1.

INTRODUCTION TO COMMERCE

(i) Explain the importance of commerce

(ii) Explain the aids to trade

(iii)Draw the aids to trade

(iv) Identify career prospects in Commerce

(v) ANSWERS

Commerce is very important to individuals, nation and the world. The importance of
commerce to these are stated below:

INDIVIDUALS

 It provides employment opportunities.

 It helps individuals start or run their businesses.

 It helps to improve the standard of living of individuals through the distribution

of a variety of goods.

 Through the chain of distribution, commerce creates a link producers and

consumers.

 Commerce satisfy the endless human wants and needs.

 Commerce assists the public/consumers to get information about the goods

available on the market.

 Business people and the public are assisted to safe guard their money and make
payments through the banking system.

 Through insurance, commerce provides indemnity and compensation for risks

or losses suffered by clients and hence giving them confidence to continue with
their businesses

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NATIONS

 It promotes foreign exchange through trade between nations.

 Countries are able to acquire goods which they may not produce.

 It brings development to the nations.

 It increases national income and wealth.

 Specialisation is made possible by commercial services leading to higher

production of goods of higher quality.

 Creates competition among manufactures or producers of goods.

 Helps in the development of industries for higher productivity.

 Promotes knowledge and skill development through exchange of labour.

 Helps in expansion of aids to trade.

WORLD
 Commerce encourages foreign trade international trade through the distribution of
goods with the help of transport and communication countries can exchange their
surplus goods and earn foreign exchange which is used to import machinery and
sophisticated technology.
 Commerce benefits underdeveloped countries by importing skilled labour and
technical know-how from developed countries.
 Commerce helps during emergencies like floods, war and earthquakes in reaching
the essential requirements like foodstuff, medicines and relief measures from
other countries to any affected area in the world.

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Explain the aids to trade.

Commerce is defined as trade and aids to trade. Commerce is also the distribution of
goods and services to satisfy human needs and wants. The aids to trade are the
commercial services or commercial activities that help in the distribution of goods
from producers to consumers/selling of finished goods that is done by retailers,
wholesalers, importers and exporters with the help of transport, warehousing,
banking, advertising, communication and insurance.

BANKING

 Necessary for depositing as well as receiving money.

 Making payments through cheques, credit transfer, standing orders and direct
debit.

 Receiving finances through loans and overdrafts

 Obtaining foreign exchange.

 Payment of wages and salaries to workers

INSURANCE
 Indemnifies/compensates/covers in case of financial loss, loss of building, raw
materials, finished goods.
 To cover claims from third party such as public liability and employer‟s
liability.
 It also cover consequential loss of profit through fire, theft burglary and
accident.
 It also covers loss of raw materials and other property.

COMMUNICATION
 Necessary in contacting/ getting in touch with suppliers of raw materials.
 Help in provision of information to potential customers.

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  Enables the business to receive inquiries, orders, settle queries from customers
and potential customers through letters, telephone, fax, email, internet, cell
phones.
 Contacting customers

TRANSPORT
 Necessary to deliver/ move/carry equipment and raw materials to factories.
 Carry finished goods from factories to markets.
 Move workers to and from the place of work.
 Move customers to and from factories.

WAREHOUSING
 Necessary for storage of raw materials and finished goods.
 Guarantees flow of raw materials and finished goods.
 Avoids fluctuations in supply.
 Some chemicals may need special storage. E.g. in refrigeration.
 Protection against damage, theft/ pilferage, wastage, weather, deterioration
 Store seasonal goods e.g. jerseys, raincoats.

COMMERCE

TRADE
AIDS TO TRADE

HOME TRADE FOREIGN TRADE WAREHOUSING

ADVERTISING
BANKING
RETAIL WHOLESALE IMPORTS EXPORTS TRANSPORT
INSURANCE
COMMUNICATION

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Career prospects in Commerce:
Entrepreneurship, marketeer, human resource, accountant, banker, insurance broker, business
studies teaching field, sales representative and auditor

2.
(I) Explain Needs and Wants
(ii) Describe the branches of production
(iii) Describe methods of production
(iv) Explain the factors of production
(v) Describe types of goods.

ANSWERS
(I) NEEDS
 -They are human necessities of life
 -Which humans cannot live without
e.g. shelter, food, water, clothing, medical care etc.

WANTS
They are requirements of human being
Which make his/her livelihood or stay on this world better
E.g. computers, vehicles, cell phones, air conditioners, television, radios etc.

INDUSTRY

 Extraction of raw materials from nature e.g. Mining, fishing, lumbering and farming
 And processing of raw materials into semi/finished goods e.g maize cob into maize flour
and then into nshima, cotton into cloth, wheat into bread.
 Industry can be divided into extractive (primary industry), manufacturing and
construction.
Primary industry is the first stage of production, concerned with extraction of natural
resource from the ground, it can either be under ground or above e.g minerals underground,
fish in water, trees in the forest, animals in the wild fertile soil and good climate, and farm
produce such as oranges, maize cotton.

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 Manufacturing industry (secondary industry) is the second stage of production where raw
materials are turned/transformed into useable products shoes biscuits, clothes. In certain
cases raw materials are turned into semi-manufactured goods into one factory and then sent
to another factory.
Construction is also part of secondary industry and it includes building of houses, roads,
bridges.

DIRECT SERVICES
 Is the branch of production that plays an indirect role in production?
 And whose services are essential in enhancing production
 It provides public and personal services to individual citizens.
 These include teachers, doctors, nurses, policemen, lawyers and any services rendered by
service providers.

COMMERCE
 Is trade and aids to trade.
 The aids to trade are insurance, banking, communication, advertising, warehousing, and
transport.
 Is the branch of production that deals with the distribution of goods and services from the
industry (place of extraction or manufacturing) to the consumer/ place of
demand/scarcity
 Also concerned with delivery of inputs such as fuels, spare parts, machinery etc to the
industry.
 Ferries raw materials from extractive industry to secondary industry.

DIRECT PRODUCTION
 This is the production of goods for bones own use,
 It is done on substances level without need for exchange/trade.
 It directly satisfies ones needs and wants such as a farmer grows only enough maize or
keeps enough live stock for own consumption is involved in direct production.
 If people where to provide all that they need by themselves, they would have little or no
need for trade. In other words they would be self-sufficient.

INDIRECT PRODUCTION
 This is the production of goods for the benefit of sale or others.
 It involves trading of what has been produced so as to obtain what one cannot produce.
 Therefore, it depends on trade and makes people to specialise in one field so as to sell
their value.
 This is the most common type of production in modern society, where few people satisfy
their needs directly by themselves.
 In this type of production people co-operate with each other to satisfy their needs or
wants of everyone.

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  People usually engage in one particular occupation which they are best suited and sell
their products or labour in exchange of the goods or services they need.
 For example a farmer sells his farm products to other people like doctors to obtain
medical services or even buy machinery to be used on the farm.

CAPITAL
 Includes, money, building, machinery, raw materials used to produce further goods.
 All man made assets used in the production of goods and services
 Providers of capital are called capitalists/investors.
 Their reward of capital is interest.
 Capital can be accumulated by savings.

ENTERPRISE/ORGANISATION
 The ability to organise the other factors of production of production.
 Enterprise involves making decisions such as expansion of business, ploughing back buy
new motor vehicles
 For production to take place, someone must have an idea and the skill to organise direct
and control the production process.
 The person who provides is known as entrepreneur or organiser. He decides what to
produce, when to produce, how to produce etc.
 The entrepreneur gets profits as a reward.

LABOUR

 This is human effort used in the production of goods and services.

 It can be manual(physical) and skilled(mental labour)
 Labour is limited supply
 It providers of labour are called workers.
 Workers receive a wage or salary as a reward.

LAND
 Includes all kinds of natural resources found on earth and underground.
 Land refers to buildings, minerals underground, and rocks of the crust, fish in the water,
trees and other natural resources. It therefore includes the earth and the oceans and
everything which grows in them.
 Providers of land are called Landlords.
 Landlords receive rent/royalties as their reward.
(vi) GOODS- a good is a tangible item that satisfies some human needs and wants e.g food,
furniture, clothes etc.

 Original goods- these are genuine goods that are new, produced for the first time, and
are of its kind, they meets the safety and quality standards expected. Customers buy
goods from authorised stores.
 Counterfeit goods- these are inferior quality goods made or sold under another brand
name without the permission of owners, sellers of such goods infringe on the trade
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 mark, patent or copyright of the brand owner, counterfeit goods are common in
foods, beverages, clothes, shoes, pharmaceuticals, electronics and many other items.
 Quality goods- these are goods that have capacity to meet the customer‟s needs, they
give customers satisfaction, the goods are free from defects or deficiencies and
attractive in appearance and finishing.
 Substandard goods- goods below the national standard of goods and services
required in a given country. These goods are not attractive. Not durable and have
many defects.

3.CONTRACTS
(i)List the elements of a valid contract
(ii) Explain elements of a valid contract

ANSWERS

CONTRACTS
A contract is a legally binding or valid agreement between two parties. It can be written or orally
e,g when buying property like a house a written contract would be suitable. A contract can also
be explained as a legally exchange of promise or agreement between parties that the law will
enforce.
INVITATION TO TREAT
 An invitation to treat is merely an invitation for customers to submit an offer.

PARTIES TO A CONTRACT
 An offer is an expression of willingness to contract on certain terms with the intention
that as soon as it is accepted, it becomes binding.
 The person making an offer is the offeror and also known as the promisor. And the
person receiving the offer is the offeree (is the party in whose favour the offer is being
made).
 An offer can be made to an individual, a group of people and the entire world

ELEMENTS OF A VALID CONTRACT

ACCEPTANCE
 Acceptance is a final and unqualified expression of assent to the two terms of an offer it
must be communicated. Signing a contract is one way a party show his/her assent.
 In order for a contract to be formed, the parties must reach mutual assent, this means that
one party makes an offer for a bargain and another accepts
 Signing a contract is one way a party shows his or her assent.
 In order for a contract to be formed, the parties must reach mutual assent.
 An offer can be made to an individual, a group of people and the entire world.

CONSIDERATION
 It is a price paid for the promise of the other party.
 The price must be something of value, although it must not be money only.

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  It may be some rights, interest or benefit going to one party detriment, loss or
responsibility given, suffered or undertaken by the other party.
 As long as consideration exists, the court will not question its adequacy provided that it is
of some value.
 It must not be illegal or impossible to perform.

LEGAL CAPACITY
 This is the legal ability to enter into a contract.
 Not all people are completely free to enter into a valid contract.
 The following have no capacity to enter into a contract: people with mental impairment,
minors, bankruptcy and prisoners.

CERTAINTY
 Entering into a contract must involve the elements of free will and proper understanding
of what each of the parties is doing.
 The consent of each of the parties to the contract must be genuine.
 All the essential terms to be settled between the parties must be settled.
 It must be clear as to what the parties have agreed upon.
 The consent may be affected by: mistake, false statement, duress and undue influence
.

WHY CONTRACTS SHOULD NOT BE BREACHED

. Damages business reputation

.Ends good business relationship
.Pay legal fees to lawyer
.Can be sued and made to pay
.Waste a lot of time in courts of law

HOME TRADE
Features of home trade
. Deals with the exchange of goods and services within the country
. Trade is carried out by wholesalers and retailers
. Transactions are usually done using the local currency
. Home trade operates on relatively small amounts of capital compared to foreign trade
. Roads and rail transport most common formsof transport.

RETAIL TRADE

. Explain the functions of a retailer

.Explain the factors to consider before opening a retail business.
.Characteristics of small scale retailers and large scale retailer
.Advantages and disadvantages of small and large scale reatillers

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ANSWERS

 To break the bulk.

 To provide a variety of goods to consumers.
 To display goods in retail shops.
 To offer credits to trusted customers.
 To give guidance to customers especially on new goods.
 To provide a local supply to consumers.
 To price goods before sale to consumers.
 To package goods before sale to consumers.
 To advertise his/her shop to the public.
 To provide pre-sales and after-sales services.
 To offer delivery services on some goods like furniture.
 To act as a middleman/ link in the chain of distribution between the consumer and
wholesaler.
 To pass on information to wholesalers on consumers complaints, suggestions or praise on
the product.
 Risk bearing – the retailer bears risks of physical deterioration of goods, risk of price
change theft, change of fashion of goods

Explain the factors to consider before putting up a retail business

1. CAPITAL
When putting up a shop ensure that enough capital is available. The amount of capital will
determine the site and size of the retail shop. It must be enough for building a new shop or
renting an existing shop and still remain with sufficient funds for buying goods for resale, paying
electricity bill and salaries to workers.
2. LOCATION
When choosing the location of a retail shop ensure that the site of the shop has sufficient
customers to support the shop. The shop will be easily accessible and enough profits will be
realized in relation to the cost of the site.
3. EXPERIENCE
The person intending to open a retail shop should have some ideas on how to run the shop and
also have some management skills.
4. METHOD OF SALES
Consider the method of sale to use whether customers will be served across the counter or self –
service. Also consider whether to offer credit facility or sell on cash basis
5. NAME OF THE SHOP
The name of the shop should be eye caching and easy to remember which contributes to
popularity and success of the business.
6. GOODS FOR SALE
Look at those goods that are marketable, profitable and required by people in the locality of the
shop.
7. METHOD OF ADVERTISING
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Consider the display format to use so as to attract as many customers as possible.
8. SAFETY METHODS
Ensure that money is safe by installing security cameras and insurance.
9. LEGAL REQUIREMENTS
Put in place legal requirements to protect the health, safety and welfare of your employees as
well as customers.
10. PRICE OF THE GOODS
The selling price should have a good margin (profit).

Explain characteristics of small and large retailers

SMALL RATAILERS
 They are owned by one person.
 They have limited capital hence they cannot afford to advertise on national scale.
 They cannot employ highly skilled workers to run the business.
 They are located in townships and villages where rent and rates are cheaper.
 They open business for longer hours.
 They offer personal service to customers.
 They do not provide customer facilities such as car parks, restaurants and filling stations.
 They have unlimited liability since most of them are owned by sole traders.
 They offer delivery on certain goods bought by customers.
 They cannot afford to advertise at national scale.
 They generate lower revenue compared to a large retailer.
 They offer credit facilities to their known and trusted customers.

LARGE RETAILERS

 They have limited liability as they are run as companies.

 They usually buy goods in bulk direct from manufacturers at factory prices thereby
enjoying discounts which are passed on to the customers by lowering their prices.
 They have their own transport and also own warehouses.
 They have large capital investment and can afford to advertise on national scale.
 They are mostly located in town centres and are able to employ qualified personnel.
 They are able to provide amenities such as restaurants/car parks, and they mostly provide
self-service.
 They provide a wider range of goods and services.
 If they are a chain store, they have a centralised management system.
 They may manufacturer their own brands e.g Bata Shoe Company, Zambeef.

ADVANTAGES OF SMALL RETAILERS TO RETAILER

 Requires small amount of capital

 Easy to run

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  Flexible type of business in terms of operation
 They give customers personal attention
 They are properly licenced
 Operational costs are lower
 They are less legal formalities required to be observed.

DISADVANTAGES OF SMALL RETAILERS TO RETAILERS

 Lacks capital for expansion

 Deals in limited amount of goods offered to customers
 Cannot compete favourably with large scale retailers
 Cannot afford to pay rent or position their businesses in town centres where business is
good.
 Small scale retailers have unlimited liability meaning they are legally responsible for all
the debts against the business. Their business and personal assets are at risk,
 May find it difficult to employ high-calibre employees due to insufficient capital,
 It is difficult for small scale retailers to access bank loans,
 Lacks continuity when the owner dies,
 Small scale retailers lacks transport facilities,
 Small scale retailers lacks storage facilities,

ADVANTAGES OF SMALL SCALE RETAILERS TO CONSUMERS

 The shops remain open for long hours even on public holidays
 They offer a variety of goods to consumers
 Personal service may be offered to customers
 Retailers may offer credit facilities to known and trusted customers,
 They sell in smaller quantities that customers can afford to buy.
 Carters for individual customers taste, for instance a customers may request to be given
what he/she wants.
 May specialise in one line of product hence the customer will be assured of expert advice.
DISADVANTAGES OF SMALL SCALE RETAILERS TO CONSUMERS

 Goods are usually sold at higher prices

 There is limited choice of goods.
 Usually they do not offer guarantees.
 They can be slow at serving customers.
 The goods they sell may not be fresh and sometimes expired products.
Explain advantages and disadvantages of a retailer.

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ADVANTAGES OF LARGE REAILERSTO RETAILERS

 They enjoy economies of scale. They buy in bulk direct from the manufacturer at factory
price and discount for this reason, they sell their goods at competitive prices and attract a
lot of customers and significantly increase their sales.
 They sell a variety of goods.
 They are able to locate their shops in town centres and prime areas where there is a good
traffic of potential buyers.
 New technology enables them to remain competitive and provide accurate and timely
information good management of the business.
 They have enough capital to employ specialists in various fields such as buying, selling,
window display, accounting, human resources. This improves their efficiency, makes
them more attractive and increases their sales and possibly profits.
 They are able to offer self-service which enables retailers reduce expenditure in wages
and salaries as they do not need many shop assistants since customers serve themselves.
 They are able to attract customers into shops by attractive display of the wide variety of
goods they offer and by use of loss leaders.
 They offer goods at lower prices to customers.
 Customers easily recognise the branches of large retailers in other parts of the country by
name or similar shop fronts.
 They offer additional facilities such as banks, restaurants, car parks and saloons.
 Most large scale retailers offer services like credit, after sales and delivery to their
consumers.
 They offer the convenience of one-stop-shopping to consumers as they stock a wide
range of goods.
DISADVANTAGES OF LARGE RETAILERS TO RETAILERS

 Most large retailers no longer offer personal service.

 Most large retailers do not offer delivery services and
credit facility to customers.
 Shop site in town centres are expensive.
 Pilfering of goods by customers is a common problem
because of high customer‟s traffic in large retail shop.
 Large capital is required to start the business with and to
provide customer amenities such as restaurants.
 Large retail shops become difficult to manage when they
increase in number.
 High cost of overheads such as rates, rent since they are in
town enters
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 ADVANTAGES OF LARGES SCALE RETAILERS CONSUMERS

 . Usually large scale retailers give special offers to attract

customers and result in lower prices
 . One stop shopping- consumers are able to buy all they
need under one roof.
 . Self-service in large scale retailer makes it easy for
customers shopping very convenient as they easily identify and pick goods thus
saving time.
 . Delivery facilities may be provided for consumers
durable goods.
 . Consumers can easily recognise the branches because
they have similar layout.

DISADVANTAGES OF LARGE SCALE RETAILERS TO CONSUMERS

o There is less personal contact because customers have to

forgo the personal touch
o No credit facilities is offered because large scale they sell
on cash basis.
o No individual taste for customers with an eye for
individuality must look to small scale retailers for individual attention.
o Consumers over spend due to self-service which leads to
impulse buying.
o Mostly customers are discouraged to go to these shops
because they are located in town centres where there is too much congestion.
o No delivery service is given to customers.

State the methods of buying and selling on credit

 Hire purchase
 Credit sale Agreement
 Deferred payment

ANSWERS

(i) Hire purchase

This is the buying of durable goods such as cars, furniture by initially paying a deposit followed
by instalments over a period of time. Interest is added to the purchase price and the buyer does

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not become the owner of the property until the last instalment is paid but may use the goods
while paying for them.

CHARACTERISTICS OF HIRE PURCHASE

 Buyer takes possession of the goods but does not become the owner of the goods until the
last instalment is paid.
 The item bought may not be sold until the payment is completed.
 The buyer only becomes the legal owner of the goods after paying the last instalment.
 It usually deals with durable goods such as machinery, vehicles, refrigerators and
furniture.
 In the event of the buyer failing to pay the instalments, the goods may be repossessed.
 The repossession is subject to certain legal limitations such as if 1/3 of the purchase price
has been paid, then a court order is required.
 There is usually a maximum value of transactions.

ADVANTAGES OF HIRE PURCHASE

 It enables the buyer to acquire the goods which s/he cannot afford on cash basis.
 The buyer has the use of the goods whilst paying for it.
 Some goods may pay for themselves such as tractors/vehicles.
 The buyer may obtain the goods on current price to beat inflation.
 By spreading payments over a period of time, s/he can save money for other needs.
 It may improve the standard of living of the buyer.
 It is an indirect way of saving though not in form of cash but property.

DISADVANTAGES OF HIRE PURCHASE

 May take on the great burden by forcing him to him to live beyond his means in case the
buyer defaults in payments the goods may be repossessed and the buyer will lose both the
money paid and the article.
 Goods are expensive as interest is added to the cash price.
 The buyer only becomes the owner of the item after paying last instalment.
 The buyer may be tempted to go into many hire purchase agreements.
 The buyer may buy goods he does not need.
 The buyer is not allowed to sell the item until the last instalment is paid.

(ii) Credit sales

Credit sale agreement is the buying of non-durable goods such as clothes, fresh flowers on credit
by which the buyer becomes the legal owner of the goods immediately the first payment is made.

CHARACTERISTICS OF CREDIT SALE AGREEMENT/DEFFERED PAYMENT

 Buyer takes possession and ownership of goods immediately the first payment is made.
 Repayments for goods are made in regular instalments.
 The goods cannot be repossessed if the buyer defaults in payment.
 The buyer can only be sued for the remaining balance.
 Suitable for buying non-durable goods whose value depreciates quickly such as clothes.

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  Where the credit sale agreement is s may signed away from the traders premises, the
buyer may cancel the agreement within the cooling off period.
 A cooling off period is a period of five days from the date of signing the credit sale
agreement in which the agreement may be cancelled, goods returned and customers
deposit refunded, thus returning the parties to their original position.

ADVANTAGES OF CREDIT SALE AGREEMENT/ DEFERRED PAYMENT

 Enables business sales to increase.
 The retailer may avoid wastage of perishable and the risk of goods going out of fashion.
 Enables the retailer to have closer personal contacts with customers for possible future
deals.
 Customers take possession and ownership of goods immediately the first payment is
made.
 The retailer cannot repossess the goods if the buyer defaults.
 The customer enjoys the use of the goods while paying for them.

DISADVANTAGES OF CREDIT SALE AGREEMENT/DEFERRED PAYMENT

 May suffer bad debts.
 Credit sale price may be higher than the cash price.
 Goods cannot be repossessed and where court proceedings are initiated, they may be long
and too costly.
 The retailer loses the right of ownership of goods immediately the buyer makes the first
payment and takes possession of the goods.
 The retailer may require extra capital to finance goods taken on credit.
 The customer may be forced to get a lot of goods on credit, thus burdening him/herself
with instalment repayments.

Distinguish between hire purchase and credit sale

 In hire purchase the buyer pays a deposit and has full use of the item but only becomes
the legal owner of the item upon payment of the last instalment. But under deferred
payment, the buyer becomes the legal owner of the item upon payment of the deposit.
 In hire purchase the seller can repossess the goods if the buyer defaults but in deferred
payment the seller cannot repossess the goods even if the buyer defaults. All he/she can
do is to sue the buyer for the outstanding amount.
 Under hire purchase, the buyer cannot sell the goods until all payments are completed but
under deferred payment the buyer can sell the goods anytime as he/she becomes the legal
owner as soon as the deposit is paid.
 Hire purchase transactions can be financed by finance companies but credit sale cannot
be financed by finance companies.

Explain reasons for protecting consumers.

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  They may be charged abnormally higher prices especially in a situation where the higher
purchase interest are not stated. It is therefore, a requirement that a customer is told the
cash price as well as the hire purchase interest of the item so that he can know how much
more will be paid if the item is obtained through hire purchase.
 Some customers may not be aware of their legal rights such as repossession of goods in
case of defaulting. Where a customer pays 1/3 of the total hire purchase price, the seller
can only reposses the good through a court.
 Some customer may lack the understanding of technical and complicated legal language
that may be used in the agreement.
 The buyer may be put under pressure to sign a hire purchase/credit sale agreement is
signed away from the trader‟s premises, the buyer may cancel the agreement within the
cooling off period.
 A cooling off period is a period of five days from the date of signing the agreement
which the agreement may be cancelled, goods returned and customer‟s deposit refunded,
thus returning the parties to their original positions.

Identify organisations that protect consumers

(i) Legislature

The government passes laws which protect consumers against unfair practices by traders
supplying goods and services on credit, such as charging excessive interest rates, repossessing of
goods on trivial grounds.

(ii) Government

 Acts of parliament establishes statutory bodies that protect consumers against unfair
practices. Such as Zambia Bureau of Standards (ZABS) and Competition and Consumer
Protection Commission whose function is to:
 Inform consumers of their rights.
 Supervise credit facilities given to consumers by finance companies
 Investigate and initiate legal proceedings against traders who repeatedly commit offences
against consumers.
 Protect consumers from buying harmful goods and low quality goods.
(iii) Consumer associations

Voluntary associations are non-profit making organisations, which are financed by members‟
subscriptions fees. In Zambia there is Consumers Protective Association of Zambia whose main
function is to protect consumers from unfair trading practices.

 To carry out comparative tests on goods sold in shops.

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  To publish the findings of tests in association magazines.
 To identify and recommend to members good quality products discovered in comparative
tests.
 To inform members on legal matters relating to the purchase of goods.

WHOLESALE TRADE
Identify types of wholesalers
Explain the functions of the wholesaler
Explain advantages and disadvantages of a wholesaler

ANSWERS
 Cash and carry
 Independent
 Specialist
 General

Functions
 Buys goods in bulk from the manufacturer hence clearing the manufacturers‟ production
line
 Warehouses the goods awaiting demand to ensure steady flow of goods, hence preventing
price fluctuation(evens out prices) and allowing the manufacturer to produce the goods
ahead of demand
 Breaks bulk and sells goods in smaller quantities to retailer
 Finances the retailer by providing credit and manufacturer by paying promptly
 Acts as an intermediary between manufacturer and retailer by passing
information/complaints to manufacturers
 Provides a variety and wide range of goods for the retailer and consumer which is
gleened from different producers
 Prepares goods for sale by branding and blending them.
 Provides transport (delivery) for goods from manufacturer and to the retailers premises
 Operating cash and carry warehouse.
 he is a risk bearer, that is by storing the goods on behalf of the producer or rtailer, the
goods may go out of fashion or they may be gutted by fire or stolen whilst in the
warehouse.

Services of wholesaler to manufacturer

 Buys goods in large quantities/bulk from manufacturer in this way the manufcturer is able to clear
his production lines and have less truck on his premises.
 Finances the manufacturer by paying promptly/paying within the credit period and this affords
manufacturer to have constant supply of goods.
 Provides information to manufacturer and this enables manufacturer to assess the present and
future of state of market.

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  He acts as a middleman between the manufacturer and the retailer
 Warehouses seasoned goods on behalf of manufactures and therefore prevents a shortage and
price changes.
 Prepares goods for sale (branding, prepackaging and blending)
 Partly finished goods and becomes responsible of the wholesaler for finished process.

Services of a wholesaler to the retailer

 Sells in relatively smaller quantities to the retailer (breaking bulk)
 Delivers the goods to the retailer‟s premises free of charge/offers transport
 Provides retailer with market information, which is passed on to the consumer, so that they are
able to know what new goods are coming on the market.
 Finances the retailer by providing credit
 Provides the retailer with a variety of goods from various manufactuers.
 He acts as a reservoir
 He operates a cash and carry warehouse
 He acts as an intermediary between the retailers and the manufacturer
 Offers trade discount
 Allows the retailers to have a steady flow of goods at stabilised prices throughout the year

Services of a wholesaler to the consumer

 he ensures a stead flow of goods
 he stabilises the prices throughout the year
 he provides the consumers with a variety of goods
 he provides the customers with information from the wholesaler , such as consumer‟s complaints
and suggestions
 offers special promotions that are passed on to the consumer
 he gives credit facilities to the retailer which results in an increase of retail shops being opened
near consumer‟s home

Explain the advantages and disadvantages of a wholesaler

Advantanges
 buying goods in bulk from producers at factory prices
 -to break the bulk in smaller amounts required by retailers
 -to warehouse goods bought in bulk from producers
 to supply retailers with a variety of goods
 to bear risks of fashion change, fire,theft, whilst goods are in warehouses
 -to offer credit facilities to retailers
Disadvantages

 -there is no personal contact with customers, and thus some customers may be lost to other
wholesalers offering personal services
 goodwill of the business may be adversely affected by lack of contact with customers
 delivery services are not offered to retailers

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Documents used in home trade

(i) Identify documents used in home trade

(ii) Explain documents used in home trade
(iii)Draw documents used in home trade
(iv) Fill in documents used in home trade
(v) Explain cash and trade discount in home trade

Identify documents used in home trade.

 Inquiry
 Tender
 Price list
 Qoutation
 Order
 Advice note
 Delivery note
 Consignment note
 An invoice
 Proforma invoice
 Credit note
 Debit note
 Statement of account
 Cheque
 Reciept
Explain/ Draw documents used in home trade

Teachers to draw/supply documents for the pupils

Inquiry
This is a letter prepared by the buyer and is sent to the supplier
asking for the availability of goods, their sizes, prices, delivery dates and terms of sales.
It is possible to make a verbal inquiry on the telephone, and ask for a quotation although verbal
inquiries may not be taken seriously.

How the buyer may obtain the information s/he requires before placing an order
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 o send for a catalogue and price list/trade journal
o send an inquiry to the seller and receive from him/her a quotation or
catalogue or price list
o telephone the supplier and quotation him for any information
o by attending a trade exhibition/trade fair organised by the seller
o by asking the seller for demostrations for his/her goods
o by asking the seller for visits by his/her sales representative

A tender
This is sent to the seller in response to an advertisement inviting quotations or estimates
for the supply of certain goods or services. An estimate is an order to carry out a service
or to undertake work for someone at a certain price. This price is only the expected cost
of the work to be done and is not a definite price.
The terms of payment may include cash and trade discount.
Trade Discount
o it is a reduction from from the list or catalogue price
o it is usually shown or calculated on the invoice
o it is allowed to those in trade(one trader to another) or customers who are buying
to sell again for a profit/usually refferred to as profit margin
o usually varies with the quantity purchased and with the custom of that trader
o it encourage bulk buying
o may be varied to avoid the expenses of reprinting the catalogues
Cash Discount
o it is a reduction from the invoice price
o it is given to encourage prompty payment (early payment), eg. 5% within 14
days
o it helps to avoid bad debts and improve/speeds up the cash flow system of the
business
o it enables the retailer to earn a good reputation with the supplier

The Differences between trade and Cash discount

Cash Discount Trade Discount

It reduces bad debts It saves the reprinting of catalogue
Aids cash flow of the business Encourages repeat orders
Reduction from the invoice price Reduction from the catalogue price
Encourages the buyer to pay promptly/quick It encourages bulk buying
payment

A Catalogue
 This is usually in form ofa booklet/pamphlet with pictures of goods
 containing description of the product,

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  the terms of payment and terms of sale
 such as trade discount, cash on delivery and cash with order
 The prices may be shown under the article.
 They are usually issued once a year or at longer intervals
 and are normally printed by the outside firm, which makes them more expensive.
 They are usually used by the supplier as a means of advertising their goods.
 They are more common in mail order firms.

A Price List
 This is usually used with the catalogue.
 Each item in the catalogue is numbered and the same number is shown in the price list,
along the price for the item.
 A number of price list may be issued for use with only one catalogue because of the cost
of reprinting catalogues when prices change.
 The buyer will usually obtain a list from several firms and compare prices, taking careful
note of the respective terms offered by each.
 It shows the list of goods in stock with their prices
 The description of the goods such as the colour, quantity and quality.

THE QUOTATION
 This is a reply to the inquiry.
 It is usually sent by the supplier to the customer.
 contains a detailed description of goods asked for/available such as colour and quality,
 the price at which goods are offered,
 terms and conditions of sales including terms of payment and delivery date.
 The customer uses the quotation to compare prices and conditions offered by various suppliers
before placing the order.
 It shows name and address of the seller

THE ORDER
This is an instruction to the supplier to supply a particular good(s).
It can be made on a special order form or in an ordinary letter.
Orders may also be placed verbally on the phone, but verbal orders must be followed up by a written
document to avoid misquotation and the supply of wrong items.
The order contains:
 The description of the goods required;
 The quantity ordered;
 Price, as given in the quotation or catalogue;
 Delivery date and cost of carriage;
 The terms of sale specifying whether there is credit or not and the discount offered. The
importance of the order is that it confirms the customer‟s seriousness in purchasing the item.

ADVICE NOTE

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 The advice note is sent to advise the buyer that the goods ordered have been despatched.
 It is usually sent ahead of the goods.
 It specifies the method of transport used, date of despatch, quantity and description of the goods.
 If the goods do not arrive within a reasonable period of time the buyer should advise the seller.
 As the advice note usually shows what is on the invoice,
 it provides an opportunity for the buyer to spot any mistakes, which can be corrected quickly or in
advance, and to prepare the necessary space for the goods when they arrive.

A DELIVERY NOTE

 It usually contains the same information as the advice note.

 It is sent with the goods in order to assist the buyer to check the goods on arrival.

 It is used only when the seller is using his or her own transport to deliver the goods to the buyer‟s
premises

 A duplicate copy is signed by the buyer acknowledging receipt of the goods.

 The delivery note is usually the same as the invoice, except that the prices are Omitted

The purpose of the delivery note is:

 To provide the buyer with details of goods being delivered such as quantity of the goods and the
description of the goods

 To help the buyer check the goods on their arrival

 To enable the driver deliver the right type and amount of goods
 To allow the seller obtain receipt of deliver

A CONSIGNEMENT NOTE

 This is a document used when the seller sending goods to the buyer by hired transport.

 It is a request and instruction to the carrier to accept and deliver a certain consignment to the
consignee.

 It is made out in triplicate.

 The carrier‟s driver will sign one copy and give it to the sender who will keep it as his/her receipt.

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  It contains the address and name of the consignee;

 a description of the goods;

 the quantity of goods or number of packages;

and a statement of who is responsible for any possible damage to the goods and freight charges.

 The consignment note is sent together with the goods and the consignee signs it to acknowledge
receipt of them when the goods arrive.

 The carrier will then produce this copy when claiming the freight charges (if it is not pre-paid).

 An invoice

 This is a bill sent by the supplier to his customer containing details of the goods supplied relevant
to the order made, such as description of goods sent, quantity supplied, price charged, terms of
sale, trade discount and value added tax if any.

It is important because:

 It shows the quantity of the goods supplied, the unit and total price

 It tells the buyer the amount he/she owes the supplier and,

 Shows the details and description of the goods,

 Discount given (trade discount) and Value Added Tax (VAT)

 It shows name and address of the buyer and seller

 It is used by the supplier to start the accounting process

 It is the request for payment for the goods supplied by the seller

 It is form the basis of a contract of purchases or sale of the goods between the buyer and the seller

 It gives details of goods supplied to the buyer

 The buyer may also verify if everything ordered has been sent by checking the invoice against the
order (if there is no delivery note).

A PROFORMA INVOICE

Is a special type of invoice sent before the goods are delivered if there is any doubt about the credit
standing of a new customer, or if the goods are being sent on approval. It shows same information as the
invoice.

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A CREDIT NOTE

 This is usually printed and typed in red so that it will not be confused with an invoice or a debit
note.

 It is issued when the seller owes the buyer some moneyand totals are usually subtracted from the
invoice before it is paid./reduces the amount indicated on the invoice

 Informs the buyer that his/her account has been credited

 A credit note is sent by the seller to correct an overcharge, or to allow for the return of faulty
goods or empty crates and containers which the buyer has paid for.

 It is also issued for surplus quantities of goods returned to the supplier

 Shows the unit price, total price of the goods returned, trade discount and reasons for the return
such as for wrong goods supplied.

 Shows name and address of the buyer and the seller

 The credit note is important because it corrects the mistake that appears on the invoice.

 It is usually printed in red ink to show that money is going out from the business

 This is a document sent to the buyer by the seller if he/she has been undercharged.

 It is issued to claim the extra money outstanding.

 In other words the debit note asks the buyer to pay the difference or amount by which he/she has
been undercharged. It may be issued if, for example:

 Some delivered items are committed on the invoice

 Pricing errors are made on the invoice

 To increase the amount indicated on the invoice when then buyer was oversupplied but under
charged

DEBIT NOTE

 This is a document sent to the buyer by the seller if he/she has been undercharged.

 It is issued to claim the extra money outstanding.

 In other words the debit note asks the buyer to pay the difference or amount by which he/she has

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 been undercharged. It may be issued if, for example:

 Some delivered items are committed on the invoice

 Pricing errors are made on the invoice

 To increase the amount indicated on the invoice when then buyer was oversupplied but under
charged

 To notify the buyer that his account has be further debited

 Increases the amount indicated on the invoice/it is a supplementary invoice

 The importance of the debit note is that it informs the buyer of the undercharge and claims the
extra amount outstanding.

 The seller has a right and obligation to issue both the credit and debit notes if the letters “E&OE”
are printed on the invoice. This means Errors and Omissions Excepted”, so if any mistake is
made on the invoice the seller can issue the note to make the necessary correction.

THE STATEMENT OF ACCOUNT

This is a summary of all transactions made between the buyer and seller during the month. It is sent by
the supplier to the buyer every month. The main pieces of information contained in the statement of
account are:

 The balance owing at the beginning of the month, if any;

 Amount of invoices issued during the month;

 Payments made during the month;

 Credit/debit notes issued during the month and net amount owing at the end of the month;

 This document is important because;

 It confirms the transactions made during the month;

 It reminds the customer that payment is due;

 It enables the buyer to compare the accounting records kept by the supplier with his/her own
records.

NOTE: entries made in the debit column increases the balance figure and entries made in credit

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 column reduces the balance figure

 The last figure in the balance column shows the amount of money the buyer owes the seller at the
end of the month

A Chequeis sent by the buyer to the seller as one of the method payment for goods. Since the
date on the cheque is the day on which the purchaser paid the supplier, the cheque acts as a record
of date of payment. Payment for the goods could also be made by standing order, credit transfer
or direct debit. The cheque contains the following information:

 The date on which the cheque is drawn

 The name of the payee

 The bank on which the cheque is drawn/name of the drawee

 The drawer‟s name and signature

 Amount to be paid both in words and figures

A receipt

This is rarely used today since the cheque act of 1957, the cheque itself when it has been paid in the
seller‟s account, and returned to the drawer, acts as a receipt. If payment is made through the credit
transfer system, the statement and the attached credit transfer slip are stamped by the bank cashier which
act as a receipt.

FOREIGN TRADE
(i) State the importance of foreign trade

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(ii) Mention the problems experienced in foreign trade.
(iii)Explain the documents used in foreign trade.
(iv) Explain the functions of the revenue authority.
(v) State the requirements for a harbour or port.
(vi) State the importance of bonded warehouses.
(vii) Describe the means of payment.
(viii) Explain the balance of trade and payment.
1. State the importance of foreign trade

 No country can produce or manufacture all the goods it needs.eg climatic conditions
limits the type of crops that can be grown in countries of the world.
 Certain minerals are not found in some countries; therefore, countries must import certain
goods they cannot produce.
 Enables consumers to have a higher standard of living by making available a wider range
of goods in the country.
 Enables a country specialise in industries in which it has an advantage.
 It brings foreign currency in the country in which can be used to pay for imported goods.
 International trade fosters political friendship and mutual understanding.
 It may be cheaper to buy certain goods from abroad than producing them in Zambia
 Avoids wastage of surplus goods by allowing any surplus goods produced to be exported
to other countries to pay for goods being imported in order maintain the balance of
trade and payment.
 It brings about new technological development into the country.

2. Mention the problems experienced in foreign trade

 Distance involved
 Different methods of payments due to different currencies used in different countries.
 Language problems such as in communication and advertising.
 Obtaining orders on foreign markets.
 Custom duties imposed, quotas, prohibitions may be involved
 Delays in settlements due to political factors and exchange controls
 Different customs are involved
 Different forms of transport may be needed due to long distances involved.

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  Different laws e.g. complicated documentation involved
 Production problems
 Possible customs / cultural barriers.

3. Explain the documents used in foreign trade

Documentary credits
 Means of payments in international trade
 A documentary credit is granted by the importers bank referred to as the issuing
bank
 A named bank in the exporter‟s country. The bank in the exporter‟s country is
referred as corresponding bank.
 The exporter receives payment for his goods when he presents documents such as
bill of lading, insurance policy, certificate of origin, letter of hypothecation etc. at
the corresponding bank.
 A documentary credit may be revocable, irrevocable, or confirmed.
 A revocable documentary credit is a credit arrangement that can be cancelled at any
time by the importer..e.g if the importer is not happy with the goods delivered by
the exporter, she can cancel a revocable credit.
 Irrevocable documentary credit is a credit arrangement that cannot be cancelled.
 A documentary credit is therefore important because;
 .payment is guaranteed by the bank to the exporter on production of necessary
documents
 .the exporter does not need to wait until goods reach the importer before receiving
payments.
 .the importer is also secure in the knowledge that payment will not be made to the
exporter until the necessary documents are handed to the correspondent bank and
the documents found to be in order.

BILL OF EXCHANGE

 Mainly used in foreign trade

 Drawn by the importer
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  Sent to the importer who signs and writes “accepted” to signify
 That he will make payment at the previously agreed time.
 The bill can be discounted or
 Sold for cash, at a discount, to a merchant bank or discount house
 It can also be transferred to the third party in payment of goods and services.

BILL OF LADING

 Is a document of tittle to the goods and a negotiable instrument

 It acts as a receipt of goods receive on board a ship.
 It is an evidence of a contract of carriage of goods the ship between the sender of
goods and the shipping company.
 It is a quasi-negotiable instrument which can used to negotiate for a letter of credit
from the bank.
 It is prepared at least in a set of three.
 It gives details of goods delivered that is the quantity, description and the number of
packages.
 A bill of lading is an essential document in the carriage of goods by sea and it shows
details of goods transported by ship;
 The point of loading and discharge
 The name of the ship.
 The freight receipt if payment had been made in advance.
 The holder of the bill of lading may take possession of goods stated on the bill. A bill
of lading is therefore an essential document in documentary credit procedure.

CHARTER PARTY.

 It is a contact made between the ship owner and the shipper (exporter).
 It is used when hiring the ship\part of the ship for transporting goods.
 It can either be a voyage or time charter.
 It contains details of lay days and demurrage.

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 CONSULAR INVOICE.
 It is a document which allows correct customs duty to be charged on imported goods.
 It avoids importation of prohibited goods.
 It quicken the clearance of goods at the customs checkpoint.
 It contains detailed information necessary for compilation of statistics on imports and
exports.
 It certifies that the prices on the invoice are correct.

INDENT
 It is an order to an agent to order goods from abroad.
 It is not an order for goods but a letter asking the agent to order goods.
 It gives a description of goods to be ordered.
 It shows the quantity and prices of goods required.
 It also shows the terms of payment.
 Whether there is a credit or discount.
 May be sent through a buying agent that is a closed indent or general nature of goods
required then it is an open indent.

LETTER OF HYPOTHECATION
 This is a document which gives authority to the importer‟s bank to sell the goods.
 Should the importers refuse to accept the bill of exchange.
 Or fail to make cash payment for the goods consigned to him/ her.
 May be attached to the bill of exchange together with other relevant documents.

CERTIFICATE OF ORIGIN
 Document used to certify where goods are produced by the exporter
 To certify country of origin and is signed by the consul of importing country resident in
the exporters country

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  It helps to lower rate of custom duty on goods coming from trading bloc/ partners e.g.
SADC, PTA, EU, ECOWAS, COMESA etc. Duty free as duty varies depending on
country.

CERTIFICATE OF INSURANCE
 This is a document issued at the time when a contract is made to cover goods in transit.
 May be for a specific journey (voyage policy) or for a period of time (time policy).
 Used in documentary credit when placed with the bank by the exporter for credit
facilities.

4. Explain the functions of Zambia Revenue Authority

 Collection of data (statistical records on imports and exports).
 Control of bonded warehouses.
 Collection and calculation of duties.
 Enforcing trade restriction such as quotas.
 Stops entry of prohibited goods.
 Prevents smuggling.
 Inspection of ships/vehicles/aircrafts
 Supervision of imports exports
5. State the requirements for harbor or port
 Deep water with clear access channels to allow huge ships deliver goods at the sea
port without problems
 Loading and unloading facilities such as containers cranes, elevators, forklifts etc
 Repair facilities for ships such as dry docks
 Supplies for the ship such as oil, fresh water and food.
 Enough place for government offices such as customs and immigration offices, police
station etc.
 Buildings for commercial services such as banks and hotels.
 Warehousing facilities
6. State the importance of bonded warehouses

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  Allows for the preparation of goods for sale
 By either grading, bottling, blending
 Enables exporters to avoid payment of customs duty for goods to be re-exported
 Protects goods from theft, damage and bad weather
 Importer may postpone payment of duty.
 Pending export and awaiting transport
 In postponing duty helps in economising/maximising his working.

7. Describe the means of payments in foreign trade

BANKER’S DRAFT

 It is equivalent to a Banks‟s own cheque

 It is also referred to as a bank certified cheque
 The bank then writes a cheque to be drawn on its self
 In the local currency equivalent to the amount of foreign currency
 Usually used for payments overseas in international trade
 Is used where large sums of money are involved
 And where the payee, not known by the debtor, is not happy to accept a cheque
 Convenient for sending money to someone outside the country.

LETTER OF CREDIT

 The importer arranges for a bank in his own country to open a documentary letter of
credit.
 By delivering the letter to the bank (advising bank) in the exporter‟s own country
 The letter states the terms under which payments will be made
 The good are now dispatched to the importer
 The exporter presents the necessary shipping documents to the advising bank
 The advising bank pays the exporter and then

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  Forwards the shipping documents to the issuing bank which
 Pays the advising and
 After receiving payment from the importer
 Releases the documents so that the importer can claim the goods.

LETTER OF HYPOTHECATION

 It gives authority to the importer‟s bank

 To get rid of (sell) goods to any other interested party
 Should the original importer refuse to accept the bill of exchange
 Or fail to make cash payment for goods consigned to him or her
 This makes the exporter avoid the cost of transporting the goods back to his or her
country should the importer fail to pay for them.

TELEGRAPHIC TRANSFER OR CABLE TRANSFER

 This is the fastest means of making payment in foreign trade

 The importer pays his bank the local currency equivalent to the foreign currency
required to pay for the goods
 The importer‟s bank transfers the money electronically to the exporter‟s bank in his
country
 This method of payment in foreign trade benefits exporters as it guarantees payment
for goods and services supplied

BILL OF EXCHANGE

 A bill of exchange is an unconditional order in writing addressed by one person to

another
 It is signed by the person giving it, requesting the person to whom it is addressed to
pay on demand at a fixed or determined future date, a sum of certain amount of
money to or to the order of a specific person or to a bearer

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  It arises where the distance between the supplier and the buyer so large that is there
is a delay of perhaps several weeks between the dispatch and arrival of the goods
 The bill of exchange is more likely to rise in foreign trade
 The importer will need proof that goods have sent before he can accept the bill
 A copy of the bill of lading, which is signed by the ship captain and proves that the
goods are on their way, will therefore accompany it
 A copy of the insurance certificate (policy) covering the goods will also accompany
the bill of exchange as well as any invoice in connection with the deal.
 Once the bill has been drawn up it is sent to the importer who signs on it,
“accepted” to acknowledge his debt and to signify his agreement to the terms of the
bill.
 A bill of exchange is a negotiable instrument and as such it is transferable. The
exporter can discount it for cash even before the actual payment is made.
8. Explain the balance of trade
 It‟s the financial record of the country‟s trade in goods.
 It‟s the difference between imported goods and exported goods of a country.
 It is calculated by subtracting imported goods from exported goods or simply visible
exports less visible imports.
9. Explain the balance of payment
 This is a record of trade and financial transactions with the rest of the world.
 It may be divided into two sections, which is currents accounts and capital accounts.
 Calculated by exported goods + services less imported goods +services or visible
exports + invisible exports less visible imports + invisible import.

BUSINESS UNITS

(i) Identify different types of business units.

(ii) Explain different types of business units.

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 (iii)state the advantages and disadvantages.

ANSWER

1 I Different ways in which business is organized

BUSNESS UNITS

PRIVATE SECTOR
-sole trader PUBLIC SECTOR
-partnership
-private limited company
-public limited company Central Government Local government
-Co-operative society

Ii Private enterprise

-Business owned and organized by private business men and women whose
motive is to make profit.

Public enterprise

-Business owned and organized by government without a motive of making

profit.

Ii Sole trader

-Business owned and controlled by one person

SOURCES OF FINANCE FOR A SOLE TRADER

 Personal savings in the bank etc

 Loans and overdrafts from banks
 Trade credits

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ADVANTAGES OF SOLE PROPRIETORSHIP

These are as follows;

 Easy to set up
 Does not require a lot of paper work
 Profit is not shared owner enjoys prpfit by himself
 Has self interest in the business
 Understands needs of his customers
 It‟s an alternative to those who fail to find employment
 Decisions are made fast
 The financial records of the business are made secret , not published to public.
 This type of business is suitable to almost any type of business eg retailing

DISADVANTAGES OF SOLE PROPRIETORSHIP

These are as follows;-

 Has little capital for expansion of his business
 Does not share losses with anyone
 His business is at a stand still if owner is not available
 It lacks continuity if owner dies that is the end of the business
 May lack skill of business
 There is too much competition from large scale retail outlets

PARTNERSHIP

-Business owned and controlled by two or more people.

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  - Has a minimum of two and a maximum of twenty people except
professionals can reach up to fifty members.

-owner‟s are called partners

FEATURES/CHARACTERISTICS

These are as follows

 It is formed by a minimum of 2 partners

 It has a maximum of 20 members but professionals reach up to 50 members
 Ownership and control is not separate from owners.
 It has no separate legal entity
 Each partner is entitled to run the class
 Partnership is common among estate agents, insurance brokers,

ADVANTAGES OF A PARTNERSHIP

 More capital is raised than a sole trader

 Business greatly benefits from the experience of all partners
 Partnership is easy to set up
 There is division of labour
 Financial accounts are not made known to the public
 Ideas are shared among partners
 Loses are shared “

DISADVANTAGES OF A PARTNERSHIP

 Partners have unlimited liability except for limited partners

 Partnership lacks continuity of existence. Death of one partner may end the
partnership

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 Has no separate legal existence
 Disagreements and quarrels are obvious amongst partners
 Conflicts may arise were sharing of profits is concerned

TYPES OF PARTNERSHIP

ORDINARY PARTNER

- This is a partner that contributes towards the capital of the business and does
part in everyday running of the business. He has unlimited liability.

DORMANT/SLEEPING PARTNER

This is a partner that contributes towards the capital of a business, but does not
take part in the everyday running of the business. He has limited liability.

MULTINATIONAL COMPANIES

These are companies that have branches in more than one country, they are
usually public ltd companies and are usually the largest companies in the world.
The main objective of these companies is to dominate the largest market share in
profitable areas and to let all branches benefit.

ADVANTAAGES OF MULTINATIONAL COMPANIES

These are as follows;

 The taxes they pay boost the government of the host country.
 They create employment
 They bring knowledge, skills and technology
 They bring in foreign exchange from the goods they sell abroad
 They provide variety goods and services

39
  They trade on an international basis as they have variety market in different
countries world wide which is an advantage to the host country in export
trade.
 They enjoy great economies of scale

DISADVANTAGES OF MULTINATIONAL COMPANIES

These include;

 They intend to exploit local employees

 They come with their own experts or professionals even if the host country
has skilled personnel
 Decisions made are usually delayed because they are made at the
headquarters.
 They remit back the profit to their country.
 They prevent transfer of knowledge into the host country by making sure that
researches are done in their country.
 Control is done from their country as such the policies made may not be
conducive for the host country.

2 I Describe the documents needed for the formation of different types of businesses

Ii state the similarities and differences between private and public companies.

Iii Distinguish between private limited and public limited company

iv Explain the advantages and disadvantages of the private limited companies

ANSWER

2 I Partnership deed/Articles of partnership

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  It is a written document which spells out duties and rights of partners. It may include the
following points:
 Name of partnership
 Amount of capital contributed by each partner
 Ratio of sharing profits and losses
 Specific rolls played by each partner in running business
 Salaries of partners working full time in the business
 How and where financial records will be kept
 How much each partner can draw from the business for personal use
 Articles of association
 Contains internal rules of conducting the affairs of the company which includes:
 Voting rights of shareholders
 Duties and powers of the board of directors
 Payments of dividends and procedures for transfer of shares
 How books of accounts will be kept

. Memorandum of Association as obtaining in companies Act

 Looks at external relationships of the company and the outside world

 Contains the following:
 Name of the company ending with LTD for private limited company
 Ending with Plc for public limited company
 The address of the company registered head quarters
 The objectives of the company
 The statement that shareholders have limited liability
 The amount of authorized capital
 The list of founders or promoters

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CERTIFICATE OF INCOFRPORATION

 It is the birth certificate of the company

 Gives the company separate legal entity
 At this point the company can sue and it can be sued
 It can enter into contracts with people and organizations
 It can own property
 It can employ people
 It can buy goods and services

SIMILARITIES BETWEEN SOLE TRADER & PARTNERSHIP

 Both have unlimited liabilities

 Both have no separate legal entity
 Both have no assured continuity of existence
 Both are controlled directly by the owners
 In both, business affairs are kept privately

DIFFERENCES BETWEEN SOLE TRADER & PARTNERSHIP

SOLE TRADER PARTNERSHIP

Formed by one person Formed by 2 to 20 people except for

professional partnerships who can reach 50
Does not share profit with anyone Profits are shared amongst partners
Capital is usually less than that of partnerships Capital of a partnership is usually more because
because capital is contributed by one person 2 to 20 partners contribute it
No division of labour There is division of labour

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  SIMILARITIES BETWEEN PRIVATE LTD CO. & PUBLIC LTD CO.
 Both are formed by a minimum of 2 people
 Both are registered with the registra of companies
 Both are separate legal entities
 Both are controlled by board of directors
 Capital for both companies is raised by the sale of shares
 Owners for both companies are called shareholders
 Founders of both companies are required to prepare articles of association and
memorandums of association
 Both companies hold annual
general meetings

Iii DIFFRENCES BETWEEN PRIVATE LTD CO. & PUBLIC LTD CO.

PRIVATE LTD CO PUBLIC LTD CO

Shares are sold privately Shares are sold publicly to the general public
Shares are not sold at the stock exchange Shares are freely offered for sale at stock
exchange
Name of private limited company Co. ends Name of public limited company ends with
with LTD Plc.
For private limited company, financial For public limited company, financial accounts
accounts are not advertised to the general are advertised to the general public.
public
A private limited company can start business A public limited company can only start
immediately its incorporated operating when it has raised the required
capital

Iv ADVANTAGES OF PRIVATE LIMITED COMPANIES

 All shareholders have limited liability

 Continuity of company existence even after death of a shareholder

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 Has separate legal existence from shareholders who formed it
 It has more capital because of more shareholders
 More borrowing capacity
 Contracts made on behalf of business are entered into the name of the company
 Financial accounts are not advertised to the public but are kept privately

DISADVANTEGES OF A PRIVATE LIMITED COMPANY

 Shares cannot be offered for sale to the general public

 There is restriction on the transfer of shares
 There are more formalities in forming a company
 There are more formalities in running a company
 Separation between shareholders and people managing the company may lead to conflicts
 Shares of a private limited company are not sold on the stock exchange

ADVANTAGES OF A PUBLIC LIMITED COMPANY

 All shareholders have limited liability

 Has greater borrowing capacity
 Has continuity of existence even if an important shareholder dies
 Shares are sold to the general public
 Enjoys great economies of scale
 Shares are sold at the stock exchange
 Its able to meager or take over or to acquire other businesses

o DISADVANTAGES OF A PUBLIC LIMITED COMPANY

 More costs and more legal formalities in formation

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 Maybe taken over if another company buys 51% of shares
 Publication of financial accounts for public inspection reduces privacy
 Management of a public limited company becomes difficult as a company grows in size
 Separation between shareholders and the people managing the company may lead to
conflicts with shareholders
 More formalities in running the business

PUBLIC SECTOR

(i) Explain public sector

(ii) Describe features of public corporations
(iii) Explain advantages and disadvantages of public utility corporations
(iv) Explain the similarities and differences between public utility corporation and
public limited company

ANSWERS

Public Sector comprises businesses owned and controlled by the central government and
the local government.

 LOCAL GOVERNMENT
 Businesses run on behalf ofthe part of the country. For example city , district, etc

 CENTRAL GOVERNMENT
 Businesses run on behalf of the whole nation eg zesco services are offered to the whole
population. Central government also control nationalized industries

NATIONALISED INDUSTRIES
These are businesses that were privately owned but have been taken over by the
government due to various reasons.

REASONS FOR NATIONALISATION

These are as follows;

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 To enable the government to control prices
 So that goods and services are distributed evenly
 In order to service capital projects such as building a school.
 In order to control important services such as water supply, electricity supply.
 The government take over a business organization in order to create employment for
political reasons.

PUBLIC CORPORATIONS

These are business organizations set up by an act of parliament to run and control a
nationalized industry.

1. Features of public corporations

 Owned by government on behalf of the citizens of the country
 Controlled by the board of directors appointed by minister in charge of the ministry
 The public corporation is formed to provide goods and services at reasonable prices to
members of the public
 Capital is provided by the central government in form of grants
 Loans may also be obtained from creditors
 Profits obtained by public corporations are used as follows:
 Improve infrastructure in the country
 Some p0rofits are plowed back in the business
 Repayment of loans
- A selected committee investigates workings of the public corporation

ADVANTAGES OF PUBLIC CORPORATIONS

(Arguments for public corporations)

 Profits made are used to develop the country by constructing infrastructure

 Creates employment to a number of people in the country
 Serve the public even in areas where business may not be good

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  Large scale production is possible
 Essential or strategic good and services such as electricity can be controlled by the
government
 Government is able to implement policies such as maintain low prices of certain goods or
services
 It is a source of income to the government therefore may help in reducing tax
 They enjoy great economies of scale because they are usually big

o DISADVANTAGES OF PUBLIC CORPORATION
o (Arguments against public corporations)
 Difficult to manage because of the large size
 Decisions may be delayed due to too much bureaucracy and red tape
 Losses made in public operations are paid by tax payers
 There is inefficiency and poor performance due to the I don‟t care attitude
 Performance of public operations is affected because of political interference
 When the government takes over most of the private businesses foreign investors may be
scared away
 Workers may campaign against the government if the public operation is a major
employer

iii. DIFFERENCES BETWEEN A PUBLIC COMPANY AND A PUBLIC

CORPORATION

PUBLIC LIMITED COMPANY PUBLIC CORPORATION

Formed by a minimum of 2 shareholders Set up by an act of parliament
Owned by Shareholders Owned by government
Motive is to make profit Motive is to provide services at reasonable
price

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Capital is raised through selling shares to the Capital is raised through government grants
general public
Board of directors elected by shareholders The minister in charge of the ministry appoints
controls the public limited company the board of directors to control the public
corporation
The working of the company is controlled by The public corporation is controlled by an
the board of directors elected committee by parliament
Shareholders share profits as dividends Profits made are used for improving
infrastructure in the country

STOCK EXCHANGE

1. Describe the stock exchange

 The stock exchange is a highly organised market for the purchase and sale of
second hand quoted securities. (Quoted Securities are those, which the Stock
Exchange Council has agreed may be sold on the Stock Exchange and includes
equity securities and debt securities)
 Equity securities include the different types of shares while debt securities include
central government and local government bonds.

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  The Stock Exchange provides a facility that enables Companies to raise long-term
capital from members of the public (Investors) and investors to exchange their
shares for cash.
 Those investors who want to dispose of their investment because they need cash
and those who want to invest because they have surplus cash available are given a
platform on which they can do the exchange.

 Since prices are not fixed, the Stock Exchange does not and indeed cannot
guarantee that an investor who sell shares will receive as much as he paid for them,
but except in very unusual circumstances, the investor knows that he will be able to
dispose of his holding on the other hand, the Company that issued the Securities
knows that the money paid/raised is permanently at its disposal. People can sell and
buy shares in a particular company without the company‟s capital being affected in
anyway.
 When a public limited company offers shares for sale to the public for the first time
on the stock exchange, this is referred to as primary market trading.
 When shares that have been bought through a primary market trading are offered
for sale or purchase at the stock exchange, this is referred to as secondary market
trading.
 Members of the public do not deal directly with the stock exchange but through
licensed brokers.
2. Explain the types of shares

Share
A share is a unit of a limited company‟s capital. When a person buys a share in a
company he/she becomes a part owner of that company and is entitled to a share of its
profit (dividend). The term “equities “is sometimes used instead of shares because they
represent an equal share of the capital of the business, and an equal division of profits.

Stocks and Bonds

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  Stock or bonds are often sold by the government when they want to raise money
for financing a government project.
 What this means is that if you buy a government stock, you have in fact lent
money to the government.
 Government bonds represent a very safe form of investment because they are
backed by government resources.
 They are issued for a fixed period of time (e.g. three months, six months, nine
months, and so on) and receive a fixed rate of interest.
 Some countries, Botswana included, restrict the sale of government stocks to
citizens only.

Debentures
 Debentures are loans to a company. They are not shares. Debenture holders are
called creditors, and not shareholders.
 Debenture holders are the first to be paid a fixed rate of interest out of company
profits before shareholders are paid their dividends. The rate of interest is
indicated in the debenture title e.g. 8% Debentures.
 Debenture interest is paid to debenture holders whether the company makes profit
or loss. If the debenture holders are not paid interest, they can force the company
to go into Liquidation i.e. forcing the company to sell its assets to pay for the
debenture interest and part of the loan.
 Debenture are quoted on the stock exchange
 Debenture are repaid on fixed dates
 Debenture do not carry voting rights, and therefore do not participate in the
management of the company

The main types of debentures include:

Naked debentures and Mortgage debentures
Naked debenture
 These are ordinary loans which do not require any asset to be guaranteed to
lenders as security

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Mortgage debenture
 These are loans which are secured against assets of the business
3. Explain the establishment, purpose and functions of the Lusaka Stock Exchange
 The Lusaka stock exchange was opened on 21st February 1994 as a non-profit
making public limited company.

Reasons for the establishment of the Lusaka stock exchange

 To promote and encourage private sector enterprise and initiative.
 To attract local and foreign investment through the recognition of Zambia as an
emerging capital market with potential investment returns.
 To facilitate the privatization of parastatals companies (i.e. public corporations)
and the creation of wealth for Zambians through wide ownership of shares.
 To develop and establish a securities exchange in Zambia.
 To remove all exchange controls and to enable free movement of funds in and out
of the country.

Functions of the Lusaka stock exchange

 To provide a source of cheaper, long term capital for existing and new companies.
 To provide an opportunity for the Zambian people to share in the success of
private enterprise and the privatized parastatals companies.
 To encourage the international investment community to invest in Zambian
business and industry thus increasing substantially the pot of money available to
business.
 To facilitate the privatization of state owned companies as part of the economic
reforms to liberalize the Zambian economy, promote private sector initiative and
create a free market system.
 To promote wealth creation through wide ownership of shares by Zambian
citizens.
 To provide an efficient, fair, orderly and transparent market for secondary trading
in shares and other marketable securities.
4. Identify the main players on the Lusaka Stock Exchange

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 The main players of the Lusaka Stock Exchange include: brokers/dealers, listed
companies, private investors, institutional investors, underwriters, merchant banks,
government and foreign investors.

Brokers/Dealers
Brokers/dealers are professionals who are trained to help the general public in buying and
selling shares on the stock exchange. They are licensed and authorized by the Security
Exchange Commission as members of the Lusaka stock exchange to trade in stocks and
shares.

The brokers on the stock exchange may act in dual capacity as an agent of the general
public as well as a dealer in stocks and shares. When a broker acts as an agent of the
public, he performs the following duties:

 He buys and sells shares on behalf of members of the general public.

 He buys or sells shares for his customers at the best price shown on the stock
exchange. This is called the execution rule.
 He advises buyers and sellers on a particular type of shares to buy or sell, on
future performance of the company, on the right price of shares etc.
 He prepares documentation, for example when a deal to buy or sell shares is
concluded, a broker prepares a contract note which gives details of the purchase
or sale of shares, the amount to pay or receive for the shares and all other
expenses incurred including his remuneration.
 He takes care of all the details required to complete the process of buying and
selling shares at the stock exchange.

When a broker acts as a dealer at the stock exchange, he performs the following duties:
 He buys and sells shares for himself as a principal with a view to make profit.
 He deals with stockbrokers and not with members of the public.
 He may specialize in certain types of securities (shares). For example he may
specialize in mining shares only or in oil shares.

52
  He is a market maker who quotes prices of certain stocks and shares on the stock
exchange.
 He prepares documentation, for example he prepares a contract not when a deal to
buy or sell shares is concluded.
 He advises clients on market conditions etc.,
Listed companies

Listed companies are companies whose shares are registered with the stock exchange
Commission for public trading on the Lusaka Stock Exchange.
They are companies that have:
 Met the LUSE listing requirements.
 Their listings approved by the LUSE listing committee and the full LUSE Board.
 Paid the listing fee in accordance with the market value of their issued capital.

Private investors
Private investors are individuals who have cash, which they can save or invest by
buying shares of selected companies traded on the stock exchange.

Institutional investors
These are companies and institutions that invest money in company shares. Examples of
institutional investors include insurance companies, pension funds, building societies
etc.

Underwriters
Underwriters are investors who agree to buy a certain number of shares that are being
issued on the stock exchange usually by a new company if the public does not buy
them. Underwriting ensures that a certain number of shares will definitely be sold so
that there will be sufficient funds to start the business width.

The Government

53
 The government sells stocks or bonds on the stock exchange to raise loan capital for
building schools, hospitals, bridges, buying military equipment etc.

Foreign investors
Foreign investors can invest in growth sectors of tourism, agriculture, mining, banking
and many more and enjoy high returns.

The benefits of being a shareholder

The benefits to a person who buys shares in a company include:
 One is able to receive dividends from companies whose shares he owns.
 He gains from the increase in value of shares since if the company performs well,
the demand for shares will be high and share prices will go up.
 He may attend and vote at the company general meetings, receive regular
information on the company and copies of the annual reports and accounts.
 He will have the right to buy further shares if the company decides to issue them.
 He will benefit from the bonus declared by the company. A bonus is a free issue
of shares to shareholder.

BANKING

(i) Identify types of financial institutions

(i) Outline the services offered by financial institutions

(ii) Identify types of accounts offered by financial institutions
(iii) Compare types of accounts offered by financial institutions
(iv) Identify types of documents used in banking

54
 (v) Compare and contrast the means of payment through the bank
(vi) List the functions of the central bank
(vii) Outline the electronic cheque clearance system

Identify types of banking institutions

Commercial Banks

Financial institutions that provide banking services to business and ordinary people with the
intention of making profit.

Building Society

o Offers savings and fixed deposit accounts

 Provide estate and insurance services.
 Buy at stock exchange on behalf of customers.
 Provide mortgages.

Credit Union and Savings Associations

 A credit union is a member owned financial cooperative, democratically controlled by

its members and operated for the purpose of promoting thrift, providing credit (loans)
at competitive rates.
 Those with accounts with credit union are its members and owners and they elect the
board of directors in a one man one vote basis regardless of the amount invested.

National Savings and Credit Bank (NATSAVE)

 Its role is to provide small-scale business people with micro-finances to run their
ventures.

 This is because these businessmen and women cannot access the finances that the other
bigger banks provide because of high interest rate.

 Their main objective is to provide effective and efficient financial services in order to
alleviate poverty and help to develop small indigenous businesses in Zambia.

Identify Non- Banking Institutions

Micro Finance Companies

A micro finance company is a financial institution that provides banking services to the
unemployed, poor or low income individuals or groups who would otherwise have no other
means of gaining financial services from big banks and financial institutions.

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Bureau De-change

This is a financial institution that offers currency changing services to the general public.

Insurance companies

This is a financial institution that offers insurance services to the general public.

Explain the services offered by banking institutions

 They finance traders by means of loans and overdrafts.

 They give advice to customers on business investments.
 They give trading information to traders on local and international markets.
 They receive payments on behalf of customers.
 They buy and sell shares at the stock exchange on behalf of customers.
 They provide customers with night-safe facility.
 They provide foreign exchange to the general public especially those in foreign trade.
 They may act as executors and trustees for customers.
 They issue customers with credit cards.
 They provide customers with automated teller machines (ATM).
 They provide customers with safe custody for wills and other important documents.

Explain types of accounts offered by financial institutions

Current Account
 A current account is used by individuals and organizations that wish to safe keep
money but would also like to withdraw some of the money at any time.
 It uses cheques for withdrawing cash from the bank and also making payment
hence calling it a cheque account.
 There is no minimum amount required to maintain a current account.
 It is the only bank account that allows overdraft.
 No interest is paid on deposits because money is withdrawn at any time and
therefore the bank does not make use of the money. The customer pays ledger fee
instead.
 Cheque books are issued to current account holders.
 Bank statements are periodically issued to customers.

When a customer overdraws his/her account the overdraft may be indicated by the letters DR or
the overdraft figure printed in red hence the saying “the customer is in red “.
Opening a Current Account
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  An application form for opening a current account is first completed.
 The bank might be interested in knowing whether the prospective customer is honest
or not and therefore would ask the applicant for referees.
 The bank would also ask the prospective customer to sign a specimen signature card.
This helps the bank to recognize signatures of its customers and thus avoid forgery on
cheques.
 Once the bank satisfied with the details given by the applicant, it would allow for the
current account to be opened. A cheque book would be issued to the new customer.

Advantages of Holding a Current Account to a Bank Customer

 The customer is able to make payment s by cheque and keeps used cheques as
receipts of payments.
 Money can be withdrawn at any time.
 A customer is allowed overdrafts when faced with temporary financial problems.
 The customer is able to receive financial advice on business investment.
 The customer is able to get loans.
 No minimum balance required to maintain the account.
 The customer can obtain foreign exchange.
 Safe keeps customers money.

Savings Account
 A savings account is used by people who would wish to save fairly small amounts
of money.
 A minimum balance is required to maintain the account.
 Interest is paid on savings

Advantages of Holding a Savings Account

 Interest is paid on savings account deposits.
 Safe keeps the customers money.
 Able to obtain foreign exchange
 Able to receive financial advice on investments.

Deposit account
 A deposit account is used by bank customers who wish to safe keep large sums of
money not needed for immediate use.
 Money can only be withdrawn from a deposit account after an agreed fixed period.
Early withdraws are not allowed as the customer is charged interest if money is
withdrawn before the agreed period.
 Capital and interest is repaid in full on maturity.

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  There is a minimum investment capital required for one to open a fixed deposit
account.
 Overdrafts facilities are not allowed on fixed deposit accounts.

Advantages of Holding a Fixed Deposit Account

 A higher rate of interest is paid on deposits.
 Safe keeps customers money.
 Can receive financial advice on investment.
 No fees charged for operating a deposit account.
 Capital and interest is repaid in full on maturity.

Save As You Earn

 A Save as You Earn (SAYE) plan enables eligible employees of a company to be granted
options to acquire shares in the company. Under this plan, an employee enters into a
saving contract with the company which may take 3 to 5 years.

 A SAYE contract form is provided by the commercial bank or building society selected
by the company. At the maturity of the savings contract, the employee will have the
option of using the savings to acquire shares in the company.

 However, if the market value of shares has fallen, the employee will opt to be repaid
his/her money plus the tax free bonus accrued.

Investment Account
This is a type of an account held at a financial institution for the purpose of a long term
investment for capital preservation and growth for fixed income. Investment accounts are those
which earn higher rate of return than normal bank accounts.
Building Societies
This financial institution provides loans for the purchase or building of houses. It also offers
savings and fixed deposit accounts similar to those offered by commercial banks. Its main
services are:
 Provide the public with access to finance (mortgage lending) to build or buy houses.

 Offers savings and fixed deposit accounts to the general public.

Identify types of documents used in banking

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 Bank Statement
 A bank statement is a record of all the transactions that have gone through an account. It
is issued to the customer periodically e.g. monthly or on request so that he/she can check
it against his/her own record.
 Customers having ATM cards can also obtain mini-statements from ATM.
 Pay-in-slip/Deposit slip

 This is a form available in banks and is used to deposit money into a bank account.
 Each deposit slip has a duplicate which is returned to the depositor duly sealed and
signed by the bank official.
 It gives details regarding date, account number, amount deposited and name of the
account holder.
 Withdrawal slip

 This document is a document that is used to withdraw money from a savings/deposit

account. The account holder has to indicate the account name, account number, branch of
bank, date, amount to be withdrawn in both figures and words.
 The documents should be duly signed by the account holder.

Explain the Means of Payment through the Bank

Cheque
 A cheque is a written order by a current accountholder to a bank to pay a specified
amount of money to the person named on the cheque.
 There are three parties to a cheque, namely Payee, Drawee and Drawer.
 There are two types of cheques namely “order cheque and bearer cheque”
 A cheque can either be open cheque or crossed cheque.

Open Cheque

An open cheque is a cheque that is not crossed on the left corner and payable at the counter of
the drawee [bank] on presentation of the cheque.

Crossed cheque

This is a cheque which has two parallel lines drawn across the face of the cheque.

Types of crossing

General crossing
A generally crossed cheque is a cheque which:
 Has two parallel lines drawn across its face with or without words in between the
crossings.

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  Does not have a name of the bank between the crossings.
 Can be deposited at any bank where the payee happens to have a bank account.
 Can be endorsed and passed on to another person in settlement of debts.

Account payee

a/c payee only

Adding a crossing to a cheque increases its security in that it cannot be cashed at a bank counter
but must be paid into an account in exactly the same name as that which appears on the „payee‟
line of the cheque (i.e. the person who has received the cheque, who is legally the “payee” and
“holder” of the cheque).
Not negotiable
The words 'not negotiable' can be added to a crossing.
The effect of such a crossing is that it removes the most important characteristic of a negotiable
instrument: the transferee of such a crossed cheque cannot get a better title than that of the
transferor (cannot become a holder in due course) and cannot convey a better title to his own
transferee, but the instrument remains transferable.

Special crossings
 Has two parallel lines drawn across its face with the name of the bank written in between
the crossings.
 Must be paid into a bank account at a branch of the bank named between the crossings.
 Cannot be deposited at any bank where the payee happens to have a bank account but
only at a bank named between the crossings.
 Cannot be endorsed and passed on to another person in settlement of debts.

Specific bank
A crossing may have the name of a specific banker added between the lines. A cheque with such
a crossing can only be paid into an account at that bank.
The beneficiary bank can add an additional crossing to allow another bank, who is acting as their
agent in collecting payment on cheques, to be paid the cheque on their behalf.
Elements of a valid cheque

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A valid cheque must have; a date, must not be stale, should have the drawer‟s signature, the
amount in words and figures must be the same, it should have the name of the payee.

Dishonoured Cheque
It is a cheque that has been refused payment by the bank. When it is refused payment it is
returned to the payee with the letters (R/D meaning referee to drawer) written on it.
It is the duty of the payee to find out from the drawer the reasons for dishonouring the cheque.

The reasons for dishonouring a cheque include the following when:

 There are insufficient funds in the drawers account to honour the cheque.
 The drawer‟s signature differs from the specimen signature.
 The bank learns of the death of the account holder.
 The drawer does not sign the alteration on the cheque.
 The cheque is stale i.e. it is more than six months old.
 The cheque is stopped by the drawer. A cheque is stopped when the drawer instructs the
bank to honour the cheque. This may happen when the cheque is stolen or lost.
 The cheque is post-dated. A post-dated cheque is a cheque that is dated ahead of the date
it is being written. For example a cheque written on 24 the September 2017 but dated 2nd
January 2018 is a post-dated cheque.

Standing order
A standing order is an instruction to the bank by its customer to pay fixed sum of money at
regular intervals to specified person or organisation. It is used when making regular payments
of a fixed sum, which must not be paid once, but repeatedly over a period of time. The bank
makes payment on behalf of its customer for as long as there is enough money in the
customer‟s bank account. The bank will continues paying until the customer instructs the
bank to stop.

A standing order is therefore convenient for use when:

 -Paying for hire purchase instalment.
 -Paying for insurance premiums.
 -Paying for mortgages.
 Advantages of standing order to a bank customer making payment
 -The customer does not need to remember date on which to make payments.
 -It is safer and cheaper method of payment than sending cash or cheques by post.
 -Payments are made promptly.

Advantages of a standing order to a bank customer receiving payment

 -The customer receives payment promptly, and thus can make good business plans for
his money.
 -He is saved troubles of sending reminders to debtors
 -No time is wasted in counting money and in depositing money at a bank.

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 Credit transfer
A credit transfer is used when making single payments or when making multiple payments to
people or organisations with bank accounts at other branches or within the same branch or at
other banks.

How Payment Is Made By Credit Transfer

 A person making payment prepares a list of people to be paid with their bank addresses
including amounts each individual is to be paid indicated against their names.
 The person then prepares a cheque or enough cash to meet the payment, once the cheque
or cash is deposited into the bank, the bank would transfer respective amounts to the
credit side of each person‟s bank account.
 The person receiving payment must have an account but the person paying may not have
one.

Advantages of credit transfer to bank customer making payment

 Funds are transferred directly into the bank accounts of people to be paid using only one
cheque.
 Paper or clerical work is greatly minimised.
 It saves time when paying several people.
 It is safer and more secure method of making payments.
 No money is wanted for postage of cash or cheques.

Advantages of credit transfer to customer receiving payment

 The customer is able to receive payment promptly.

 Time is not wasted in counting money.

Direct Debiting

DIRECT DEBITING: - Is used for making payments that vary in amounts such as payments for
subscriptions to professional bodies and clubs.
How Direct Debiting Operates
 In agreement with the buyer the seller is authorized to ask for payment on dates he or she
wants from the buyer‟s bank.

 The seller takes the initiative to inform the buyer‟s bank of the amount owed which is
then transferred to the seller‟s bank account.

 Amounts may vary and paid to the seller on varying dates fixed by the seller.

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Advantages of direct debit to the bank customer making payment:
 Enables payments that vary in amounts to be paid from time to time.
 Reduces clerical work as there is no need to change or alter records whenever there is
an increase or decrease in amount s to be paid.
 The customer does not need to remember the dates on which to make payments.
 Payments are made promptly.
 Cheques do not have to be written.

Advantages of direct debit to the bank customer receiving payment

 Payments are received on dates wanted by the creditor.
 Direct debit avoids outstanding debts and bad debts.
 Payments are received promptly.
 Direct debit is safer and more secure method of payment.
 Time is not wasted in counting cash notes or in depositing money at bank.
 The creditor can ask for payment from the debtor‟s bank at any time payment is due.

Banker’s draft

 A bank draft is an equivalent of the banker‟s own cheque.

 It is drawn by the bank on itself.
 It may be used as a means of payment when the person offering payment is not known
personally to his/her creditors, particularly when large sums of money are involved.
 It can be used when the bank‟s guarantee of payment is needed.

Cash dispensers (ATM)

These auto bank services consist of machines that are set into outside walls of banks or at
convenient locations like filling stations, hotels and shopping complexes.
 Automatic teller machines are cash dispensing machines which operate 24 hours service.

 For a customer to access cash from this machine he/she must have a connect card which
is issued by respective banks.

 Automated teller machines can access any customer‟s bank account, check the credit
worthiness of the customer and pay cash out at once.

 There is a limit to the amount of cash a customer can withdraw in a day.

List the functions of the Central Bank (Bank of Zambia)

 Supervising the financial institutions
 Printing and minting of money

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  Government banker
 Lender of the last resort.
 Bankers bank
 Servicing the national debt.
 Protection against counterfeit money
 To ensure appropriate monetary policy formulation and implementation
 To act as the fiscal agent of the Government
 To license, regulate and supervise banks and financial service institutions registered
under the Act to ensure a safe and sound financial system
 To manage the banking, currency and payment systems operations of the Bank of Zambia
to ensure the provision of efficient and effective service to commercial banks,
Government and other users.

Outline the electronic cheque clearing system

The clearing of cheque is a process by which various banks come together and settle the amounts
they owe each other as a result of their customer‟s business transactions.
 Each bank collects all cheques presented by its customers and sends the images to its
clearing department usually at the head office.
 The cheques are sorted and put according to banks they belong. The values of all the
cheques from each bank are totalled.
 Any indebtedness would be settled by the central bank by moving the difference from
one bank‟s account to the other. This is possible since all commercial banks maintain
their accounts with the central bank as a rule.
 Cheque images are then sent back to the clearing department at the headquarters of a
bank on which it was drawn. The images are then sent back to the drawer‟s branch.
 At the drawer‟s branch the cheque is checked for all details once they are correct and
there is enough balance in the drawers account, it is debited with the amount on the
cheque. The cheque is then cleared.

INSURANCE

(i) Explain insurance

(ii) Explain the principles of insurance
(iii) Explain insurable and non-insurable risks
(iV) Explain types of insurable covers

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(V) Explain work of insurance brokers

ANSWERS

 I - Insurance is an aid to trade, which under takes to cover risks, that may or may
not (probabilities) in business
- And if they happen, they will cause financial losses. It involves the insurer and
the insured.

- Insurer
 This is the party (insurance Company) which under take/ giving the cover or Insurance

- Insured:
 This is the party (person) seeking for insurance or guarantee of compensation.

- Definition:
 -Insurance is the legally binding guarantee given by the insurer to
 -compensate/indemnify/restore or cover the insured for any financial loss which
 -may be suffered as a result of the occupancy of a specified event
 -which may or not occur (probabilities).
 -In return for this guarantee the insured makes a periodic payment called premium
to the Insurer.
 The premiums are paid into a central fund (pool) for the claims of the unfortunate
few (ones).
 -The profit on the Insurance Company is based on the statistical probability that
only a small percentage of the insured person will ever have to make claims.
 -Therefore, the premium of many pays the claims of the unfortunate few who
have suffered financial loss as a result of an insurable risk leaving the excess as a
profit for the insurer for the services he provides.

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  The larger the number of people contributing to an Insurance pool for a particular
risks the less likelihood of that group suffering a large percentage of loss than the
average for all the people open to the risk.
 This is known as law of average. This is because there is less chance of loss to
the Insurance company.
 When the number insuring a particular risks with it, is large, the amount or
premium likely to be charged is lower.

Purpose/Functions of Insurance
 To pool the risks of many insured persons and spread the financial losses of the
unfortunate few over the fortunate few over the fortunate many.
 It reduces the risk of financial loss by giving indemnity i.e. giving security to the insured.
 It reduces, fear by increasing funds, which might otherwise have to be set aside in case of
a calamity.
 It allows businessmen and businesswomen to enter into large-scale contract, which might
otherwise be avoided for fear of loss.
 It is also on invisible export and means of saving for some people (in the case of an
endowment policy)

Why it is important for the business people to insure their items

- If a loss occurs, the businessperson will receive compensation if he does not insure his
business he may end up going out of business
 It gives people the confidence to continue conducting businesses because if they suffer,
the insurance company will compensate them
 Claims against business people may be too large
 Business people are required by law to take public liability insurance, for example,
employer‟s liability insurance.

Pooling of Risks
 Pooling of risks is the basis of insurance which enables the fortunate ones to help the
unfortunate ones.

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  A policy holder pays a premium into the pool from which compensation is paid to those
who claim.
 The funds in a pool must be sufficient to cover compensation, administration cases and
leave some profits for the insurance company.
 There is likely to be a separate pool for each risk.
 Some companies like Kokoda Copper mine and Mopani Copper mine may run their own
risk, that is use self insurance.
 If there are many who wish to insure against a particular risk, more premium is
contributed, but if there are few calamities, the premium is low.
 For the principle of pooling of risks to work, the insured persons must not suffer losses
all at the same time. If they all suffer the loss at once, they can be no enough funds in the
insurance pool to pay everyone.

Ii PRINCIPLES OF INSURANCE
These are the basic „rules‟ of insurance which are applied to ensure that the policy is
effective and it is not prone (open) to abuse:
 Utmost good faith
o -Both the insured and insurer must reveal every relevant and material facts
relating to the policy being undertaken.
o -The insured must fill in the proposal form by telling the truth without leaving out
any material facts relating to the contact.
o -This enables insurance company to assess the risk and decide whether or not to
accept it and then determine the amount of premium
o -The insurance company must also act in the utmost good faith by settling
material facts relating to the contract.
o -The contract may be declared null and void if utmost good faith is not followed
by both parties (breach or utmost good faith) renders the contract well and avoid.

 Indemnify
 This principle states that the policy holder must be restored/compensated to hisor or her
former financial position without making profits out of a loss.

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 She is not allowed to make profit out or a loss as she may cause the risk to occur.
 Indemnity does not apply to life assurance and is limited to the sum insured or the market
value of the object, therefore the insured must not over insure or under insure.
 In order not to violet this principle there are two rules under principle of indemnity.
o These are;
o Contribution
 Applies if the policy holder insured with more than one insurance company.
 In this case, insurance companies contribute proportional amounts to make up for the
loss.
o Subrogation
 Applies if the insured is fully compensated/Indemnified for the loss E.g. in the case of a
vehicle stolen or damaged, the damaged (scrap vehicle) or recovered property belongs to
the insurance company.
 The principle of average under indemnity means that if the insured does not increase
the amount of the cover when the value of the insured object increases, he will not
receive the full compensation in the event of the claim, instead he will receive part of the
compensation based on the average cause or the ratio of the amount to cover the market
value of the object
i.e . Amount insuredx Amount of compensation
Actual value of object

 c) Insurable Interest
 It states that only the person who stands to lose financially if the risk insured against has
the legal right to insure the property or life
 That is, the person must own the property if s/he has to insure it.
 It prevents people who are not owners of the item from insuring the property
 If people were allowed to insure items or lives which do not belong to them,
 they might be tempted to deliberately cause the loss in order to claim compensation
 And thus making profit out of the loss
 This will defeat the principle of indemnity because

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  The insured was not in the position to lose financially hence s/he could not be
indemnified

d) Proximate cause
This doctrine entails that the insurance company can only compensate a person who has
suffered a loss if the risk insured against is the immediate cause of the loss.
 There is no compensation payable if the loss caused by the risk is not insured against
 For instance, if Mr Ilanzi assures his life against death by motor accident and as he is
travelling from isoka to Kitwe, he dies of a heart attack no compensation would be
paid,
 this is because, the immediate cause of his death is a risk which he did not insure his
life against.

Taking out an Insurance Policy

 The person seeking insurance cover approaches the insurance broker
 S/he obtains and completes the proposal form which an an application for insurance
 It gives details of the risk to be covered against and details of the applicant.
 The proposal form must be filled in utmost good faith.
 The proposal form is important to the insured because;
 It enables the insurance company assess the risk and decide whether or not to accept
the risks and fix/set premium and finally issue the insurance policy, setting the terms of
the contract (it forms the basis of the contract).
 *An insurance policy is a paper written as evidence between the insurance company
and the person insured.
 Where the important information relating to the object being insured is not disclosed on
the proposal form, the contract may be declared null and void

Procedure involved in making a claim

 Inform the police immediately the loss occurs/happens

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  Notify the insurance company of the loss as soon as it happens(possible)
 Notify the insurance company if the object was insured with the other insurance
company
 Complete the claim form giving full details of the loss suffered
 Insurance company employees (assessors) inspects the damage
 They assess and determine the amount of financial loss suffered
 In order to arrive at a fair and reasonable amount of compensation, the client signs an
agreement of loss form to bind him to accept the amount of compensation arrived at
 The insurance company settles the claim by paying money
 Or by paying in kind, eg, buying the same object of the same model
 The remains of the object are subrogated to the insurance company

An Insurance Policy
 It is a document which sets out terms and conditions of an insurance
 Covering the precise risk
 Period of cover
 Exceptions such as life assurance like suicide
 And the amount of premium to be paid

Iii insurable and non-insurable risks

A risk is any event that results in a financial loss. Risks are categorised in two. Insurable and
non-insurable risks.
Insurable risk
These are risks that the insurance company accept to cover because;
 they have occurred before
 It is possible to calculate premium
 It has passed records
 It is easy to assess the occurrence of the misfortune e.g. fire, accident.
Non insurable risk

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  These are risks which the insurance company refuse to cover because;
 They have no passed records
 It is difficult to calculate premium
 It is difficult to assess the misfortune occurrence
 It has not occurred.eg mismanagement of a business

IV Types of insurance covers

 Because there are many risks facing individuals and businesses, many different insurance
policies have been designed to offer various insurance cover. These are:-

Life Assurance
 -The term assurance refers to certainties,
 The term insurance refers to probabilities,
 That is, risks that may or may not happen such as fire, theft, accident and flood..
 The principle of indemnity, does not apply to life assurance
 Because when a person dies, no amount of monetary compensation will restore him/her
to life.
 Assurance is looked at as a form of serving plan rather than insurance.
 It is true we all know that we are going to die but we are not sure when we will die.
 Life assurance is a good way of ensuring that surviving members of the family are
taken care of
 if we die young we are likely to leave a widow and young children with no money to
look after them. This is where life assurance will be helpful.
 Life policies are normally sold by insurance agents who are different from brokers.
 Insurance agents act on behalf of a company. They never handle premiums.
 -The premiums are paid directly to the insurance company

 Life assurance policy covers the following:

a) Whole life policy

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This is a policy under which a person assures his/her life for a certain sum of money which will
be paid to his/her dependants after his/her death.
 the person divides how much he wants to assure his life for and the insurance company
 Calculates the amount of premium to be paid monthly or yearly.
 The assured pays premium for his/her entire working life until death.
 To fix premium, the Insurance Company will look at the age, health records occupation
as well as the duration and the amount of cover required – if the assured dies, the money
is then paid to his/her dependants and beneficiaries.

(b) Term Policy

 This is a policy which covers a person for a fixed period of time e.g. twenty years.
 The premium is cheaper as the insurance company does not have to pay anything if the
person lives up to the period covered.
 It may act as a form of saving for some people.
 She/he can take the policy for the duration of the loan.
 It is good for someone buying a house through mortgage.
 If he/she dies before furnishing paying for the loan, the procedures are used to pay off
the loan.
 The main disadvantages of this policy is that no value at the end of its full period.

c) ENDONMENT POLICY
Under this policy the assured is covered for certain period of time.
 The period may be from 5 years to 20 years.
 It provides compensation in money (sum assured) either at maturity date or death of the
assured person whichever comes first.
 Endowment policy serves two useful purposes f:
 Endowment policy profit with profit assures the assured person to share profit made by
the insurance company from the premiums.

Fire Insurance

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  Fire is a risk that has caused untold misery to mankind.
 The major Insurance cover available are

(a) Ordinary fire insurance

 Provides cover/insurance protection to a wide range of property such as personal and
business buildings, and there content against damage caused by fire.

(b) Consequential Loss

 This is the loss of profit suffered as result of an insured risk
 For example; a trader may insure his/her retail shop against fire.
 If later fire totally destroys the retail shop,
 Then the trader has not only lost the business buildings and contents
 But also the profit she/he was making.
 The loss of profit is a consequence of fire destroying business building and the contents.
o Therefore, a consequential loss insurance provides compensation for:
o -Loss of normal business profits as a result of an insured risk. E.g. fire
o -Business expenses to be paid for when the business buildings are not in use.
 I.e. expense that may continue to be paid after the building are destroyed
are salaries, interest on loan etc.
o -Renting or an alternative building.

Factors considered when fixing the premium for the insurance.

 The number of people wishing to insure
 So as to apply the law of big numbers
 Type of cover required
 Age of the person or the object
 Purpose for which the object is used for
 Value of the object
 Number of people using the object
 Security gadgets fitted to the object

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  Make of the object
The size of the premium for pure insurance depends on the likely hold of fire breaking out and
the following are some of the factors considered are.

 Materials used in the construction of the building i.e. whether materials are bricks or
wood or concrete and whether roofing is a thatch or iron sheets or asbestos.
 Whether inflammable materials such as petrol, diesel, paraffin etc are stored in the house
or not.
 Nature of the surroundings of the house i.e. whether there is danger of fire breaking out
from the neighbouring houses or not.
Whether additional fire protection facilities are available or not e.g. fire brigade services
provided by local government.

Accidental Insurance
This branch of insurance covers a wide range of Insurance policies and includes the following:

(a) Motor Vehicle Insurance

 It is compulsory by law far motor vehicle owners to Insure
 Against loss or damage to third parties.
 In a contract of motor insurance, the two parties actually connected with the
Contract of Insurance are the insurer who is known as the first party
 And the insured person who is called the second party.
 The third party is any member of the general public
 To whom death or body injury may be caused
E.g. passengers, pedestrians, other motorists etc.

A variety of motor Insurance policy exists. The main ones include the following:

(i) Third party motor insurance

 Third party motor insurance is the minimum motor insurance
 Any vehicle that moves on the road is required to have

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  Third party provides compensation only to third parties
 For death or body injury caused to them damage to their property.
 The insured‟s own vehicle is not covered.

(ii) Third party, fire and theft motor insurance

This type of insurance covers
 Third parties for death or body injuries caused to them and their property.
 The insured‟s own vehicle
 for accidental damage to the vehicle,
 injury to the driver, loss of the vehicle by fire, theft or by instant mob justice.

(iii) Full comprehensive

Full comprehensive insurance covers a variety or risks that may happen to the vehicle. It is
therefore the best and at the same time the most expensive type of motor insurance.

Factors considered when fixing the premium for motor insurance

The size of the premium payable on motor insurance depends on many factors which include the
following:
 Experience of the number of accidents the type of vehicle being insured has been
involved in based on statistics insurance companies have in their possession.
 The number of people wishing to insure against the risk or say, road traffic accident, so
as to apply the low of big number.
 The type of motor insurance required whether it is third party or comprehensive
insurance etc. comprehensive insurance covers many risks and therefore higher are
charged.
 The age of the driver young people are charged higher premiums because they drive
fast, and therefore more likely to cause accident.
 The purpose for which the vehicle is used e.g. higher premiums are charged on sport
cars than on family cars which are not used for car racing.

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  The value of the vehicle – A new car stolen or damaged would require more money to
repeal than an old car. Therefore higher premiums are paid on new cars than old ones.
 The number of people using the vehicle premiums are lower when the motor insurance
required is meant to cover one driver. Higher premiums are charged where the vehicle
is used by many drivers.
 Occupation of the user. The size of premium for a teacher driver, for example may be
less than that of sales person when is always travelling across the country selling
goods. A teacher is found in class most of the day and is therefore less likely to cause
accidents. Female drivers are usually better drivers than male drivers and so less
premiums for ladies than gentlemen.

(b) Employer’s Liability Insurance

 This class of accident insurance provides compensation of employees for deaths, diseases
etc.
 Suffered whilst at work
 Or as a result of the employer‟s negligence
 For example a shutter in Zambia Railways may lose both legs in an accident while on
duty.
 If employer‟s liability insurance was taken by Zambia Railways, then the
insurance company would compensate the injured employee without employer‟s liability,
the employer might not be able to continue if a substantial claim was made as all the
money of the company can just be used to pay compensation to the employee.

Public Liability
Public liability insurance covers business owners and manufacturers against claims by members
of the public for deaths, accidents etc. caused to them due to business owner‟s negligence.

Examples
(i) A minibus owner may insure his/her minibus against the possibility of accident
happening to members of the public whilst travelling on the bus.

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 (ii) A manufacturer may insure against claims for death or injuries resulting from the use
his/her product e.g. a meat pie manufacturer can insure against the possibility of
poisoning to members of the public after eating the meat pie.

The money that may be required in compensating injured members of the public
might amount to a billions of Kwacha. A business without a public liability insurance
may not be able to continue carrying out its business activities if large claims for
deaths or injuries is made on it by members of the public. It is important therefore
that a business takes up a public liability insurance so that claims made by members
of the public for injury or deaths are not by insurance companies. This would leave
the operation of the business unaffected.

(d) Fidelity guarantee Insurance policy

This class of insurance provides to employing for money or goods embezzled (stolen) by
employees. Company employees who handle large sums of money such as accountants
take Fidelity Guarantee insurance and pay premiums. The benefits of the insurance
guarantee policy are however, paid to the employee when an employee is convicted in a
court of law of having had stolen goods or cash.

(e) Credit Insurance

Credit insurance provides cover to traders for losses resulting from bad debts i.e. loss of
money due to non-payment by customers who obtained goods one sources on credit but
later fail to pay for them.

(f) Theft Insurance

This, class of insurance provides compensation to insured persons whose goods are stolen
from homes or businesses or goods in transit.

(g) Air travel insurance

This class of insurance provides compensation to insured person who suffer deaths or
injuries caused by air accident.

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4. Marine Insurance
Marine Insurance Covers losses or damage to property and life caused by sea risks. The
main types of marine insurance are:

(a) Hull Insurance

This class of marine insurance covers losses caused to the body of the ships, its machinery
and fixtures. The sea risks that may cause loss or damage to the ship or goods including
bad weather, collision with other ships, fire, sinking of a ship, bond storage in the ship,
theft, etc.

(b) Cargo Insurance

Cargo Insurance covers importers and Exporters for loss or damage to goods being
transported by sea transport to various parts of the world.

(c) Ship Owners Liability Insurance

This class of insurance covers ship owners against claims that may be made against them.
(i) Death or injuries caused to crew members and passengers.
(ii) Loss or damage caused to other shop in a collision.
(iii) Loss or damage caused to beaches etc.

(d) Freight Insurance

Freight is the sum of money paid to the shop owners whose shop was hired for the
transportation of goods.
At certain times, freight is not paid in advance until the goods reach their final destination.
Freight insurance therefore, covers ship owners against the possibility of not being paid
freight or hire money by clients who do not pay transport charges in advance.

(e) Sellers interest insurance

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  Where goods are sent to a buyer in a foreign country and the buyer refuses to accept
delivery of these goods
 possibly because he/she is bankrupt, the seller‟s interest insurance would cover the goods
while arrangement are being made to sell them for the best price possible.
 Compensation is paid to the seller if the goods are stolen or damaged in anyway before
they are sold.

MARINE POLICIES
Types of marine policies include;
(a) Voyage policy
This type of marine policy is taken out for a particular journey e.g. from Dar e slam to
New York: USA: Cargo insurance is usually taken on voyage policy rather than on a
time policy.

(b) Time policy

Time policy is marine insurance taken for a particular period of time to cover the hired
ship, for instance for a period of six months.

(c) Mixed policy

Mixed policy requires that a sum of money agreed upon between the person seeking
insurance cover
 and the insurer is deposited with under risks so that each time a ship makes a journey
the premium is deducted from the amount deposited with underwriters.
 Floating policies are appropriate where regular shipments of goods are made.
 They save time and troubles of taking out separate insurance policies for each trip
made.

MARINE LOSS
Marine loss may be classified as:
(a) Particular average

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 Particular average refers to any form of cars or injury that may be suffered whilst the ship
or goods are in transit. The losses suffered may be complete or partial loss but it should be
as result of the risks insured against.

v The Insurance Broker

 He acts as a link between the insurance company (underwriter) and the clients as the
clients.
 Cannot approach the underwriters directly.
 He gives information on the policy for a number of insurance companies.
 They are not employed by the Insurance Company but they are independent
professionals, who are on insurance business on their own account.
 They advise clients on the best insurance policy to the damage (scrapped vehicles) or
recovered property of the insurance company.
 He may deal with the full amount of the policy recovered
 He may deal with claims and particular problems affecting the client.
 They collect premium from their clients on behalf of the insurance company.
 They arrange insurance cover and administration (papers) work or clerical work for
their clients.
 Brokers are paid commission by the insurance company for their work.
 Their commission is known as brokerage.

COMMUNICATION

(i) State different reasons for communication?

(ii) Identify postal services
(iii)Explain the postal services

ANSWERS

(iv) State different reasons for communication?

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To operate effectively, firms require a lot of accurate commercial information to move quickly
between persons and firms. Communication is an aid to trade that facilitates the process of
transmitting information from one person or firm to another. This can be done in written, oral,
visual or physical form. Many organisations provide the means by which other organisations can
make contact. In Zambia, the Zambia Telecommunication Corporation and the Zambia Postal
Services are examples of such firms that provide the means by which other firms can
communicate. In addition, there are privately owned companies like Airtel, MTN, DHL, Post
NET etc that provide postal and telecommunication services.

(v) Importance of efficient communication/reasons for communication

Effective communication is essential to a business for the following reasons:

 Internal communication enables managers to issue instructions to their staff to tell them
what to do. This enables the business to operate smoothly and efficiently.

 The staffs are also able to pass their grievances or suggestions to management in an
amicable way if there is a well established and reliable line of communication

 Management can keep staff informed of what is going on so that they are able to perform
their work better. Workers need to be informed of such things as working conditions,
pay, holiday, safety regulations, training opportunities etc.

 It enables the firm to contact its customers to remind them either to pay due accounts or
to invite them to buy new products available for sale.

 It enables a firm to contact its supplies, to either place orders for goods/raw materials or
send payments for goods ordered.

 It enables a firm to contact its suppliers in order to check and establish the market price
and conditions for purchase of goods.

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  It helps firms to discuss and settle problems, complaints, queries, etc. with its suppliers or
customers and or other businesses.

 Worldwide communication systems widen the extent of overseas (foreign) market by

enabling foreign customers to be contacted speedily by telecommunication services, or
airmail.

 It enables a management to organise market surveys and business tours.

 It enables management to call for and organise business meetings.

 It enables the headquarters of a firm with many branches to keep in touch with its
branches

POSTAL SERVICES
These are services provided by the post office for posting and delivering of letters, parcel. They
include the following:

(vi) Identify postal services?

 First Class Post
 This is a fast method of sending letters although it is slightly expensive. Usually, letters
posted by first class services early in the day are sorted and sent very quickly and may be
delivered on the next working day. A trader may use it when sending urgent and
important letters, business documents or even payments especially by cheque.

 Second Class Post

 The post office also offers second-class post. It is a service used for less urgent or
perhaps heavy letters weighing more than 750g. It is slower but cheaper and can be used
for sending printed matter such as catalogues, pamphlets, trade journals, minutes of
official meetings etc.

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 Airmail,

 This is the type of mail that is conveyed by air from the office of origin to the office of
destination. Postage rate is a little higher than for those conveyed by rail or car and it is
charged by weight.

 Surface Mail
 This class of mail is conveyed over the surface by rail, road, and boats in some areas.
Postage rate is lower than that of airmail and it is determined by weight. It can be use by
businessmen to send less urgent messages. The main disadvantage is that it is very slow.

 Express Mail service

 Express Mail service provides fast and safe means of delivering letters and parcels up to a
certain size and weight. The word “Express” must be written clearly in the top left-hand
corner of the package. Mail is personally accepted at post office and delivered to the
destination. Charges for the service are based on distance and weight. Individuals may
use this service to send special gifts to friends and family e.g. gifts, presents etc.

 Registered Mail
 This service is used for sending valuable items such as cash by post. They are recorded at
the time of posting and, the sender is given a certificate of posting or receipt as proof of
posting. Mail items in this category are handled in a hand-to-hand delivery; right from the
sender straight to the addressee. The receiver must provide proof of identification and
sign a post office slip when receiving the mail as proof of delivery. The main advantage
is that registered mail is very safe. If a registered mail is lost, the post office will
normally pay compensation up to certain amount, proportionate to the value of the
package and the registration fee paid on posting.

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 Cash-on-Delivery
 This service enables a trader to send parcels to customers by post and ask the post office
to collect the payment when delivering the item. The money is then remitted to the trader
by the post office, less a small charge. It is widely used by mail order firms. This service
provides a safe guard to both sellers and buyers. sellers do not have money tied up in bad
debts and do not have to keep sending reminders to debtors, while customers do not have
to send off money in advance, perhaps to obscure companies that may take months to
deliver the goods. .

 Courier Services
 This service is provided through courier service named Expedited Mail Service (EMS).
EMS operates along the line of rail. EMS mail is given priority over other mail items in
custom clearance and it is delivered straight to the customers‟ home or office and not
sent through the postal boxes or bags.

 Financial Services
 One other service that is provided by the post office is sending and receiving of money.
Two options are available to customers namely, by money order or postal order. Money
can be sent by money order using the postal money order or telegraphic money order.
Telegraphic money order essentially uses the fax. What happens is that the receiving post
office faxes a message to the paying post office to effect the payment of the sum in
question to the named payee. It is a very fast method of sending money that can be used
if there is need to send money urgently to someone. Usually a commission is charged for
the service.

 Philately
 Issuing of postage stamps and historic items of the post office is done by the department
of philatelic products. Historical stamps and other items depicting postal events are sold
at the post office, e.g. first day cover envelopes and postage stamps.

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 Data Post
 Data Post provides a speedy and reliable service for sending business documents and
goods. It is particularly useful for exchange of computer materials such as tapes, diskettes
etc. This facility provides door-to-door overnight service for delivering packages or
parcels by road so that they can reach their destination by next morning. Packages display
the data post sign and are given special security treatment. It enables packets to be
collected and returned at times prearranged with the post office.

 Poste Restante
 This service enables letters or parcels to be addressed to a post office for it to be collected
in person. The parcel or letter must be marked “poste restante” meaning “to be collected
in person” and addressed with the name of the person to whom they are sent and the
address of the main post office in the town. The person wishing to receive this service
applies in person at the Post Office® branch where they would like to receive mail from.
The person then tells your friends, family and business contacts their Post Office address
as below. All mail sent to the Poste restante address should include a return address on
the back of the envelope
 Here is how Poste Restante addresses can be written: Your name POST RESTANTE Post
Office name Full address of the Post Office Postcode of the Post Office Country (if
applicable)

 The addressee then calls at the post office to collect the mail across the counter. This
service is particularly useful to sales people who continually travel from one town to
another. This service is operated both locally and internally.

 Business Reply Services

 This service enables members of the public to send short replies to businesses without
having to pay for a stamp. It is mostly used by customers for replying to letters of
guarantee, questionnaires and mail order forms. Before the service can be used, a license
must be obtained from the post office and a deposit paid to cover the likely cost of

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 delivering the letters. The trader provides „Business Reply‟ postcards or envelopes that
the customers use for writing replies. When they are delivered, the trader pays a charge
over and above the normal postage.
 Recorded Delivery

 This facility provides a proof of both posting and delivery of letters. Letters sent by
recorded delivery are not posted in the posting boxes but delivered to the counter where
they are recorded and a receipt given to the sender as a proof of delivery. The receiver
signs a form to say that the letter or parcel has been received. If lost or damaged a small
compensation is paid by the post office. It is mostly used by traders who want to ensure
that their debtors receive their bills and by legal practitioners sending important legal
documents by post

 Freepost
 Freepost is a postal service whereby a person sends mail without affixing a postage
stamp, and the recipient pays the postage when collecting the mail. This service allows
potential customers to write to a business, in reply to its adverts, without paying postage.
It is similar to the business reply service except that no special envelope or postcards are
used. Instead the trader includes the word “FREEPOST” in his address. The trader then
pays postage on all the replies received, plus a small charge. typical uses of freepost
includes where a business sends bulk mail to potential customers, the bulk mail including
envelopes or postcards that potential customers can return to the business by freepost. In
another typical use, magazines include subscription cards that potential subscribers can
return by freepost. Because no stamp is needed, many people are encouraged to reply.
Usually the trader obtains a licence or approval from the post office prior to using this
facility.

 Private bags
 Private bags are used for posting and receiving letters. Being lockable, the bags offer
security and can easily be handled. When letters are received by the post office, they are
locked in the mail bag. The letters cannot be removed until the owner collects the bag and

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 opens it at his or her own place. Therefore, private bags provide more security to the
letters than post office boxes.

 Post office boxes.

 A post office box is used for receiving letters and parcels. An individual or organisation
renting a post office box is given a key to the box. Letters can be collected at any time.
The hirer pays an annual fee to the Post Office for renting the box.

 Franking machine
 Franking machines print postal impressions on envelopes. The postal impressions show
the amount of postage, place and date of posting. Franking machines are used by
organisations that send many letters at once. They save time in affixing postage stamps
on each letter.
A franking machine can be bought or hired form a company that sales or manufactures franking
machines. However, before the franking machine can be used, a licence to use it must be
obtained from the post office. The post office sets meters for the franking machines. The hirer of
the franking machine pays the post office according to the units of postage value used.

The continuing need for postal services

Despite the abundant sophisticated telecommunication systems currently available in Zambia,
there has been a continuing need for postal services. The following are the reasons:
a) Postal services are usually cheaper than telecommunication services, and therefore there will
always be people who will prefer to use the cheaper postal services in comparison to the
expensive telecommunication service.
b) Postal services are used in sending goods in parcels over distant places. It is not possible for
one to send a parcel of goods by telephone or by fax, telex or by internet.
c) Postal services do not require special equipment to transmit or to receive messages. Thus
postal services are usually used for sending messages to the remotest areas.

TELECOMMUNICATION SERVICES

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Telecommunication authorities provide several means by which people or organisations can
instantly communicate with each other.

a) The Telephone.
Telephone provides people engaged in commerce with speedy means of contacting with other
business people over any distance either within the country or abroad.

(vii) Uses of telephone services

Circumstances in which a telephone may be used

 When a customer wants to inform the supplier of wrong type of goods supplied, wrong
quantity etc.
 When a customer wants to contact the supplier for an immediate response to a query.
 When a customer wants to inquire on the availability of goods and services from the
supplier speedily.
 When the supplier wants to inform the customer of prices of goods and services and
terms of payment speedily.

Advantages/Importance of a telephone
 It enables business people to immediately contact and speak to a customer, supplier or
another business over a transaction.
 It is helpful in clearing queries between suppliers and their clients.
 It helps business people to get the immediate reply when they want it.

Disadvantages of a telephone as a means of speedy communication.

 A telephone does not provide a written confirmation of the conversation.
 A telephone is not reliable for messages that are highly technical and complicated in
nature. For example it may not be advisable for a trader to place an urgent order for a
spare part for a complicated piece of equipment using a telephone.
 Language would be a barrier of communication on phone if the users do not understand
each other‟s language.

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Telephone Services Offered For Business Use

Toll Free Service

This is a service which allows customers to make free calls to specific numbers in an
organisation, the number will allow the organisation to pay for the calls that the customers make
to communicate with the business. A billing number will be assigned to the company to provide
for monthly rentals and call charges. Customers can make a call to the organisation from
anywhere within the country. The main advantages are that it provides a way of bringing
customers closer to the company. It encourages the customer to make more calls to the business
in order to comment, query, or place orders. This feedback is essential to any organisation, since
it provides information that will help organisations to better position themselves in this
competitive environment.

Voice Mail
Voice mail is a telephone-activated and voice-prompted system that allows you to leave and
receive messages, respond to messages and forward messages to another person‟s mailbox. It
allows people to communicate at their convenience. It has the following benefits:

 Your calls are answered when you cannot.

 Accuracy and confidentiality of message is maintained.
 You never miss a call.
 Continuous availability since it is within the telephone network.

Personal calls
A personal call is a telephone call that specifies a person to whom the caller wishes to speak.

Local call
A local call is a telephone call to another telephone number within the same area or within the
same telephone exchange.

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Trunk calls
A trunk call is a telephone call from one telephone exchange to another distant exchange.

International call
An international call is a call made from one country to another country e.g. from Zambia to
South Africa.

Transfer charge call

A transfer charge telephone service enables telephone charges to be transferred to the called
telephone subscriber provided he or she agrees to pay for the telephone call before it is made.

b) Cell Phones (Mobile/cellular phones)

The cell phone has emerged as one of the greatest wonders in the business world. So much can
now be done using a cell phone than was possible a while ago. It offers the following business
and personal uses:

 It has a provision for sending and receiving short messages.

 It is able to send and receive electronic messages with attachments.
 It has memory capacity to store SMS and E-mails messages.
 It has a provision for phone book where one can store important phone numbers.
 It has storage capacity for photos, music and even work files.
 It is able to keep a historical record of incoming calls, outgoing calls, voice mail, calls
diverted etc.
 Many types of cell phones have an internet provision which can be used for obtaining the
latest market information, stock exchanges share prices, as well as browsing for goods
and services.
 It can be used for online banking as it enables one to check on their account balances,
bank statements, make payments and even receive payments.

c) Telex

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The telex or Teleprinters have been regarded as a combination of a telephone and a typewriter.
Subscribers to this service have a teleprinter installed in their offices and are given a number in
the same way as telephone users. To send a message, the sender dials the receiver‟s number, and
types out the message, manually on the teleprinter. The message is automatically printed at the
recipient‟s office, even if there is no one to receive it. Thus a message can be sent during the
night and await the arrival of the recipient at the office the next morning. It also provides a
written record; hence, it is good for messages requiring written confirmation. The cost of sending
a message on a telex machine depends on the length of the message, the time taken to send it as
well as the distance of the receiver from the sender.
The Telex plus is a more modern development of telex. This enables a subscriber to transmit the
same message to up to 1000 different destination, feeding the message into the machine only
once.

d) Telemessages
These have replaced telegrams as a means of communication quickly with people within the
country without a telephone or telex. The message that you wish to send is dictated over the
telephone to the operator. The message is then transmitted by telex to the office nearest to the
addressee and Zam Post guarantees that it will be delivered with the first class post the following
morning. This is not as efficient as the former telegram service, which normally provided same
day delivery. The overseas telegram service remains.

e) Prestel
(Abbreviation of press telephone)
Prestel is a system, which allows a subscriber to have information extracted from a computer
through the telephone network displayed on an adapted television set. The subscriber can dial
into any 300,000 pages of information on a wide range of subjects. Many of these deal with
current events and are constantly updated, thereby providing businessmen with immediate
checks on such things as commodity prices and interest rates.
Major developments include DATEL, the transmission of computer information via telephone
and telegraph systems, and the provision of the data processing services for commerce and
industry through National Data Processing.

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f) Fax (Facsimile)
This service enables a business to send exact copies of a document to distant places using
telephone lines. The fax machine is plugged into the telephone network and therefore it uses and
the bills are added to the user‟s telephone bills. It is used for sending urgent documents as
quickly as a telephone call. The message is sent by first dialling the fax number of the receiver.
Once an initial contact is
made, the document is put on the fax machine for transmission. As the copy comes out of the
sending fax machine, the exact copy of the same document is being obtained at the receiving fax
machine. Thus documents can be received 24hours a day even when it is after working hours for
as long as the machine is left on. It can transmit documents whether printed, typed, hand-written
or drawn plans.

g) Electronic Mail (e-Mail)

Electronic mail refers to a variety of facilities, which allow computer users to communicate with
other distant computers in different parts of the world. Businesses can use it to rapidly exchange
printed communication using telecommunication links. Its greatest advantage over the post and
fax is that it is faster and more flexible and the message can be as short or as long as you like.
You can send files, spreadsheets, graphics, database, and even audio and video files via E-mail.

h) Confravision or Videoconferencing
This allows people situated at different distant locations to hold face to face discussion, but
without the inconvenience of everyone travelling to the same meeting place. It provides studios
which link up by sound and vision, so that discussions can take place as if all those attending
were present in the same room. Its greatest advantage is that it eliminates the need for time-
consuming and expensive travel. In addition, it eliminates the trouble of arranging overnight
accommodation and having to face the dangers, delays and inconveniences of long distance
travel.

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i) Radio Paging
This service allows a user to send a telephone number or message to another user. It provides a
beeper, which warns people of the message, either, that they are required, for example, to return
to their point of operation or to their phone. Some systems are so advanced that they provide a
visual display on the pager, of up to 70 characters, called message masters. It is commonly used
in shops, factories, offices and hospitals.

j) Datel
This service provides a means of transmitting information from one computer to another, using
the public telephone network. By this service, a firm can send information to computers on sites
in other parts of the country as well as in many countries around the world. Through the use of
modems attached to the telephone network, data can be transmitted quickly between various
computers around the world. Multinational companies and chain stores can use this to transfer
information on daily sales to be compiled at their head offices.

k) International Telegram
This facility allows printed messages to be sent or received from other countries. The message is
given to the telecommunication authorities by either telephone or telex for delivery to the
addressee. A message can be sent to an individual or to multiple addressees and it arrives in a
distinctive envelope. Its biggest disadvantage is that it is very expensive; as a result, it is
appropriate to only use it for sending short messages.

l) Satellite
Satellites and their earth stations are essential for transmitting, for example, television programs
around the world. Sporting events like the world cup soccer and Olympic Games can be seen live
and clearly around the world via the satellite.

m) View Data

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View Data is a type of information retrieval service in which a subscriber can access a remote
database via a common carrier channel. Data can be requested and received on a video display
over a separate channel. The access, request and reception are usually via common carrier
broadcast channels. View data can be used by subscribers to make bookings, place orders, access
their bank accounts and send messages. Individual businesses can have their own view data
services allowing them to link their various branches and offices using the Prestel computers.
Charges are based on telephone distance, complete time and frame character for the information
given.

n) Teletex
This is a new service faster than telex, which allows business letters to be sent from one
computer terminal to another in any part of the world over the public telephone network. While
the message is being sent or received, the terminal can be used for some other function, such as
word processing.

o) VSAT Network
This is a point-to-point and or point-to-multiple point‟s two-way data and voice satellite based
communication network that connects a company‟s headquarters with remote or branch offices
via satellite. Vast stand for Very Small Aperture Terminals. This service is flexible, fast and
reliable for use by large companies whose operation extends to areas, which have no
telecommunication infrastructure. In addition, the service is easy to install and relocate.

p) Internet
The Internet is an arrangement of connected computers, which lets the computer users all over
the globe exchange data. It is essentially one network, which is the sum of thousands of
individual private and public networks interconnected by satellite and fiber optic cable systems.
The principal components of the Internet are the World Wide Web (WWW) and e-mail. With the
passage of time, the Internet has become the most effective business tool in the contemporary
world. It can be described as a global meeting place where people from every corner of the world
can come simultaneously.

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Uses/advantages of the Internet to people engaged in Commerce

 Global Audience Content published on the Internet is immediately available to a global

audience of users. This makes the World Wide Web a very cost-effective medium to
publish information.
 Operates 24 hours, 7 days a week Businesses do not need to wait until resources are
available to conduct business. From a consumer's perspective as well as a provider's
business can be done at any time. The fact that the Internet is operational at all times
makes it the most efficient business machine to date.

 Relatively Inexpensive It is relatively inexpensive to publish information on the Internet.

Various organizations and individuals can now distribute information to millions of users
at very low costs.

 Product Advertising Businesses can use the World Wide Web to advertise various
products. Before purchasing a product, customers will be able to look up various product
specification sheets and find out additional information. Businesses can use the
multimedia capabilities of the World Wide Web to make available not only various
product specification sheets but also audio files, images, and even video clips of products
in action.

 Distribute Product CatalogsBusinesses can use the internet to distribute product catalogs.
In the old days, putting together a product catalog used to be very costly in terms of time
and money needed to publish and distribute it. The World Wide Web changes all this by
allowing content developers to put together a sales catalog and make it available to
millions of users immediately.

 Online Surveys Internet can be used to conduct online surveys on the World Wide Web at
very low costs as compared to traditional methods. For example, in order to fill out
various needs of customers or what they would like to see in a future product, it's often

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 necessary to compile a list of addresses and mail a questionnaire to many customers.
Results of such a survey can be automatically updated to a database. This database can
then be used to keep a pulse on various opinions and needs of customers.

 Announcements With the World Wide Web, businesses can distribute various
announcements to millions of users in a timely manner. Because there is virtually no time
lag from the time it takes to publish information to making the information available to
users, the Web is an ideal medium to publicize announcements.

 Provide Technical Support Business organisations can use their Web site to provide
technical support to customers. Because Web pages can be updated immediately with
new information, various technical support literatures can be immediately modified in
light of new findings and developments.

 Obtain Customer Feedback The interactive nature of the World Wide Web is ideal for
obtaining customer feedback. Businesses can easily set up a CGI script to obtain
customer feedback about a product or service. Because customer feedback submitted by
customers can be read immediately, it's possible to respond to various customer concerns
in a timely manner, increasing customer satisfaction and quality of customer service.

 Immediate Distribution of Information When information is added to a Web site, it's

immediately available for browsing by millions of Internet users. The World Wide Web
is an ideal medium of information distribution because it takes away the time lag
associated with publishing content and actually making it available to users.

 Easy Integration with Internal Information Systems Internet information systems

deployed on the Internet can be easily integrated with internal information systems
managed with office productivity applications such as Microsoft Office.

Non commercial uses of internet

 It is used for voice and video conferencing.

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  It is used for online news and weather services.
 It is used for entertainment with the provision of music and videos.
 It is used for online chatting by allowing people to carry on discussions using written
text.
 It allows people to do education related research.
 It allows for on-line learning where people can obtain on-line course materials and have
their examinations conducted online without necessarily going physically to universities
offering such programmes.

The disadvantages of Internet

Following are the disadvantages of Internet:
 Spamming: Spamming denotes distribution of unsolicited e-mails in large numbers. They
are meaningless and they unnecessarily block the whole system. These activities are
treated as illegal.
 Theft of personal details: While using the Internet, there is high probability that your
personal details like name, address and credit card number may be accessed by con artists
and used for fraudulent purposes.
 Virus threat: Virus is a program that interrupts the usual operation of your personal
computer system. PCs linked to the Internet have high probability of virus attacks and as
a result of this your hard disk can crash, giving you a lot of trouble.

TRANSPORT

1 (i) Explain importance transport

(ii) State the factors to consider when choosing the mode of transport

(iii) Identify the modes of transport

(iv) Explain the types of documents in transport

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ANSWERS

Transport is movement of goods and services from one point to the other.

1 i importance of transport

 delivering of raw materials

 delivers finished goods to warehouses as well as customers.
 Movement of labour
 Movement of executives, sales representatives to visit their clients.
 provides opportunities for specialization
 People are able to visit friends and relatives
 Source of revenue for the transport company
 makes foreign trade possible
 it encourages tourism worldwide.
 it enables people to go to and from work.
 Provides consumers with a much wide variety of goods.
 It clears the line of production for manufacturers.
o -Enables customers to enjoy a high standard of living.
 Used to move equipment or spare parts to the factory, offices and between sites
 It provides employment to citizens in various transport forms.


ii FACTORS CONSIDERED WHEN CHOOSING SUITABLE TRANSPORT

 Cost of transport should be considered because it reduces profit

 Speed of transport especially if goods are required urgently or if they are perishables
 The value of goods are they of high value or low value items
 The type of goods/nature for instance products like oil if they require special facilities
suitable for transportation.
 The size or bulk and weight of goods to be delivered
 The distance involved in moving the goods and services

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 Security required for goods. Goods should not be exposed to theft.
 Access of the type of transport to the terminals. By terminals we refer to where the
journal starts and ends. For air, rail, and sea transport, if they require other forms of
transport to complete the delivery of goods
 A good transport system should be punctual and reliable.
 Flexibility of the transport i.e. can it offer door to door delivery.
 The reputation and reliability of the carrier of the goods.

iii MODES OF TRANSPORT

ROAD TRANSPORT
This is the movement of goods and people from one point to another by road.

ADVANTAGES OF ROAD TRANSPORT

 Fast over short distance
 Offers door to door delivery
 it is flexible
 it is affordable companies can afford to own their own freight.
 Most of goods are carried by road transport.
 Roads reach almost everywhere.
 It is suitable for perishables.
 Goods may be delivered anytime.
 Close supervision of goods on the vehicle by the driver may guarantee safety to
the goods being delivered.
 It is economical in use as it offers a variety of transport vessels that can suit the
size of goods and passengers to carried e.g buses ,vans, trucks and small cars

 DISADVANTAGES OF ROAD TRANSPORT

 It is expensive over short distance
 it creates problems of social costs
 affected by bad weather condition such as rain snow etc.

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  usually no return loads
 it is slower over long distance.
 it is not flexible to carry large quantities such as coal .
 it causes damage to the environment e.g air pollution.

RAILWAY TRANSPORT
- Movement of goods and services from one point to another by train.

ADVANTAGES OF RAILWAY TRANSPORT

 Railway transport is faster over long distance than road transport.

 It is cheaper especially when carrying bulk goods.
 There is no congestion on the railway line.
 It is not so badly affected by adverse weather conditions
 It is economical in the use of fuel
 A railway line may have direct access to the seaport, mines and industrial area.
 Railway transport has relatively low running costs.
 It is safer for carrying dangerous products such as fuel.
 Special facilities have been developed in railway transport for carrying bulk deliveries
dangerous products such as fuel or oil, coal, cobalt, cement, iron ores.
 It is economical in the use of labour.

DISADVANTAGES OF RAILWAY TRANSPORT

 Timetables make railway transport less flexible than road transport.

 The transhipment of goods, apart from causing inconvenience and damage of goods.
 The expense of equipment and keeping the train in good condition is considerably high.
 door to door delivery is not possible by rail
 It is not suitable for urgent deliveries
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 It is generally slower than road transport over short distance.
 It is not economical for small load, and short distances
 It requires huge amounts of capital as it is expensive to construct a rail line.
 Derailment of one train may lead to a temporal closure of the rail line thereby resulting in
delay of delivery of goods.

AIR TRANSPORT

 The increased the importance of air freight due to more airports worldwide, bigger air
craft and better airport facilities
 The building of larger aircraft which are porter and move reliable.
 An improved design such as fuse long and enquire has increased fuel economic.
 Improved loading through large class at the nose and tail has cut loading capacity.
 Increased in the number and improvement of handle facilities, provision of better storage
and handle facilities worldwide has seen remarkable change in air transport.

Advantages of air transport

 The speed of our transport is particularly essential for urgent deliveries and
emergencies.
 Packaging and Insurance costs are minimal due to short transit period.
 There is more security for goods as there is less chances of theft/pilferage.
 There is less damage, to goods due to less handlings and travelling time.
 It operates on direct routes
 It is economical over long distances
 Airports may even be found in jungles/deserts.

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 Disadvantages of air transport

 It has higher operational cost.

 Aircrafts have a limit carrying capacity, very sensitive to weight and size of Cargo.
 It relies on other forms of transport.
 It is not suitable for short list distances
 It may also cause noise and pollution
 If a phone crushes usually there is total loss of lives and Cargo.
 There is a threat of hi-jacking aeroplanes

- SEA TRANSPORT
This is the movement of goods and people by water transport.

Advantages of sea transport

 It is relatively cheap particularly over long distances for the Carriage bulk goods which
are not urgently needed.
 Large quantities/weight can be moved in one vessel, such as bulk consignment of
grains.
 The use of containers keeps costs to a minimum vessel, such as bulk consignment of
grains.
 The use of containers keeps costs to a minimum and increases the safety goods as it
minimise handling of goods in transit.
 The seaport provides cheap transport linking all containers of the world as all countries
have long sea costs.
 Tranships provide a very flexible service as they bound to any fixed routes.

Disadvantages of sea transport

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  It is relatively slow for urgently needed goods.
 It has high insurance costs because of high risks jettisoning of goods.
 There is high risk of pilferage and theft.
 It does not offer door to door services as some countries/areas may not have seaports.
(Transhipment is inevitable).
 Bad weather can cause delays and loss of goods.
 Land locked countries like Zambia do not get the full benefit of sea transport.

TYPES OF VESSELS USED IN SEA TRANSPORT

 Passenger liners
 Cargo liners
 Tramp ships
 Container ships
 OBO ships
 Roll on Roll off ships
 Lift on Lift off ships

PIPELINE

This is the system most used in the delivery of liquids such as crude oil and petroleum
products.

Advantages of pipeline
o -They are cheaper to maintain
-They carry large volumes of goods
o -They save on labour

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 o -There is no congestion or does not pollute the environment
o -Can be used for alternative fluids/gases/liquids
o -May offer direct delivery/door to door
o -Goods are protected from contamination

Disadvantages of pipeline
 -The initial cost of constructing a pipeline is too high
 -It is not suitable for irregular cargo
 -It is limited to transportation of fluids
 -It has no return loads
 -Can easily be attacked by enemies in times of war/ open to sabotage
 -It requires many pumping stations if the gradient is high
 -There could be high losses in case of leakages
 -May be subject to theft/vandalism
 -Leakage may pollute the environment

iv DOCUMENTS USED IN TRANSPORT

 Bill of lading is used when goods are being moved by sea transport.
 Airway bill is used when goods are being sent by air transport
 Charterparty is a document signed between the ship owner and a businessman for hiring
a ship. A ship can be hired as voyage charter or time charter.
 Consignment note is used when the seller uses other people‟s transport in delivering
goods to the buyer.
 Delivery note is used when the seller is delivering goods to the buyer by road using
his/her own transport.
NOTE: ALSO REFER TO FOREIGN TRADE FOR DETAILED NOTES

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WAREHOUSING

(i) Explain types of warehouses

(ii) State the functions of the different warehouses

Explain types of Warehouses

 MANUFACTURES WAREHOUSE
These are warehouses or depots owned by manufacturers where they store raw materials,
spare parts, tools and equipment required for manufacturing processes.

FUNCTIONS OF MANUFACTURERS WAREHOUSES

 To provide storage for raw materials that enable production of goods to go without
interruption.
 To allow production of goods to take place in anticipation of demand.
 To provide storage for finished goods in quantities enough to meet the demand of consumers
at all times.
 To provide storage for seasonal goods such as Christmas cards and raincoats.
 To prevent shortages by storing goods when they are plentiful on the market and releasing
them gradually when they are in short supply.

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 WHOLESALERS WAREHOUSE
These are large warehouses owned by wholesalers where they store goods bought from
manufacturers awaiting sale to retailers.

FUNCTIONS OF WHOLESALER’S WAREHOUSE

 To allow the repackaging of goods into smaller units to suit the requirements of retailers.
 To allow the preparation of goods for sale such as blending, branding, bottling.
 To allow particularly small retailers to inspect goods before they buy.
 To prevent theft and damage of goods.
 To provide storage for seasonal goods such as jerseys, umbrellas.
 To act as reservoirs for retailers‟ supplies.

RETAILERS WAREHOUSES

These are warehouses owned by large retailers such as pep stores, Shoprite, where they store
goods bought from manufactures awaiting sale to consumers.

FUNCTIONS OF RETAILERS WAREHOUSE

 To enable goods to be prepared for sale by retailers breaking the bulk into smaller
quantities to suit requirements of consumers; pricing of goods; blending and branding of
goods.
 To reduce losses of goods due to theft, weather and deterioration.
 To allow the stocking of large quantities of goods for supplying to branch outlets.

BONDED WAREHOUSES

Bonded warehouses are used for the storage of dutiable goods on which customs duty has not yet
been paid. They may be owned by private individuals, companies or by government. They are
under the strict control of the Customs and Excise authority.
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FUNCTIONS OF BONDED WAREHOUSES

 To allow for the preparation of goods for sale such as bottling, blending, grading and
branding during storage.
 To enable goods to be offered for sale while in bonded warehouse.
 To allow the importer to postpone payment of customs duly and thus economise on
working capital.
 To allow the importers to transfer payment of customs duty to the new buyer.
 To allow exporters to avoid payment of customs duty on dutiable goods for re-export.
 To encourage entrepot trade because of avoidance of duty.
 To provide protection for goods against theft and weather.

PUBLIC WAREHOUSES

These are found at railway stations, bus stations, airports and seaports where goods in transit are
stored.

FUNCTIONS OF PUBLIC WAREHOUSES

 To provide storage of goods awaiting transport at railway stations, airports and seaports.
 To protect goods from losses due to theft and bad weather.

COLD STORAGE WAREHOUSE

These are cold rooms in which items like fish, fresh meat, vegetables, fruits and so on are stored.

FUNCTIONS OF COLD STORAGE WAREHOUSES

 To preserve seasonal agricultural goods such as maize, tomatoes, and pumpkins and so
on for supply to consumers throughout the year.
 To enable perishable goods such as fresh fish, fresh meat and so on to be exported to any
part of the world without going bad.

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ADVERTISING

(i) Identify the modes of Advertising.

(ii) Explain the modes of Advertising.
(iii)Explain the types of advertising.
(iv) Explain the advantages and disadvantages of advertising.

ANSWERS

1. Identify the modes of Advertising.

 Television
 Radio
 Newspaper
 Posters
 Flyers
 Magazines
 Trade Fairs
 Agricultural Shows
 Exhibits

2. Explain the modes of Advertising?

- Television

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 Advantages
 It gives lasting impression by means of sound and vision.
 It gives a wide coverage.
 The advert can be shown at the right time for the right audience.
 It gives display and demonstration of products by means of sound and vision.
 Advertisements shown in colour have immense impact to attract customers.
 It provides repeated advertisements.

 Disadvantages
 It is very expensive.
 It is not well received by viewers as some consider it an interruption to interesting
programmes.
 It is only limited to people who have television sets.
 Television adverts may be short lived and hence may not create a lasting impression.
 Some adverts may not be taken seriously by some people who think of them as
entertainments.

- Radio
Advantages
 It gives a wide coverage
 It is cheaper than television advertising.
 It can be directed to a specific audience by using special time or language.
 It gives lasting impression through catchy tune or jingle.
 Repeated advertisements can be done on radio.

Disadvantages
 Consumers do not physically see the goods being advertised.
 Some radio stations have limited coverage. e.g. community radio stations

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 Radio adverts tend to be short and this reduces its effectiveness unless it is broadcast
repeatedly.
- Newspapers
This is part of the print media, e.g. the post, Times of Zambia, Daily mail
Advantages
 They give a wide national coverage since newspapers are read by all classes of people.
 Advertisements can be placed on appropriate pages of the paper to catch the attention of
the readers
o e.g. business item on business pages etc.
 Newspapers provide large space for conveying more information on products or services
thus newspaper advertisements can be more detailed.
 Newspapers give longer life to advertisements since newspapers can be kept for longer
time. Space for newspapers can easily be booked.
 The use of daily newspapers for advertising ensures an immediate coverage of the
intended audience e.g. congratulatory messages, funeral messages etc.
 Newspapers are relatively cheap, thus, more people can afford them.

Disadvantages
 Newspapers are perishable. They can be discarded or destroyed within a short period of
time.
 Poor quality of print may reduce the effectiveness of adverts.
 Illiterate people are not able to access the information in newspapers.

- Magazines

Advantages
 They offer targeted advertising where certain adverts can be targeted at a Particular
audience for example, a men‟s magazine may advertise men‟s shoes trousers etc

 Many readers other than the buyer of the magazine milky have access to adverts in
magazines. This is as a result of their long life

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 Magazines have a long term impact as magazines can be kept and referred to later.
 The use of colourful illustrations can create aspiration.
 . Special coupon offers can be made through magazines.
Disadvantages
 Some magazines may have limited readership as they appeal only to certain classes of
people, e.g. some women may not want to read men‟s magazines, some farmers may not
want to read accountant journal, etc. . Magazines. Advertising is very expensive.
 Magazines may be expensive as a result they may reach fewer people.
- Leaf Lets/handbills

Advantages
 Coupons may be offered through leaflets.
 Leaflets are cheaper than either television or magazines.
Disadvantages
 Leaflets may involve high distribution costs for a limited audience.
 They may not reach their intended audience.
 They may be discarded or destroyed immediately.
- Bill Boards
 These are normally placed in strategic places which are frequented by people. They may
be along the high ways, railway stations, cross roads or at bus ranks.
 They are a very effective tool in advertising especially if they are properly designed.
- Posters
Advantages
 These are cheap to produce
 They may be made in various sizes and placed in various locations e.g. along high ways,
on walls etc to attract the target audience.
 They do not need much attention once they are strategically placed.
 They are long lasting.
 They can be used to advertise items within a particular area e.g. advertising discounts
being offered in a particular shop.

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 Disadvantages
 They do not give a wide coverage especially when stuck in only one area.
 They may be destroyed due to bad weather such as rains; they may be torn down and
often defaced.
 They may not be acceptable to local authorities as they make the locality look untidy.
- Point of sale display
 These include window displays and displays inside the shops.
 It is aimed at the in store “ traffic” e.g. people who walk in and out of the shops
 Goods are attractively displayed to entice people to buy on impulse
 They are attractively pre-packaged
 The disadvantage of this medium is that appeal is limited to people who or pass near the
shop come to or pass near the shop doing “window shopping”.
- Exhibitions
 This include fashion parades, trades fairs etc.
 .They is very effective media because they attract large numbers of people who may
already have interest in goods being exhibited.
 Under this media, customers are given firsthand information on products.
Other media of advertising include plastic bags, calendars, public transport, trademarks, T-
shirts etc.
Explain the types of advertising?
Types of Advertising
(viii) Informative advertising
 This is a type of advertising that is designed to inform people in a clear and straight
forward manner.
The aims of informative advertising are as follows:
 To inform customers of where goods or services are available and at what prices.
 To inform the public about the terms and conditions for the supply of a particular
goods or service.
Explain the usefulness of a product or services for particular purposes and situations.
Examples of informative advertising are;

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  Announcing births, deaths, marriages etc.
 Announcing modifications in products, changes in office locations
 Advertising in technical and trade journals. Such advertisements usually contain technical
details of products and invite inquiries from interested parties.
 Advertising of particular events, Such as trade fairs, exhibitions, concerts and sporting
activities.
 Advertising of employment opportunities.
(ix) Persuasive/competitive advertising
 Is the advertising of a particular manufacturer‟s product in order to promote that
particular product or brand?
 It is mainly aimed at consumers, and is the kind which tries to persuade them to buy the
advertisers.
 Products rather than his competitor‟s by assuring potential customers that it is better.
(x) The following are the aims of persuasive advertising:
 To persuade customers to change brands (i.e. to switch on other brands) by promoting
one particular product rather than other brands.
 To secure a larger share of the market for a particular manufacturer‟s product.
 To increase sales (turn over) and profits.
 To penetrate new markets (i.e. to help new products to catch on the market).
 .To maintains the market share of a product.

Advantages of persuasive advertising

 It leads to better goods and services as producers would be forced to produce better goods
and services to get a larger share of the market.
 It enables businesses to increase turn over and yield greater profits.
 Competitions may result in lower prices of goods and services as all competitors want to
win more customers.
 It helps to promote the image of the company and its product.
Disadvantages of persuasive/competitive advertising

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  It adds to the cost of a product and ends up making the product more expensive for the
consumer.
 It may be misleading to consumers who might end up buying poor quality products.
 Most of the competitive adverts do not provide consumers with sufficient information
about products.
 Some customers are persuaded to buy goods they cannot afford which may be beyond
their means of life on credit.
 It encourages impulse buying
 It may promote dangerous and harmful products.

(xi) Collective /generic advertising

 This is when producers in one industry put their resources together to advertise a product
in general in order to promote its use. E.g. producers of different types of milk may
advertise their products by saying “DRINK MORE MILK”. In this advert, no particular
brand of milk is mentioned.
 Such advertisements belong to a special kind of persuasive advertising, and are normally
financed by the trade association to which firms in the industry belong. (A trade
association is a body representing the interest of all the firms in an industry; in addition to
this kind of joint advertising, the trade association might make itself responsible for
research, information and negotiation with the Government or the trade unions)

Advantages of collective advertising

 It increases the demand for a product.

 It is cheaper since the cost of advertising is spread among several producers.
 It allows competitors to group together for their mutual support.
Disadvantages of collective advertising
 It does not emphasize a particular producer‟s product.
 It is not effective in defeating competitors, obtaining greater market share and in earning
greater profits since it is neutral.

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 It does not target different markets.
(xii) Explain the advantages and disadvantages of advertising?
Advantages of advertising
 To the manufacturer or trader
 It helps to inform consumers on the various old and new products which the
manufacturer has for sale.
 Persuading consumers to buy goods or services leads to higher turnover, greater profits
and creates brand loyalty.
 It helps new products to be introduced and to penetrate the market.
 It helps to maintain sales for a product.
 Advertising induces customers to change brands.
 It enables producers to recruit suitable employees for job by advertising job vacancies.
 It helps to promote the public image of the company and its products.
 It enables producers to remain competitive in business. This is applicable to producers
whose products have been on market for many years.
 Advertising brings competition amongst producers of similar products e.g. competition
for market share amongst producers of washing pastes.
(xiii) Advantages to the consumer:
 It creates greater competition among producers leading to better quality goods. This
provides consumers with better quality goods.
 Consumers are informed of goods and services which they might otherwise not have
been aware of.
 The consumers standards of living is improved through improved products
 Advertising provides wide variety/choice selection.
 It reminds customers of old and existing goods.
 It helps to educate consumers on how to use certain products.
 Consumers are informed of product modification, changes in location of shops, offices
etc.

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  Advertising allows for mass production of goods because of large sales the results from
successive advertising thereby leading to lower prices of goods for the benefits of
consumers
 It gives indirect benefits such as keeping down the cost of a newspaper.
 It gives information to consumers on matters of public interest e.g. health matters, birth
notices, death notices etc.
 It provides finance for commercial television and radio, which in turn provide
entertaining programmes to consumers.
 It can help the producer to obtain information regarding services of raw materials,
machinery, spares and other inputs.
 Advertising allows for events such as sports activities, political meetings etc to be
advertised.
 Advertising creates employment.
Disadvantages of advertising
 To producer/trader
 It can be a great expense to the business especially if it does not result in increased sales
and greater profits.
 Competitive advertising especially for similar products like washing detergents may be a
waste of resources.
(xiv) Disadvantages to the consumer
 It adds to the cost of a product making it more expensive for the consumer.
 Advertising may attempt to mislead or deceive customers.
 Advertising may make some people to live beyond their means by forcing them to buy
more goods on credit than they can afford.
 Advertising may promotes dangerous and harmful products.
 Advertising encourages impulse buying.

PRODUCTION AND COMMERCEVERSUS ENVIROMENT

 -Identify the effects of production on environment

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  -Explain the effects of production on environment
 -Identify the possible solution to the environmental effects
 -Explain possible solutions to the environmental effects.

ANSWERS
 -littering
 -Pollution
 -Degradation
 -Water disposal
 -Unplanned settlement
 -occupational health hazard
 Disease – emissions from industries such as mines may cause tuberculosis, polluted water
may cause water borne diseases such as dysentery, cholera etc
 Displacement – people are displaced from their areas and this causes mushrooming of
shanty compounds.
 Deforestation – cutting down of trees to clear land for construction of industries may
affect agriculture (production of food, little rainfall).
 Culture/ tradition -

Solution

 Government policy
 Civic education
 Provision of public utilities e.g public toilets
 Provision of dustbins
 Provision of posters in the industrial areas

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 AUTHORS

1. WAKUMELO EDWIN :HELLEN KAUNDA SECONDARY

2. MWANGANI MATIMBA :PARKLANDS SECONDARY
3. NACHALWE JUDY :MINDOLO SECONDARY
4. FOLOWEZA DIANA :NATWANGE SECONDARY
5. MUBANGA CHIBESA :WUSAKILE SECONDARY
6. MULENGA KALOLO :WUSAKILE SECONDARY
7. CHALWE REGINA SAKALA- :ST FRANCIS
8. SIMUJAYANGOMBE CAROL MULONGO :MUKUBA SECONDARY
9. MUTALE THERESA LUBEMBA :WESLEY SECONDARY
10. CHIPILINGU CECILIA CHALWE :JUSTINE KABWE SECONDARY
11. MWEWA PETER :KALOLO MAPOSA SECONDARY
12. CHIKUMBI GRACE MWANSA :MITANTO SECONDARY
13. KACHENJE LIWILU :KITWE BOYS
14. SICHILONGO MWICHE :CHIBOTE SECONDARY
15. KABANDA DONATUS :VALLEY VIEW SECONDARY

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 TABLE OF CONTENTS

 INTRODUCTION TO COMMERCE
 PRODUCTION
 CONTRACTS
 HOME TRADE
 BUYING AND SELLING ON CREDIT
 FOREIGN TRADE
 ORGANIZATION OF BUSINESS UNITS
 STOCK EXCHANGE
 BANKING
 INSURANCE
 COMMUNICATION
 TRANSPORT
 WAREHOUSING
 ADVERTISING
 PRODUCTION AND COMMERCE VERSUS THE ENVIRONMENT

Edited 2018.

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