maintenance of tracks and trains
...
Quick
...
Safe handling of cargo
...
Not effected by topography
...
Not much documentation involved
...
Less packing requirement
...
Less insurance cost
...
Especially suitable for high
value and low volume cargo
...
Used for urgently required goods
...
Expensive
...
Effected by weather conditions
...
Has constraints as far as carrying of cargo
is concerned
...
Limited space
...
Ships: “Mother Vessel 40,000 MT- 60,000MT” and “Connecting V essel 20,000
MT” deep port
...
Barge: Small Ship – S hallow port
3
...
Boats: River inland transportation
Main Types of Ships
1
...
2
...
3
...
It is normally
chartered
...
Bulk carrier: It is especially built to carry a particular type of
5
...
P
...
C
...
It is cheap per unit of cargo for longer distances
...
Highly suitable for bulky cargo
...
Refrigerating and other facilities are available
...
Containerization is possible
...
Not effected by topography
...
Very slow
...
Very rigid
...
It is effected by weather conditions
...
A lot of documentation
...
Lot of handling of cargo is involved
...
Extra cost for insurance and packing
...
•
Size (i): 20’x8’x8’ known as 20 ft container, suitable for low volume, high weight
•
Size (ii): 40’x8’x8’ known as 40 ft container, suitable for low weight, high volume
•
•
Containers are generally owned by shipping lines
...
•
Containers are available to the traders on less than container load (LCL) and
full container load (FCL) basis
...
Advantages:
1
...
2
...
3
...
4
...
5
...
Disadvantages:
1
...
2
...
•
•
Chartering
•
A vessel/truck/plane is available to the trader on chartered basis by paying a certain
amount
...
The agreement signed with the owner is called ‘charted party’
...
P
...
C
...
•
One of the important matters discussed is the decision of minimum freight charges
for a certain voyage
...
Advantages
1
...
2
...
3
...
Disadvantages
1
...
2
...
Pipe Line
•
•
•
•
•
•
Suitable only for gases and liquids
...
Heavy capital costs
...
Security hazards
...
Hiring and Owning Transportation
Hiring Transportation
Advantages
1
...
2
...
3
...
4
...
Owning Transportation
Advantages
1
...
2
...
3
...
4
...
5
...
6
...
P
...
C
...
2
...
4
...
6
...
Capital cost
...
Nature and scope of business
...
Availability of rental transportation
...
Crew costs
...
2
...
4
...
6
...
8
...
Availability
...
Topography
...
Urgency
...
Nature of cargo
...
Chartered transportation
...
Air Freight
...
Express Routes
...
There are minimum obstacles
...
Speedy transportation
...
To provide navigation facilities and to control air and sea traffic
...
To maintain air traffic control tower/light house
...
To maintain run ways/berths/docks
...
Fuelling of planes/ships
...
Provision of supplies to the planes/ships before departure
...
Signing agreement with other port authorities on variety of issues
...
Maintenance of planes/ships before departure
...
Providing facilities to passengers and traders
...
Security arrangement
...
Permits to motor boats/light air planes
...
Providing hanger facilities/wet or dry docks
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 58
Insurance
Chapter 19
Introduction
Insurance is a promise by one person/ business to make compensation to other
person/business against its financial losses as a result of a certain specific reason
...
Insurer/Underwriter: One who provides insurance
...
Insured: One who gets insurance cover
...
Beneficiary: Is the person who will get payment against insurance claim from
insurance
...
Assessor/Actuaries: Somebody employed by an insurance company to assess risks
and fix premiums
5
...
6
...
Once paid
it is non-refundable
...
7
...
8
...
9
...
10
...
On
basis of this data premium are calculated
...
2
...
4
...
It gives confidence to the person/business
...
As an investment
It can give financial protection
...
Types of Risks
1
...
2
...
P
...
C
...
•
All people who have a same type of risk, make payment of premiums to the insurer
...
How Insurer makes Profit
•
Only few of the total insured, claim their loss
...
How Insurance Company uses Premiums
1
...
3
...
To make claim payments
...
To reinsure
...
Factors effecting the Premium
2
...
No of Risks =
4
...
Previous claim history =
Previous claim history ↑: Premium ↑
1
...
Insurable Interest
•
Applied to all types of insurance
...
2
...
Nothing should be concealed from the insured
...
3
...
Insurer will try to compensate the loss
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 60
Insurer will try to bring the insured to the position it was before loss
...
For example if your 5 years old car is damaged beyond repair, the insurer will give
the money from which you would be able to buy the car of the sa me model which is
5 years old, instead of making payment from which you can buy a new car
...
Contribution
If insured tries to obtain insurance cover against the same risk from different
insurers, all the insurers will contribute to the loss
...
Subrogation
Once insurer has made the payment of the claim to the
Beneficiary the wreckage belongs to him
...
b) Contents Insurance: Contents
c) Comprehensive Fire Insurance: Building, Contents, Riots, Floods and
Earthquakes
...
b) Motor Insurance
a) Minimum Legal C over: Injuries to third party on public roads
only
...
c) Third Party, fire and theft: Third Party plus, damage to car by theft or
fire
...
c) Accidental Insurance
a)
b)
c)
d)
Care Insurance: Theft, Accident and 3rd Party
...
Workman compensation Insurance:
Compulsory for employers to insure their employees against any accident during
working hours
...
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E (Ordinary Level) 61
d) Liability Insurance
a) Employer Liability: For accidents at work owing to employers negligence
...
c) Professional Liabilities: Taken by lawyers, doctors, architects and engineers to cover
against claim s due to their personal negligence
...
e) Life Assurance
a) Whole Life policy: Lump sum payable at death
...
c) Family income protection policy: Paid on death of insured in series of
regular payment
...
e) Group Insurance: Taken by s mall employer for employees in place of
pension scheme for employees
f) Marine Insurance
a)
b)
c)
d)
e)
f)
g)
Ship and installation
Passengers
Crew
Port and installation
Cargo
Fright
Public Liability
g) Aviation Insurance
a)
b)
c)
d)
e)
f)
Planes
Crew
Passengers
Port Installation
Public Liability
Cargo
h) Nuclear Insurance
Evaluating Insurance Quotation Depends upon
1
...
3
...
5
...
Claim payment history of insurer
...
Terms and conditions of insurance
...
P
...
C
...
Independent entity
...
Job to bring the seller and buyer
together
...
Provides risk management advice to the
client
...
Job is to sell insurance policies on
Commission basis
...
Effecting an Insurance Policy
1
...
2
...
3
...
4
...
5
...
6
...
Effecting Insurance Claim
1
...
2
...
3
...
4
...
5
...
P
...
C
...
Gap between the rich and poor countries has increased
...
Role of IMF (International Monetary Fund), SDR (Special Drawing Rights)
decreases the risk of foreign exchange fluctuations
...
WTO (World Trade Organization)
...
Improvement in technology has led to increased production
...
Globalization
...
Improved standards of living
...
Efforts of governments to improve trades
...
Role of trading blocs e
...
Problems in Foreign Trade
1
...
2
...
3
...
4
...
5
...
6
...
7
...
8
...
9
...
10
...
11
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 64
Risks in Foreign Trade
Economic risks
1
...
Risk of protracted default - the failure of the buyer to pay the amount due within six
months after the due date
3
...
Surrendering economic sovereignty
5
...
Risk of cancellation or non-renewal of export or import licenses
2
...
Risk of expropriation or confiscation of the importer's company
4
...
Transfer risk - imposition of exchange controls by the importer's country or foreign
currency shortages
6
...
Influence of political parties in importer's company
Advantages of Foreign Trade
1
...
3
...
5
...
A greater variety of goods and services become available
...
Government earns revenue (by import/export duties)
...
A country can specialize in producing certain goods and services
...
7
...
8
...
Disadvantages of Foreign Trade
1
...
3
...
5
...
7
...
9
...
Loss to the local producers
...
Importing country can become dependent
...
Harmful goods can enter the country
...
Exploitation of importing country
...
P
...
C
...
Market research for:
i
...
ii
...
iii
...
iv
...
v
...
2
...
3
...
4
...
5
...
6
...
7
...
8
...
Documents in Foreign Trade
Indent
Issued by: Importer
Issued to: Exporter/Agent
Purpose: It is an order for goods
...
Shipping Note
Issued by: Exporter
Issued to: Port Authority
Purpose: To request port authority to load the goods to be exported, specifying the
quantity of goods and vessel on which goods are to be boarded
...
Bill of Lading (BOL) or (B/L)
Issued by: Master of ship in triplet
...
Purpose: Acknowledging that specified goods have been received on board as cargo
for conveyance to a named place for delivery to the consignee who is usually
identified Importance
...
2
...
4
...
Document of title
...
Receipt of goods
...
Exporter can get bank loan against the dispatched cargo upon
presentation of documents including bill of lading
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 66
6
...
7
...
Information:
1
...
3
...
5
...
Name of exporter
...
Name of agent
...
Place of departure and place of arrival of goods
...
Consignment Note
Issued by: Trucking company (Goods forwarder)
...
Purpose: Evidence of contract
...
Purpose: Same as consignment note, in case of air transportation
...
By this purchases promises to
settle a debt on a specific date
...
Negotiating and discounting bill of exchange
•
If the exporter has bill of exchange of future maturity date, then exporter can ask his
bank to release payment against the bill of exchange signed by the importer and
other shipping documents
...
On maturity of bill of exchange, the exporter has to pay in full to the bank
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 67
Customs
Customs is an authority or agency in a country responsible for collecting and safeguarding
customs duties and for controlling the flow of goods (like animals) and hazardous items in and
out of a country
...
2
...
4
...
Prevention of smuggling
...
Appraisement of cargo
...
Enforcement of quotas
...
Control of bonded warehouses (where dutiable goods are kept until duty on them is
paid)
...
Export duty levied on locally produced goods for export
...
Import duty levied on goods imported
...
Excise duty imposed on locally produced goods for home consumption
...
Ad valorem duty: A certain percentage of price is added
...
Specific duty: A fixed sum of dutiable good is taxed
...
This zone is used for:
1
...
2
...
3
...
4
...
P
...
C
...
It includes all items of visible trade, visible trade and capital movement
...
•
If total receipts exceed total payments then it is called balance of payment
surplus, which is desirable
BOP: Current Account
Balance of Trade
•
Difference between the visible exports and visible imports is called balance of
trade
...
Invisible trade
•
The balance of invisible trade measures the net flow of funds resulting from the
trade of services
...
g
...
BOP: Capital Account
The capital account records inflows and outflows of foreign exchange that result from
capital flows
P
...
C
...
•
Borrowing from foreign governments and foreign commercial banks
•
flows of aid into the country from overseas agencies
•
flows of foreign direct investment such as investment by multinational corporations
•
Resident capital outflow or capital flight as a country's citizens send money out of
the country into foreign banks
•
Purchase foreign property or financial assets
...
•
Borrow from foreign central or commercial banks
•
Borrow from organisations such as the International Monetary Fund
•
Reschedule its debt or having its debt reduced
Why deficit in Balance of Payments and Balance of Trade is undesirable
1
...
2
...
3
...
How to protect from imports-to make balance of payment surplus?
•
Tariffs or duties – imposing import duties on goods to make them more expensive
than home produced goods
...
•
Embargoes/Import ban – total exclusion of certain types of goods
...
g
...
Exchange control – limiting the amount of currency that can leave the country
...
Giving subsidies to local producers
...
P
...
C
...
It is where banks and other
official institutions facilitate the buying and selling of foreign currencies
...
In other words, the
rate at which one currency can be exchanged for another
...
Exchange gain/ (loss)
A gain (loss) on the exchange of one currency for another due to appreciation (depreciation) in
the home currency (for receivables)
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 71
Government & Commerce
Chapter 22
Government
Government is the body within any organization that has the authority to make and the power to
enforce laws, regulations, or rules
...
To provide public services
Mean services provided by government to its citizens, either directly (through the public
sector) or indirectly
...
2
...
E
...
Health, Education
3
...
4
...
5
...
Government Income /Revenue
Government income includes gross proceeds from income taxes on companies and individuals
1
...
Customs duties,
3
...
Sales of goods and services,
5
...
P
...
C
...
Indirect tax
1
...
Value added tax (VAT),
3
...
Excise duty
Government Expenditure
7
...
To provide public services
9
...
Providing free education
11
...
Running day to day administration of the country
Government Services to Commerce
1
...
Co-ordinating Bodies
3
...
Suthaharan : Commerce – G
...
E (Ordinary Level) 73
References
Derek Lobley (1993)
...
John Murray (Publishers Limited)
Euston Road , London
...
gcse-commerce
...
uk/ >
...
Retrieved February 25,
2009, from < http://en
...
org/wiki/Research_objective >
...
Suthaharan
BBA
...
com
P
...
C