COMMERCE

Definition
Commerce is the study of the way man organizes the exchange and distribution of goods
and services to satisfy his needs.

Commerce is trade and aids to trade.

Commerce involves all those activities which aid the passage of goods from the producer to
the final consumer.

Illustration of the position of commerce in the production process

Production of goods to
services

TRADE
Trade is the buying and selling of goods. It is divided into two where we have
i. Internal trade/home trade
ii. International/foreign trade

INTERNAL/HOME TRADE
This is trade carried out between traders of the same country.

Internal trade involves wholesalers and retailers.

(i) Wholesale trade
This is a type of trade where traders buy goods in large quantities and sell them also in
large quantities.

(ii) Retailers
These are traders who buy goods from wholesalers and sell them in small quantities to
consumers.

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INTERNATIONAL/FOREIGN TRADE
This is trade carried out by traders of different countries.

International/foreign trade involves import and export trade:

(i) Import trade

This is the buying of goods and services from other countries into a home country e.g.
Ugandan buy cars from Japan.

(ii) Export trade

This is the selling of goods and services to other countries e.g. Uganda sells coffee to United
Kingdom.

AIDS TO TRADE
These are services which help in the production and distribution of goods. Without them
trade would be very difficult to undertake. They include the following:-
(i) Transport
(ii) Banking
(iii) Advertising
(iv) Insurance
(v) Warehousing
(vi) Communication
(vii) Market research

Transportation
This is the process of moving goods from one place to another. Goods can be transported
by roads, railway, air, water etc.

Banking
These are financial institutions which receive money from the public and safe guard it e.g.
commercial banks, developing banks, central banks etc.

Advertising
These are means by which producers or sellers make their goods known to the public so
that the public can buy them. It can be done through newspapers, radios, televisions etc.

Insurance
This is an aid to trade which compensates people who suffer losses. E.g. through robbery,
accident, fire, death etc.

Warehousing
This is concerned with providing storage facilities to the goods awaiting consumption.

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Communication
This is the transmission of commercial information of one business to others. It would be
done through telephone, letters, internet, fax and others.
Market Research
This is the process of carrying out people’s opinion about the goods and services of the
producer.

Illustration of components of Commerce

Commerce

Trade Aids to trade

Transport
Communication
Banking
Home trade Foreign trade Insurance
Warehousing
Advertising
Exports Imports Market research
Wholesalers Retailers

Why we study Commerce?

i. The study of commerce provides a very good introduction to the study of
accountancy, economics and law.
ii. It provides students with knowledge of the facilities available at the banks, post
office, insurance companies etc to make use of such facilities.
iii. Commerce provides students with knowledge that enables them to know the
functioning of the business world.
iv. The study of commerce equips students with commercial language used.
v. Students acquire the basic commercial knowledge for purposes of employment after
school e.g. to act as efficient transporters, bankers, advertising agents etc.
vi. Students come to understand the marketing techniques used.

Importance of Commerce
i. Commerce bridges the gap between the producer and the consumer by ensuring
that goods and services reach consumers e.g. transport, communication etc.
ii. It encourages specialization whereby a person concentrates on one type of work he
is most suited and this brings about quality work and increased production.
iii. It ensures that goods produced in the current period are available for consumption
in the future. It is done through warehousing.

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 iv. It also helps in securing capital for further production. This is basically through
banking services.
v. It enables continuous production because it safeguards against loss of valuables.
This is done through insurance.
vi. Commerce informs the general public of the availability of goods and their quality,
prices etc and this is done through advertising and sales promotion.
vii. People can get what they cannot produce because commerce attempts or enables
the exchange and distribution of goods and services.
viii. The existence of commerce creates competition among producers. This in turn leads
to improved quality of goods and reduction of prices hence benefiting the
consumers.
ix. It creates utility in goods and services. Utility is the satisfaction derived from
consuming commodity. Utility is created through the production process.
x. It creates employment to many people who include the following e.g. teachers of
commerce, traders, bankers, wholesalers etc.

TYPES/KINDS OF GOODS
A good is anything tangible that has utility. A tangible thing is something that can be seen,
touched, felt and moved. Below are the types of the goods:-

(i) Free goods

These are goods which are abundant in supply and are consumed free of charge. They are
provided by nature e.g. rainfall, sunshine, air etc.

(ii) Economic goods

These are goods that are scarce in relation to people’s desire to them. They have money
value and capable of being exchanged and have utility.

(iii) Consumer goods

These are goods that have reached their final stage in the production process and are ready
for consumption. They are also called final goods.

(iv) Producer goods (Capital goods)

These are already produced goods which are used in the production of other goods and
services e.g. computers, sewing machines, tractors, printing machines etc.

(v) Private goods

These are goods owned and controlled by individuals e.g. private motor cars

(vi) Public goods

These are goods owned and used communally by all people living in a given society e.g.
roads

(vii) Substitute goods

These are goods which serve the same purpose for example tea and coffee.

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 PRODUCTION
Definition:
Production is any activity that creates goods and services to satisfy man’s wants or needs.
It can as well be defined as utility.

Utility is the ability of goods and services to satisfy human wants.

Levels of Production
The production of goods and services can be defined at three levels i.e. primary, secondary
and tertiary production.

a) Primary production (Extractive industry)

This level deals with extraction of materials from their original natural state. The major
purpose of this industry is to provide raw materials. Activities involved at this level
include; mining, fishing, agriculture, lumbering etc. This production level is the first stage in
the production process.

b) Secondary production
This level of production is concerned with the transformation of raw materials got at the
first stage of production into a better form. At this level, raw materials from their natural
stage are worked on by changing their physical form to produce things of a higher value. It
involves manufacturing and construction industries.

i) Manufacturing industry
This includes activities and processes aimed at transforming materials obtained. E.g. oil
refinery, food processing, mineral smelting, fish canning etc.

ii) Construction industry

It deals with producers engaged in setting up structures e.g. roads, building houses,
building bridges etc.

c) Tertiary production
This deals with the provision of services. Tertiary producers are those who produce
various kinds of services. These services may be commercial or direct services.

(i) Direct services

These are services which we cannot see physically done for us and yet they satisfy our
needs. They are services which have direct contacts with people e.g. teachers, doctors,
lawyers, drama actors, musicians etc.

(ii) Commercial services

These are services provided by the business community and they are the aids to trade e.g.
transport, communication, banking etc.

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 Levels of production

Primary Secondary Tertiary

Extractive industry
Manufacturing Construction Direct services Indirect services

Direct and Indirect Production

Direct production
This is production for own consumption. It may also be called subsistence production e.g. a
person grows food for his/her own consumption and not for sell, a person catches fish for
his own consumption, a person making a chair for his own consumption etc.

An economy where people produce for their own consumption is called a subsistence
economy.

Indirect production
This refers to production of goods and services for others. It is also called commercial
production. It is associated with division of labour and excess production where the
surplus is sold and money earned for buying other things.

FACTORS OF PRODUCTION
These are things needed for production e.g. land, labour, capital and entrepreneurship or
organization.

(i) Land
It refers to all gifts of nature used in production process. Such gifts should be on/under the
earth’s surface and it includes water, climate, air, soil and light. The reward for this factor is
rent.

(ii) Labour
This is man’s physical and mental effort to do work. Labour has to be aimed at production
and at the same time paid for. Labour may be skilled, semi-skilled, unskilled and
professional. The reward for labour is wage/salary.

(iii) Capital
These are the already produced goods used in the production of other goods and services.
It refers to all those goods that are man-made and are helpful for further production e.g.

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tools, machinery, furniture, buildings etc. Capital is categorized into real and monetary
capital.

a) Real capital (Physical capital)

These are assets used in the production of other goods.

b) Money capital (liquid capital)

This is money/items close to money like cheques, bank drafts, treasury bills that can be
used to meet the day to day demands in production process. Payment for capital is interest.

(iv) Entrepreneurship (organization)

This is a factor of production that organizes land, labour and capital to produce goods and
services. Therefore an entrepreneur is a human being who determines what to produce,
where to produce, for whom to produce, when to produce etc. An entrepreneur is paid
profits.

Functions of an entrepreneur
i. An entrepreneur initiates and starts the business.
ii. He organizes/employs land, labour and capital to produce goods and services.
iii. He supervises the production process.
iv. He sells the products to the market.
v. He pays land, labour, capital and takes the responsibility of profits and losses in an
organization.

SPECIALISATION AND DIVISION OF LABOUR

Specialization
This is where an individual, organization or a country concentrates in doing an activity that
can do relatively best and leave other activities to be done by others.

Division of labour
This is where the production process is broken down into small parts and an individual is
assigned a smaller part on which to concentrate i.e. the production process is divided into
tasks where each task is performed by a different person or group of person.

Major purpose of specialization is to increase output.

TYPES OF SPECIALISATION
a) Specialization by process or subject
This is where production is broken down in several parts. Work is divided into a number of
stages each being taken by a different state of people. E.g. in school, each subject is handled
by different teachers.

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b) Specialization by commodity
This is when a person, household or organization produces an entire
commodity/commodities e.g. a car dealer, a driver, a farmer growing coffee only etc.

c) Specialization by area or tertiary (geographical specialization)

This is where a certain region specializes in the production of a particular commodity e.g.
tobacco growing in West Nile.
d) International specialization
This is when countries concentrate in the production of given commodity where it has
lower cost compared to others and leave other commodities to be produced by other
countries e.g. Libya specialize in the production of petroleum products.

ADVANTAGES OF SPECIALISATION AND DIVISION OF LABOUR

Specialization and division of labour has got a number of benefits including the following:-
i. It increases output of goods and services. This is because one is able to master the
production process.
ii. It speeds up production because each person or firm concentrates on the job he or it
can do best.
iii. It saves time and energy. This is because if a person concentrates on one type of
work, he saves the time that would have been lost moving from one job to another.
iv. It increases the workers skills due to constant use of the same tools thus earning
him confidence.
v. It facilitates/simplifies training. This is because learning how to perform a single
task requires less time than many tasks and also training costs are minimized.
vi. It allows people to pursue different opportunities because it allows them to use
their talents on those activities they can do best i.e. permitting choice.
vii. Regional specialization enables countries to exploit their national resources and get
what they cannot produce from other countries.
viii. It eases the task of workers because specialization permits the use of same tools
specific to a particular task.
ix. It increases discoveries and innovations. This is because of the constant use of same
tools which challenge workers to find better methods of production.
x. It enables workers to become less tiresome. This is because if the individual does
the small task over and over again, they discover new and easier ways of doing their
work which enables them to spend less energy on their particular tasks.
xi. It results into inefficiency. This is because a person concentrating in doing one thing
will master the best ways of doing it and this will increase the quality of his output
which will benefit the entire community.
xii. It allows the disabled to perform a limited range of activities and hence ensuring
their employment.
xiii. It promotes self confidence among workers. This is because workers exercise a lot
of independency in their work which make them feel important, confident and
proud of their work.

DISADVANTAGES OF SPECIALISATION AND DIVISION OF LABOUR

Specialization and division of labour have the following disadvantages:-

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 i. It leads to boredom. This is because doing of same work repeatedly can easily make
the worker tired and bored. This may result into inefficiency.
ii. It may result into unemployment especially when many people specialize in a
particular activity they may not find the job opportunities to absorb them.
iii. It discourages the development of other talents and skills. This is because it does not
give an opportunity to try their skills/talents elsewhere.
iv. It increases dependency. This is because when a person/country specialize in
production of one good, it becomes dependent on others for those goods it cannot
produce.
v. It reduces the mobility of labour i.e. a person trained for a particular job finds it
difficult to get employed elsewhere unless he is retrained in the other field.
vi. It results into a fall in craftsmanship. Specialization kills the creativeness and
craftsmanship of an individual. This is because when one concentrates on a task
which he can do better, he cannot think of initiating a new task outside his area of
specialization.
vii. Lack of diversification. Diversification is where the producer engages in the
production of many tasks concurrently. This cannot be achieved with specialization.
viii. It may result into shortages in supply. This is because a mal function in one
department will affect the process of production causing a shortage.
ix. It results into uneven development. This is because when there is geographical
concentration of activities in one area such an area will develop more than other
areas of the country e.g. Kampala has more industries and developed infrastructure
than all other parts of the country.

DEMAND
This refers to the quantity of goods and services which consumers are willing and able to
pay for at a given price over a given period of time. i.e. it is a desire backed by the ability to
buy or possess a commodity at a given period of time.

The demand schedule

This is a table showing different types of a commodity which consumers are willing and
able to purchase at different prices over a given period of time.

Illustration for the demand schedule

Namusisi’s demand schedule for chapatis

Price Quantity demanded
100 4
200 3
300 2
400 1

The table above indicates Namusisi’s demand for chapattis at different prices.

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From the above table, a demand curve can be drawn.

A demand curve is a locus of points indicating combinations of prices and quantities of

goods demanded at different prices. It is a graphic representation of the demand schedule.
From Namusisi’s demand schedule of chapattis, a demand curve can be drawn as below.

400 D

300
PRICE
200
D
100

0 1 2 3 4
Quantity demanded
From the diagram above, it can be observed the demand curve slopes downwards from left
to right indicating an inverse relationship between quantities demanded and price. This
leads us to the law of demand.

LAW OF DEMAND
It states that the higher the price the lower the quantity demanded and the lower the price
the higher the quantity demanded keeping other factors constant.

FACTORS AFFECTING THE DEMAND FOR COMMODITY

1. Price of commodity
The higher the price of the commodity in the market the less demanded and the lower the
price the greater the quantity that will be demanded.

2. Income of consumer
The higher the income of the consumer, the higher the demand and the lower the income of
the consumer, the lower the quantity is demanded.

3. The size of the population

When the population is high, there is high demand for goods and services and when the
population is low, the demand for goods and services is also low.

4. Season
When season is favourable for a given commodity, demand tends to be high and when the
season is unfavourable, demand becomes low.

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5. Government policy
When the government taxes are more of the consumers, it reduces their income hence less
demand. And if the government lowers the taxes, demand will be high.

6. Sociological factors
Demand for a commodity may be influenced by such factors as a person’s background,
education, status, age and place of residence.

7. Rate of advertising
The level of advertising has been known to influence the demand for products. The higher
level of advertising, the higher the demand.
8. Preferences of consumers
Preferences of different consumers differ thus a change in taste in favour of a commodity
increases its demand while a change in taste against the commodity reduces its demand.

9. Price of complementary goods

These are goods which are consumed together e.g. shoes and shoe polish, bread and butter
etc. If the price of shoes is lowered more shoes will be demanded and also the demand for
shoe polish will increase. An increase in price would result in reduced demand for both.

SUPPLY
This is a table showing the amount of a product which producers are willing to put on
market at different prices.

Below is an example of a supply schedule.

Mukisa’s supply schedule for chapatis.

Price Quantity supplied
800 500
600 300
400 200
200 100
100 50
50 0

From the supply schedule above, a supply curve can be formed.

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A supply curve is a locus of points indicating the price quantity combinations of goods
supplied at different prices i.e. it is a graphic representation of the supply schedule.

800
700
600
500
PRICE

400
300
200

100
0
100 200 300 400 500 600 700
Quantity supplied

From the diagram above, it can be observed that there is a positive quotation between the
quantity demanded and the price as indicated by the supply curve where at higher prices
more is demanded. The curve above further indicates the shape of the supply curve sloping
upwards from left to right. This brings us to the law of supply.

THE LAW OF SUPPLY

The law of supply states that the higher the price, the higher the quantity supplied and the
lower the price, the lower the quantity s upplied keeping other factors constant.

FACTORS AFFECTING SUPPLY

These are the things which determine the amount of products to be on market during a
given period of time. They include the following:-

1. Price of commodity
A high price motivates suppliers to supply more in order to maximize their products on the
other hand it will be less profitable when the prices go down and this will discourage
suppliers to put goods on market.

2. Natural factors:
Factors like season, pests and diseases, drought etc, affect the production of especially
agricultural prices and hence the supply of such products.

3. Changes in course of production:

An increase/decrease in factors of production such as labour costs, rent, raw materials etc
will affect the supply of products.

4. Technological changes:

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Changes in techniques of production e.g. improvement in the technology used within a firm
will result into increased output of commodities and hence increase its supply. The reverse
is true with technology.

5. Government policy:
Government policy may discourage the supply of some products by taxing them highly,
banning them, putting restrictive quotas on them etc. On the other hand, government may
encourage the supply of given products through subsidies, tax holiday and other incentives.

6. Transport:
An efficient transport system eases the movement of goods and services and therefore
increases the supply of goods while a poor transport system discourages transport.

THE INTERRACTION OF DEMAND AND SUPPLY

This is where the demand and supply forces meet to determine the price of commodity as
illustrated below.

Price
D S e is the point of equilibrium
Pe is the equilibrium price
Qe is the equilibrium quantity
Pe e

SS D

Qe Quantity

In the diagram above, the demand and supply curves at point e which is point of
equilibrium. At that point Pe is the equilibrium price while Qe is the quantity of
equilibrium. Such a price is normally the ruling price under a free market economy.

RETAIL TRADE
This is a type of trade where goods and services are sold to consumers. Retailing is the
selling of goods to consumers irrespective of the person doing it or the quantities involved.

A retailer is a trader who is engaged in retail trade and only sells goods to the final
consumers however retail trade can be undertaken by people who are not retail traders by
definition. E.g. manufacturers and wholesalers.

Retail trade is classified into two categories i.e. small scale and large scale retail trade.

Small scale retailers include hawkers, itinerant traders etc while large scale includes
supermarkets, multiple shops, departmental stores etc,

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Functions of a retailer
The retailer is a very important person in the chain of distribution because he offers
various services to consumers, producers and wholesalers.

To the consumers:
(i) He sells goods to consumers in affordable quantities.
(ii) He provides a variety of goods to consumers.
(iii) He advertises goods to consumers thereby creating awareness about the
availability of goods.
(iv) A retailer provides transport to consumers especially those who buy in large
quantities.
(v) He stores goods and enables consumers to collect them from him anytime.
(vi) Retailers advise their customers about how to use and handle some goods.
(vii) Retailers sometimes advise their customers on the choice of goods suitable
for them. It is common especially with clothes.
(viii) Some retailers give discounts to customers in form of reduced prices.
(ix) They allow credit facilities to their trusted customers.
(x) Some retailers provide after sale services to their customers which may include
installing equipment and guiding them on the techniques used in handling them
especially electronics.

To the producers:
(i) He communicates the consumers’ complaints regarding the goods or services he
produces.
(ii) He advertises goods for producers.
(iii) He looks for market for goods e bought from producers.
(iv) He provides transport for goods bought from producers.

To the wholesalers:
(i) He buys goods from the wholesalers in large quantities.
(ii) He provides transport for goods brought from the wholesaler hence saving him the
burden.
(iii) He acts as a link between the wholesaler and the consumers.
(iv) He advises the wholesaler about the complaints of the consumers.
(v) He relieves the wholesaler from the building of warehouses.
(vi) He helps a wholesaler to advertise departments.

QUALITIES OF A GOOD RETAILER

The following qualities are very essential for the success of a good retailer. This is because
they will attract and give confidence and trust in the retailer by their customers.
(i) He should be honest to his customers by not over charging them and selling the
right quantities and qualities.
(ii) He should be pleasant and kind to both his suppliers and customers.

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 (iii) He should be able to serve his customers for long hours and therefore should
be hardworking.
(iv) He should be clean to attract his customers and trust that the products he is
selling are also clean.
(v) He should be closer to his customers i.e. his business undertaking should be situated
as near as possible.
(vi) He should be able to stock goods wanted by his customers at the right time.
(vii) He should be able to settle debts with his the suppliers promptly.
(viii) He should be able to offer credit facilities to trusted customers.
(ix) He should be able to appropriate his customers by offering discounts, free
gifts on special days like Christmas.
(x) He should be flexible where fashions and tastes of his customers are concerned.
(xi) He should be able to audit his books of accounts and able to determine
whether the business is making profits or losses.

FACTORS CONSIDERED WHEN SETTING UP A RETAIL BUSINESS

1. Type of good: A retailer should look out for the type of goods needed by the general
population he serves e.g. electronics have high demand in urban areas than in rural
areas.

2. The cost of rent: Rent should be relatively cheap so that it does not take up much of
the profits of the business.

3. The number of customers in an area: A retailer should always consider the

population of an area and choose that one which is highly populated because he will
have more customers in such an area.
4. Possibility of expansion: A retailer should consider a location where there is
possibilities of expansion for the business.

5. Other shops: One should consider the population he is likely to meet from similar
retail businesses which are nearby and already in existence and the type of goods
they sell.

6. Capital: A retailer should consider the capital involved in setting up a business. If he

has large capital, he sets up a large retail business and if he has little capital he sets
up a small retail business.

7. Supply shops: A retailer should consider the source of supply of stock for his
business. i.e. it should be far away and making it very expensive to access the goods.

8. Security concerns: A retailer should ensure his personal security and security of
his stock for successful business operation i.e. the business should be set up where
the possibility of theft and murder is minimal.

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TYPES OF RETAILERS
Retailers are generally divided into 2 groups namely:
a) Small scale retailers
b) Large scale retailers

SMALL SCALE RETAILERS

These are retailers selling goods to the final consumers on a small scale. They are
characterized by the following:-
i. They employ little capital and therefore hold little stock.
ii. They serve a small market.
iii. They occupy relatively small premises.
iv. They usually deal in variety of goods and they employ very few workers and in
many cases one person is involved in selling the goods who is usually the owner of
the business.
v. In Uganda, small scale retail businesses are dominant and constitute about 90% of
the entire trade sector.

Types of small scale retailers

1. Itinerant traders
These are traders who sell their goods while moving from place to another. The term
itinerant means moving from one place to another. These traders move with bags holding
items. They usually operate in towns and in densely populated areas. The kind of goods
they usually trade include: cosmetics, shoes, plates, necklaces etc.

A. Hawkers: These are traders who move on foot with their goods from one place to
another selling them to customers. They usually carry light goods moving from one
village to another.

B. Peddlers: These are retailers who move from one place to another using bicycles or
motorcycles as they look for customers.

C. Roadside traders/street traders: These are found along side roads where many
people pass. They deal in some commodities e.g. cigarettes, sweets etc. They are
very common in the city especially during evening hours and they sell food stuffs
e.g. bread, milk etc.

Advantages of itinerant traders

i. They require little capital to start the business.
ii. They have personal contact with their customers which increase their sales.
iii. They face very low overhead costs e.g. many do not pay rent, water bills, electricity
bills etc.
iv. They bring goods near to their customers who would have travelled long distances
to get them.
v. They enjoy all profits.
vi. They are flexible in that they can easily change from one line of business to another.

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vii. They are very keen in bargaining such that they gain a lot of capital.

Disadvantages
(i) They take advantage of customer ignorance and end up overcharging them.
(ii) They move long distances which make them very tiresome.
(iii) They are usually affected with weather changes e.g. rainfall and sunshine.
(iv) They dodge paying taxes because of lack of permanent places leading to loss
of government revenue.
(v) The life of the business depends on the owners life i.e. if he dies the business also
dies.
(vi) They normally sell defective products e.g. expired products to their
customers.

2. Village stores/unit shapes

These are found in rural areas. They normally deal in essential commodities demanded by
villagers e.g. salt, paraffin, match boxes, needles etc.

The owners of these shops normally open them for a few hours a day especially in the
afternoon but they are usually closed in the morning because the owners are practicing
agriculture in their garden to supplement their incomes.

3. Market traders
These are traders with permanent stalls in markets from where they sell their goods. Some
market traders move from one town to another on various market days selling goods to
customers. However some market traders on irregular basis sell their products on their
stalls in the markets which operate daily. They mainly deal in food stuffs, textiles,
household utensils etc.

4. Single shops:
These are fixed stores normally owned by one person. These are usually self controlled and
owned and are not connected with any other shop. They are usually managed by a sole
trade and some time employs one or two assistants.

They usually specialize in selling one product or related range of products e.g. stationery,
medicines, textiles etc.

5. Tied-up shops
These are shops that sell the products from only one manufacturer. They sell no other
product apart from those of a given producer e.g. petrol stations.

6. Urban stores
These are found in town centres. These shops are distributed in such a way that those
selling similar products are found in the same area. Urban stores practice some
specialization e.g. those in Kampala selling stationery products are found on Nasser street,

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those who deal in hardware are found in Nakasero street and those for spare parts on
Kisekka street and those for clothes and textile on Luwum street.

7. Kiosks:
These are businesses operated in very small semi permanent premises built of wood or
metal selling variety of goods e.g. milk, bread, airtime, newspapers, cigarettes, sweets etc.

8. Canteens
These are small scale shops located in schools, hospitals, prisons and other institutions
providing goods specific for the community they serve e.g. in school canteens, one may find
books, quencher, biscuits bit one cannot find alcoholic products in these canteens because
they are not allowed in the community.

9. Automatic vending machines

This involves the selling of goods to final consumers through coin operated machines. This
method is usually used for goods like newspapers, stamps, telephone etc.

Advantages
i. They save the customers’ time. i.e. the goods and services are provided instantly on
placing in the coin.
ii. They operate 24 hours a day hence always available for use.
iii. They are very accurate and give no room for cheating.

Disadvantages
i. It can be used to sell only few items
ii. It is a very expensive method to start i.e. such machines are very expensive.
iii. Sometimes customers can cheat using fake coins.
iv. The customers can be inconvenienced if such machines are out of order.

LARGE SCALE RETAILERS

These are retail businesses operating on a large scale. They are not very many in East
Africa and Uganda in particular.

Features of large scale retailers

i. They operate with very large capital
ii. They occupy permanent premises
iii. They sometimes practice some specialization e.g. they may deal in hardware
materials, textiles, furniture etc.
iv. They serve a wide market.
v. They enjoy large profits because they operate as large scale.
vi. They are in many cases owned by several people.
vii. They are usually located in urban areas.
viii. They occupy premises because they are on large scale.
ix. They hold large stocks.

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TYPES OF LARGE SCALE RETAIL BUSINESS
a) Multiple shops
These are various shops usually spread throughout the country dealing in a given line of
goods and services and are owned by one organization e.g. Bata shoe companies, MTN
outlets etc.

Features of multiple shops

i. They are under one ownership and control.
ii. They have numerous branches all over the country or entire world.
iii. They sell one type of related range of products e.g. Bata Shoes companies sell foot
ware products.
iv. Profits and distribution of profits are done at the head office.
v. They always keep a large stock.
vi. They have centralized buying and administration and usually buy directly from the
manufacturer.
vii. The prices of goods are the same in all branches.
viii. They do not usually offer credit facilities.

Advantages
i. They sell at a relatively cheaper prices than the small scale retailers.
ii. They take goods as nearer as possible to their customers by having different shops
spread throughout the country.
iii. A shortage in one branch can be solved by transferring stock from other branches to
fill in that gap.
iv. They are large scale businesses and they enjoy high profits.
v. Each branch advertises the other because they are similar in dealing in similar
products.
vi. The business is run on cash basis which reduces the chances of bad debts.
vii. Buying is done by experts who purchase suitable for their customers.
viii. The losses incurred by one branch can be offset by another branch.

Disadvantages
i. They are normally located in urban areas thereby neglecting rural ones.
ii. They do not offer variety of goods because they specialize in one range of products.
iii. They are not flexible because they operate on a large scale.
iv. The decision from the head office may affect all branches e.g. wrong pricing of a
particular item.
v. They rarely offer credit facilities which is a disadvantage to customers who receive
their money in installments.
vi. They incur a lot of expenses in operating very many branches which reduce their
profit margin.
vii. If there is a fall in their products, they are likely to face bigger losses.
viii. There is lack of personal contact between the employers and the employees which
may limit information flow for improved productivity.

19
 ix. They sell goods with fixed prices therefore bargaining is discouraged and this may
scare away potential customers.

b) Super markets
These are large retail stores which normally stock household products in large varieties
and offering self service.

Examples of supermarkets in Uganda include:- Shoprite, Capital shoppers, Game, UCHUMI,

Quality Supermarket, Mega Standard etc.

Very large supermarkets selling a wider range of goods under cash and carry basis are
referred to as hyper markets (Jumbo markets)

Features of supermarkets
i. They use a self-service system.
ii. They normally deal in household products.
iii. Goods are well displayed and prices are indicated on the items using price tags.
iv. There is enough room for free movement of customers within the shop.
v. Goods are arranged attractively in the store.
vi. They are usually located in urban areas.
vii. The business is run on cash basis.
viii. They offer goods at relatively cheap price.
ix. They have a tight security system which monitor the possibilities of theft.

Advantages
i. Goods in supermarkets are relatively cheap.
ii. They offer variety of goods hence giving the customer a wider range of choice.
iii. A customer can make one stop shopping because of the variety.
iv. They save time since a customer is saved from the burden of bargaining and asking
about prices of goods.
v. They do not offer credit facilities thereby guarding against bad debts and book
keeping by the sellers.
vi. They make large sales and therefore achieve a high stock turn over compared to
small scale retailers.
vii. They employ few workers since they use self-service system thus cutting down
labour costs.
viii. Since prices are well displayed on the goods, a customer is given time to make up his
mind about the item to buy.
ix. They enjoy large profits compared to small scale retailers.
x. They have no shop attendants which safeguards from unnecessary persuasion.

Disadvantages
i. There is no room for bargaining since prices are fixed.
ii. They do not give a chance to customers with nor ready cash especially salary
earners.
iii. They are found only in urban areas neglecting the rural areas.

20
 iv. They face high operation costs in form of rate and taxes because they occupy central
sites especially along busy streets.
v. They require a lot of capital to start and maintain.
vi. They encourage unplanned spending since at times customers are often attracted to
buy goods they did not intend to buy or budget for.
vii. They do not offer after sale services.
viii. Small items may be pocketed by customers without paying for them.
ix. A customer may take a long time by visiting the entire supermarket unknowingly.
x. They do not offer delivery and advice to their customers.

DEPARTMENTAL STORES
These are several shops under one roof and one management. Each shop (department) is
under a manager and sells different items from others. E.g. a department selling men’s
wear, food stuffs, electronic department, bookshop etc.

Features of a Departmental stores

i. There are many departments under one roof.
ii. All departments are under one management
iii. Each department is controlled by a manager who is responsible for stocking his
goods.
iv. They are usually found in urban centres.
v. Each department specializes in a particular good different from others.
vi. They provide all other services to their customers e.g. banking, telephone services
etc.

Advantages of Departmental stores

i. Each department advertises other departments.
ii. They provide variety of goods to customers.
iii. They provide additional services to customers e.g. restaurants, video services etc.
iv. They offer one stock shopping i.e. which saves the consumer time running all over
town looking for goods.
v. They tend to sell at a low price due to large discounts they enjoy for bulk purchases.
vi. They enjoy large profits because of a large stock hold.
vii. If one department makes losses, these losses can be offset by profits made by other
departments.
Disadvantages of Departmental stores
i. They do not offer credit services to their customers.
ii. The business requires large sums of capital to start and maintain.
iii. They are normally found in urban centres.
iv. They pay a lot of expenses e.g. high taxes, rent, advertising costs etc.
v. They normally sell goods at high prices as compared to other retail shops due to
high expenses paid thereby discouraging low income earners from buying from
them.
vi. They need to employ experts e.g. managers, accountants etc who are in most cases
expensive.

21
vii. Shortages in one department cannot be solved by transfer of goods from other
departments since they sell different items.
viii. They tend to offer delivery services to those who buy in large quantities and this
increases overhead expenses.

MAIL ORDER BUSINESS

This is a kind of business where goods are ordered and sold through the post office.
Normally the buyer makes a letter of inquiry through the post office to the supplier and in
reply the supplier sends a catalogue to the buyer of what he/she wants and places order for
them. This system is convenient for small items.

Mail order businesses do not normally have shops but they have large stores where they
keep goods awaiting orders from their perspective customers.

Features of mail order businesses

i. Goods are ordered for and sold through the post office.
ii. The business is promoted through attractive advertisements and describing goods
using catalogues.
iii. There is no personal contact between the buyer and the seller.
iv. Payment facilities are provided through the post officer through a cash and delivery
service.

Advantages of mail order businesses

i. It does not pay many expenses for rent or hiring.
ii. It eliminates transport expenses because goods are delivered through the post
office.
iii. The cost of shop attendants are reduced because these businesses do not operate
shops but stores.
iv. It eliminates middle men with their associated evils like overcharging.
v. Goods are easily delivered to people however for they are from the shopping
centres.
vi. It saves time for their customers who may not have sufficient time for shopping.

Disadvantages of mail order businesses

i. It may not sell bulky products.
ii. There is no physical contact between sellers and buyers which does not promote
friendship between the two.
iii. It may not be effective in areas where post office services are poor.
iv. It gives no room of inspecting goods whereby in the process the customer may
purchase goods he would not have purchased.
v. It requires continuous advertising and selling of catalogues which increases its
operation and later increasing the prices of goods.
vi. A customer has to wait for reasonable period of time to receive the goods.
vii. There are difficulties in finding market for goods in this type of business since it
does not operate shops.
viii. There is no room for bargaining since prices are fixed.

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 ix. After sale services may not be possible.
x. Not a variety of goods can be sold by this type of business.

MOBILE SHOPS
These are retail businesses operated on large vans, buses or lorries. They move from one
place to another looking for customers. They sometimes move to rural areas at specific
days and time. These normally in Uganda are known for selling medicine, books, fruits,
bread etc.

Advantages
i. They take goods as near as possible to customers.
ii. They follow a specific timetable which helps customers to know when they are
coming to their areas enabling them to buy their products.
iii. They do not pay expenses on rent, electricity bills and therefore they are
comparatively run cheaply.
iv. They have operators of mobile stores who have physical contact with their
customers which promote good relationships.
v. They sell goods at a comparatively low price.
vi. They operate with a large stock which enables them to get a lot of profits.
vii. They normally have a high turnover which increases their revenue.

Disadvantages
i. They pay high expenses on fuel, repairs and maintenance of the vehicles which
reduces their revenue.
ii. Bad weather conditions like rains especially in rural areas may make the operation
of this business very difficult.
iii. They are faced with the problem of robbery especially on high ways.
iv. They are not always available for their customers because of their limited services
given to them.
v. This business may not be successful especially where some routes are impossible.
vi. They tend to deal in one type of commodity or a line of commodity and therefore do
not offer variety of goods to the customers.

CONSUMER CO-OPERATIVE
These are retail businesses where consumers themselves contribute money and go directly
to producers to buy goods they require in large quantities and at a low price.

They are mainly established to avoid the exploitation of middlemen who over charge them
and give them poor quality products.
Advantages
i. It brings goods nearer to the consumers.
ii. It sells to members at a comparatively low price.
iii. It creates friendship among members.
iv. Members get a fixed rate of interest from the capital contributed.
v. It is democratically run. This is because members elect their own managers.

23
 vi. It promotes consumer sovereignty. This is because consumers themselves
determine the type of goods and the price that should be charged depending on the
costs.
vii. It promotes employment opportunities among members. This is because some of
the members are taken on to run the business.

Disadvantages
i. Decision making may be difficult because of many people involved.
ii. They normally employ little capital which limits their expansion.
iii. They do not provide variety of goods to members.
iv. In many cases, the management of co-operative societies lack business experience.
v. Most of them use little capital and therefore cannot access bank loans due to lack of
collateral security.

DISCOUNT STORES
These are retail shops that sell durable products at relatively low prices. They sell their
goods on cash basis. These stores mainly handle durable goods e.g. furniture, cookers,
refrigerators etc.

Advantages of Discount stores

i. Make items accessible
ii. Make goods affordable.

RECENT TRENDS IN RETAIL TRADE

In the recent years, there have been changes in retail businesses towards modernization
and they include the following:-

a) Branding
This is the giving of a mark, design or a symbol to a product to distinguish it to other
similar goods of other producers. It is normally done by the manufacturers. In Uganda
today, branded commodities include; detergents, tooth paste, soap, Vaseline, shoe polish,
sugar etc.

Advantages
i. Branding enables people to buy what they want easily because they can be
recognized easily from others.
ii. It eases advertising because goods can easily be recognized.
iii. Branded goods are easy to handle by consumers because they are uniformly packed.
iv. Branded goods are pre-weighed which saves time t hat could have been used to
weigh the product for each individual customer.
v. Branded goods are normally sold at a uniform price and this curbs consumer
exploitation.

24
Disadvantages
i. It is expensive to brand products which make the final price of the product high.
ii. It is difficult for retailers to offer discounts on such products. This is because prices
of such products are uniform.
iii. It requires a retailer to use large capital which may not be available to stock many
brands in order to capture the wide range of customers.

b) Pre-packing (packing)
This is the wrapping of goods in special containers to protect them against atmospheric
conditions especially pouring and contamination. This is usually done before customers
come to purchase these goods. They are usually weighed and packed e..g. sugar, milk
powder, glucose, biscuits, water, cooking oil etc.

Advantages:
i. They are easy to handle.
ii. When goods are packed well, they look attractive and therefore can easily be
bought.
iii. Some packing materials may be put for other uses after removing the goods.
iv. Goods are protected against atmospheric contamination, germs and other things
like rodents etc.
v. Packed goods can easily be identified by customers which increases sales and hence
profits for the business.
vi. Well packed goods can easily be sold by automatic machines whereby reducing the
cost of employing shop attendants.
vii. Packed goods can easily be transacted through the mail order business.

Disadvantages:
i. Packed goods confuse the customers because they tend to appear bigger than the
actual size.
ii. Packing will make goods more expensive due to inclusion of packing expenses in the
total cost of the product.
iii. Poor quality products may be enclosed in beautiful packets hence attracting one to
buy them which is exploiting.
iv. Some package materials are dangerous to the environment and can lead to
environmental degradation e.g. polythene bags.

c) Self – service
This is when customers are allowed to enter a shop and pick whatever they want and then
take their product to the cashier to pay. These goods are usually displayed in spacious
shops with price tags stuck on them. Such shops are not necessary supermarkets but shops
with self service facilities.

Advantages:
i. It reduces the cost of paying shop attendants.
ii. It saves time as goods are labeled with their prices.

25
 iii. Goods are beautifully displayed and this attracts customers to buy them hence
increasing the sales of the business.
iv. In many cases no credit facilities are given which saves the business from bad
debtors.
v. A customer has enough time to make choices among the many types of goods
displayed.
vi. A customer is usually free from the persuasive language used by shop attendants
which sometimes force them from buying goods which they would not have bought.

Disadvantages:
i. Some untrustworthy customers may pocket small items.
ii. They require large space hence much expenses on rent.
iii. There is no physical contact between the buyers and sellers and therefore no
personal relationships created.
iv. It does not allow customers to exercise their bargaining skills.
v. It is usually done on cash basis thereby not giving chance to people without cash to
purchase goods.
vi. Goods are attractively displayed which may cause unnecessary spending among
people.

d) Auctioning
Here goods are assembled in front of potential buyers and taken by the highest bidder.
Under this system, buyers are in free competition with each other. This system is
commonly used during fundraising occasions for churches, schools etc and it is also
common when one’s goods are sold by court after failing to pay someone’s debt.

e) Tendering
A tender is meant in response to an advertisement inviting willing supplier of particular
goods and services. It is an offer to supply specific goods or services.

f) After sale service

This is a free service offered by the seller arising from what is purchased from him. It may
be inform of advice on how to handle the goods and regular maintenance. It can as well be
in form of repairs e.g. one may buy a complicated video system from a shop and may
require the seller to install the system at his home and also to teach him on how to handle
and operate the system.

g) Good will
A good will is a loyalty outgoing owner of business has already established with the old
customers. When selling an already existing business like shop, the buyers will be required
to pay the assets and may be pay for the good will too. This is because there is likelihood
that the old customers will continue buying from the business even if it is sold to a new
person.

h) Installment selling

26
This is a system of retail where the buyer is allowed to take a good from the seller after
paying a small amount (part of the price of the good) and the remaining amount is paid in
bits as agreed by both the seller and buyer. The items sold under this system are usually
expensive or luxurious e.g. cars, refrigerators, washing machines etc. under this system;
there are two systems followed namely:-
(i) Hire purchase
(ii) Deferred payment

(i) Hire Purchase

This is a system where the buyer takes portion of goods but ownership is not his until
when the last installment is made.

If the buyer fails to settle all payments then the goods will be repossessed by the seller and
the already paid installments are not refunded.

Hire purchase is common especially when people are buying durable goods e.g. vehicles,
furniture, electronics etc.

(ii) Deferred Payment

Under this system, the buyer gets into possession of the goods and has full ownership of
such a good on payment of the first installment. If the buyer fails to pay all the installments,
the seller cannot repossess the good but take court action to recover unpaid installment.

Advantages of installment credit to the buyer

i. A buyer can get an expensive asset he would not have got under cost basis. This is
especially with low income earners.
ii. It is a form of forced savings where the buyer inverts in assets.
iii. It uplifts the living standards of the buyer where the buyer enjoys using the asset
before completing payment for it.
iv. The item bought under installment system may act as security for the buyer to apply
for bank loans.
v. If the asset got is a capital good, it can be used to pay for the remaining installment.
E.g. if the property bought is a taxi, it can be used on the road to make money and
pay for the remaining installment.
vi. It gives the customer enough time to test the reliability of the product and in case it
is defective or below standard it can easily be returned to the seller.

Advantages of installment credit to the seller

i. The seller is able to dispose of many of his goods. i.e. it increases his turnover
therefore his income.
ii. It widens the market of the seller. i.e. many customers will be attracted to buy
through this arrangement.
iii. In case of hire purchase should the buyer fail to pay all his installment, the seller
may repossess all his goods and does not refund the buyer hence making high gains.
iv. Goods under installment credit are sold more expensively compared to those at cash
basis and therefore the seller gets more profits.

27
 v. It promotes friendship between the sellers and the buyers which may result into
more deals and more income.
vi. Advertising may not be necessary under installment since the constant visits made
by the customer help them know more about the new products.

Disadvantages of installment credit to the buyers

i. Consumers may be induced to purchase items they cannot afford.
ii. Commodities tend to be very expensive than when bought on cash basis.
iii. Buyer is over burdened by regular payment.
iv. It reduces the living conditions of the buyer as he has to make periodic payment
from his income thereby sacrificing enjoying the goods and services he used to
enjoy before.
v. In case of damage of property, the buyer has to face all the costs even if he has not
completed payments.
vi. It encourages accumulation of debts. This is because the buyer has to make ends
meet even though he has to make periodic payments for the property bought.

Disadvantages to the seller

i. The seller’s capital is in many cases tied up in debts.
ii. The seller may not easily sell of the repossessed property because they are already
second hand.
iii. It involves a lot of book keeping which increases administrative costs for the
business because of regular payments.
iv. It may spoil the business image where customers may be taken to court after failing
to pay the installments in case of deferred payments.
v. It requires a lot of capital to operate which may be very difficult to raise.
vi. Losses are usually incurred since the buyer has to be reminded regularly to pay and
also where the business incurs court costs.

WHOLESALE TRADE
Whole selling involves the sale of goods or services by a trader to another trader. In most
cases this other trader is a retailer.

A wholesaler is a trader who sells goods in affordable quantity to another trader. Whole
selling involves bulk buying of goods from various producers either locally or from other
countries and breaking down this bulk into smaller quantities which are then sold to the
retailer.

Functions of a wholesaler to:

a) To the Producer/Manufacturer
i. They provide a link between the producer and retailers.
ii. They store goods bought from producers and therefore producers do not need to
have large warehouses.

28
 iii. They normally pay cash to producers thereby allowing continuous production and
expansion.
iv. They provide transport for goods bought from producers to their warehouses.
v. They look for market for goods bought from producers.
vi. They advertise goods bought from producers.
vii. They inform producers about people’s opinions regarding the goods to enable them
improve on their products.
viii. They remove a number of risks from producers which could arise from holding
large stock of goods e.g. theft, fire outbreak etc.
ix. Some wholesalers brand and provide packing materials for goods bought from
producers e.g. tea leaves.
b) To Retailers
i. He supplies a variety of goods to retailers.
ii. He gives advisory services to the retailer regarding the goods bought from him.
iii. He breaks the bulk by selling the goods in affordable quantity.
iv. Some wholesalers extend credit facilities to some of their related customers.
v. They ensure steady supply of goods to their employers.
vi. Wholesalers bring goods near to the customers.
vii. Wholesalers store goods until they are needed hence saving them from constructing
big and expensive warehouses.

c) To Consumer
i. They ensure steady supply of goods to retailers hence stabilizing the general price of
goods.
ii. They play an important role in distribution of goods.
iii. It enables consumers to obtain goods when they want.
iv. They convey information from consumers.
v. By selling goods to retailers, customers are able to pay goods in affordable prices.

Qualities of a good quality seller

i. Should be able to know well the market of his stock. In otherwise he is expected to
stock goods required by people in the area where he is.
ii. Should possess adequate capital to enable him buy a variety of goods in cash.
iii. He should audit his books regularly to reveal how well the business is doing.
iv. He should have large warehouses to enable him store many goods and for a long
time.

Chain of Distribution
These are channels through which goods are distributed from the producer to the final
consumer. They include:-
 Consumers who are in position to buy in large quantities may buy direct from
producers.
 The most common channel is from the producer to the wholesaler then to the
retailers who may buy large sales to initial consumers.
 Consumers may buy from producers through appointed agents. Small retailers may
buy from large scale retailers and then to final consumers.

29
 PRODUCER

MIDDLEMEN
These are traders who connect producers to consumers.

Types of middlemen

Wholesalers:
A wholesaler is a trader who buys good from the producer or supplies and sales them to
the retailer. The wholesaler is the most important middle man in the chain of distribution.

Brokers:
These are middlemen who act on behalf of the seller to look for market for goods. Brokers
just bring the seller into contact but do not hold the goods physically. Brokers receive a
commission for their services known as brokerage.

30
Factors:
These are middlemen who sell goods in their possession and their control on behalf of the
producers. The normally sell these goods under their own names and at prices that they
are best. Factors are also called commission agents e.g. spear motor limited.

Del credere Agent:

These are special types of agents who guarantee to pay the supplier for the goods the agent
sells on behalf of the supplier. The supplier is assured of payment weather the goods are
bought or not. Del cedere agents also guarantee payment of all the money from those who
took the goods on credit. Because of these risks involves the del cedere agents receive a
higher commission than other types of agents. This commission is known as del cedere
commission.

Merchants:
These are home based middlemen who collect orders for the goods from abroad on behalf
of the producers. Merchants save the producer from the risks and the burden of exporting
the goods since the producer just sells in home based matte. The merchant has overall
responsibility over the goods bought from the producer. The merchant may over adjust the
price of the goods according.

Forwarding Agents:
These are middlemen who transport and deliver goods on behalf of others. Example in
Uganda includes companies like inter fright, transami etc. other middlemen includes,
retailers, distributors etc.

Functions of middlemen.
i. They store goods bought from producers.
ii. They transport goods bought from producers.
iii. They pay cash when getting goods from producers hence allowing continuous
production.
iv. They sell goods in affordable quantities to the consumers.
v. Some middlemen also advertise goods bought from producers.
vi. They also advise consumers regarding handling of certain goods.

Disadvantages of middlemen
i. Middlemen usually charge customers because they want to make unnecessary large
profits.
ii. Hiding of goods: Some middlemen may create artificial shortages. This makes
consumers ay higher prices than the actual price of the goods
iii. Diluting goods: Due to the desire to make large profits, some middlemen dilute
some of the goods so that they can get more quantities.
iv. Sell of defective goods: Some goods middlemen may sell expired goods to the
customers. Such goods may affect the health of the customer.

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ELIMINATION OF MIDDLEMEN OR WHOLESALERS FROM THE CHAIN OF
DISTRIBUTION

Although middlemen play an important role in the chain of distribution of goods and
services, there are circumstances when these middlemen can be eliminated from the chain
of distribution. These circumstances include the following:

i. Producers have their own retail outlets. Some producers especially those with
larger amount of capital, set up their own retail shops. Such producers therefore
serve the consumers hence eliminate middlemen.
ii. Mail order shops: The coming of mail order shops has enabled the consumers to
deal directly with the producers hence eliminating the middle men.
iii. Expensive goods: Producers of expensive goods tend to sell such goods directly to
consumers.
iv. Some organizations that buy goods in large quantities may buy directly from the
producer instead f buying from the middlemen. E.g. a school may buy stationery
directly from the producer since it requires stationery in large quantities.
v. Consumer co-operatives: Consumers may come together and rise capital to form a
consumer cooperative with the aim of availing goods to the members at low prices.
Such consumer cooperatives will buy directly from the producers.
vi. Sale by contract: Where the sale is by contract, consumers often deal directly with
the producers e.g. the setting up of buildings, construction of roads.
vii. In case of direct services: Provision of direct services has encouraged consumers to
deal directly with the producers e.g. hair dressing.
viii. When commodities are perishable e.g. bread, milk etc. producers of such
commodities may sell directly to consumers.
ix. The producer may appoint his own agent to sell the goods on behalf of the
manufacturer.

LOCATION OF INDUSTRY
This refers to the setting up of an industry in a particular area. Many manufacturers prefer
to set up their industries in places where the cost of production is as low as possible.

The following are some of the factors that influence the location of industries:-
i. Availability of raw materials: It is important to locate an industry where raw
materials are readily available. This reduces the cost of transporting the raw
materials especially where they are bulky and heavy e.g. the cement factory is found
in Tororo because of the availability of raw material of limestone.
ii. Availability of labour: Industries which use a lot of labour are usually located
where cheap labour is readily available. E.g. sugarcane and tea plantations.
iii. Availability of power supply: Industries which use a lot of electricity should be
located near the source of power or where power is easily accessible.
iv. Availability of the market: A producer will prefer to establish an industry near the
market especially when final product is difficult to transport and costly o transport

32
 as well. This may be due to the reason that the finished products are bulky,
perishable or fragile.
v. Transport and communication: Industries tend to locate where the costs of
transport are low e.g. near main roads, railway stations and ports.
vi. Water supply: Industries that use a lot of water as one of their major inputs are
usually located where there is abundant supply of water e.g. chemical industries,
textile industries, breweries etc.
vii. Availability of land (room for expansion): Some producers may prefer to set up
industries where there is enough land for expansion in future e.g. the outskirts of
towns.
viii. The cost of land: Some industries may be located at the outskirts of towns and
rural areas because in such areas, the cost of land is low.
ix. Location near other firms: Producers may locate their firms where other firms
already exist in order to share some facilities with already established industries.
x. Government policy: Government may influence the location of industries
regardless of economic reasons and the reasons for government influence include:
- To encourage balance developments in a country.
- To reduce rural urban migration.
xi. Climate: Favourable climatic conditions in terms of rainfall, temperature, sunshine
etc may favour certain types of industries e.g. tourism.
xii. Political climate: Areas that are politically stable tend to attract industries than
those areas that have insecurity.

LOCALISATION OF INDUSTRY
This refers to the tendency of industries to concentrate in particular areas. It can also be
defined as a tendency of firms that produce related goods to be located in the same area.

Advantages of Localization
i. Increase in employment opportunities. More jobs will be created as a result of the
coming up of more firms in the area.
ii. Development of more firms. Localization encourages the coming up of other firms in
the area. These may be firms that supply raw materials due to the already
established firms or the new firms may provide market for the products of the
established firms.
iii. Development of infrastructure. Localization leads to development of schools,
hospitals, roads, electricity supply etc.
iv. Leads to urbanization. Urban centres tend to develop in areas where industries are
concentrated.
v. Expansion of firms. Firms that are concentrated in the same area and producing
similar goods can easily match or combine resulting in to large scale firms.
vi. Development of the area. The government may be encouraged to develop the area
where firms are concentrated by supplying such an area with electricity, roads,
water etc.

33
vii. Development of specialized services. The concentration of firms in a particular area
are usually attracts specialized services such as banking services, insurance
services, security services etc.
viii. Expansion of the market. Concentration of firms in an area creates market for goods
and services. This is because the area has many people who work and reside there.
ix. Increase in government revenue. The government gets a lot of revenue in form of
taxes from the firms in the localized area.

Disadvantages of localization
(i) Localization results to traffic congestion as a result of the large numbers of vehicles
that operate in the localized area.
(ii) Uneven development in the country. Those areas where firms are concentrated tend
to develop much faster than other areas with no industries. This leads to unequal
development.
(iii) Shortage of housing facilities. Localized areas usually do not have enough
housing for the population. This leads to the development of slums.
(iv) Localization also leads to rural-urban migration. In most cases the people
looking for jobs in localized areas are more than the available jobs resulting to
unemployment.
(v) Immorality: Due to high population in the localized areas, immoral activities are
common in such areas e.g. prostitution, robbery etc.
(vi) Pollution: The existence of many forms in the localized areas results in
pollution of air and water. This affects the health of the people.
(vii) High cost of living. The cost of living in the localized area tends to be high.
This is because prices of goods and services such as food, accommodation, water etc
tend to be high.
(viii) Localization leads to over exploitation of resources. This happens where the
localized firms compete for the same raw materials that are found in the localized
area.

TERMS AND MEANS OF PAYMENT

When a customer gets goods from the seller, he may take them under the following terms:-
(i) Cash
(ii) Installment credit
(iii) Credit
(iv) Cheques
(v) Postal orders
(vi) Money orders
(vii) Telegraphic money order
(viii) Bill of exchange
(ix) Promissory note
(x) Standing order
(xi) Bank draft
(xii) Postage stamps
(xiii) Credit transfers

34
CASH
This is where a customer pays money for goods and services as soon as he gets them. Cash
payment may be made under the following terms:-

a) Cash on delivery
The buyer pays for the goods as soon as they are delivered to him.

b) Cash with order

Under this system the customer is required to send money when he is pressing an order for
goods and services.

This method is commonly used with mail order businesses which send goods to customers
after receiving payments from them.

c) Spot cash
This refers to paying for goods and services immediately they are handed over to the
buyer.

d) Net cash
This is where a cash discount is offered to customers who settle their payment within a
given period agreed upon. However the customer fails to settle the payment within the
specified period the discount is withdrawn by the seller.

Advantages of Cash Payment:

(i) Facilitates constant supply of goods.
(ii) Saves the seller from bad debtors.
(iii) Gives room for expansion of the business.
(iv) Minimizes losses.
(v) Leads to continuity of business.

Disadvantages of Cash Payment

(i) Low income earners enjoy poor quality goods.
(ii) Relationship between the buyer and seller is destroyed by cash basis since there are
not credits.
(iii) It is hard and inconveniencing to carry especially when coins are involved.
(iv) It deprives of using/enjoying a number of goods/commodities.
(v) Losses are incurred especially there is limited audit work or extravagancy.

CREDIT
This is where a buyer takes goods from the supplier without paying anything but instead
makes the payments at once in some future date.

Advantages of credit
(i) The seller is able to sell more of his goods and he is therefore able to achieve a high
turn over.

35
 (ii) Goods sold on credit are usually more expensive than those on cash. This enables
the seller to earn more profits.
(iii) It enables salary earners to obtain goods and pay for them at the end of the
month.
(iv) It promotes good understanding or relationship between the buyer and the
seller.

Disadvantages of credit
i. Bad debts which may arise when the buyer fails to pay. It may lead to collapse of the
business.
ii. The traders may take advantage of credit to overcharge the buyers since there is no
bargaining.
iii. Credit reduces the amount of capital available to the seller.
iv. Credit requires good record keeping. This may involve alt of paper work and
therefore increasing the amount of work for the seller.

CHEQUES
A cheque is a written order by a bank customer to his bank to pay a specified amount of
money to a named person.

POSTAL ORDERS
It is a method of sending money in small amounts through the post office between people.
The sender writes the name and address of the payee on the face of the postal order and
encloses it in an envelope addressed to the payee.

Postal orders are paid to any post office within the country where the postal order is
issued. The sender of the postal order has to pay a fee to the post office to the service. This
fee is known as poundage. Postal orders may be crossed. This means that the money sent
had to be paid on the bank account of the payee.

MONEY ORDERS
This is a method where money is set to the payee through a specified post office. The payee
receives the money only at a particular post office. The payee is expected to identify himself
and name the person who sent the money order.

A money order may also be crossed. This means that the money has to be paid through the
bank account of the payee. A higher service fee is paid for sending a money order than
sending a postal order.

TELEGRAPHIC MONEY ORDER

It is a method where the issuing post office sends a telegraph to the payee and the receiving
post office. On receiving the telegraph, the payee goes on the receiving post office, identifies
himself and receives the money sent to him. The service fee for a telegraphic money order
is higher than the service fee for both postal order and money order.

BILL OF EXCHANGE

36
This refers to an order in writing by a creditor to a debtor to pay a specified amount of
money to a named person. A bill of exchange is not valid (cannot be enforced legally) unless
it has been accepted by the debtor.

Parties to a Bill of Exchange

a) The drawee
This is a person to whom the bill is sent in other words is the debtor.

b) The drawer
This is a person who writes the bill in other words this is the creditor.

c) The acceptor
This may be the drawee or the debtor.

d) The payee
This may be the drawer or any other person authorized by the drawer.

Sight bill
This refers to a bill of exchange that is settled on demand.

Usance bill
This refers to a bill of exchange payable at a future date.

PROMISORY NOTE
It is a document by which the debtor unconditionally promises to pay a specified sum of
money to his creditor on an agreed day.

A promissory note

One month after this date

I promise to pay
Mukwano Book shop
Five million Uganda shillings
(shs. 5,000,0000)
John Mukasa 10th March 2009

There are two parties to a promissory note:

a) The creditor - Mukwano bookshop
b) The debtor - Jon Mukasa

I OWE YOU (IOU)

This is drawn by the debtor to the creditor indicating the amount of money the debtor
owes to the named creditor.

POSTAGE STAMPS

37
These are used to defect small payments especially for goods and services through the post
office e.g. payment for the delivery of mail.

STANDING ORDER
This is an instruction to the bank to pay a specified sum of money to a named
person/business at regular and specified intervals for a specified period of time or until the
agreement is canceled.
e.g. A tenant may instruct his bank to pay 200,000/= to his named landlord.

BANK DRAFT
This is a cheque drawn on a bank and issued by the bank only after the bank has received
money from a person requesting for a bank draft.

It is a more ready acceptable means of payment since the bank guarantees payment against
it.

CREDIT CARDS
These are mainly issued by commercial banks. However, they may also be issued by other
organizations as well.

A credit card gives the holder authority to buy goods in specified shops specified by the
issuing bank for amounts up to an agreed maximum.

The shop will then present the bill to the issuing bank for payment. The issuing bank then
bills the card holder and demands the payment.

NEGOTIABLE INSTRUMENTS
These are documents whose title can be transferred from one person to another by
endorsement. This is done by signing at the back of the document as evidence of transfer of
title.

Negotiable instruments include cheques, promissory notes, treasury bills among others.

Types of Endorsement

Restrictive Endorsement
This type of endorsement restricts title to a named person such that it cannot easily be
transferred to another party. Therefore negotiability is not possible.

Open Endorsement
This allows the drawer to sign at the back of a document without naming the payee. This
means that such a document can easily be transferred since any person may fill his name to
become the payee.

DOCUMENT USED IN HOME TRADE TRANSACTIONS

38
A number of documents are used in home trade transactions. These documents are
exchanged between buyers and sellers as they carry out their businesses. They are
normally exchanged between wholesalers and retailers.

These documents include the following among others:

i. An inquiry x. Goods received note
ii. Price list xi. Invoice
iii. Catalogue xii. Goods returned
iv. Quotation xiii. Credit note
v. An order note xiv. Debit note
vi. Credit status inquiry letters xv. Proforma invoice
vii. Packing sheet/Note xvi. Statement of Account
viii. Advice note/Dispatch note xvii. Receipt/cash sales
ix. Delivery note

The following example is used to explain how the different documents are used between
buyers and sellers (suppliers)

Seller/Supplier : Kikuubo General Suppliers Ltd.

P.O. Box 402 Kampala.

Buyer : Kassanda General stockists and retailers

P.O. Box 14 Mityana.

An example of a letter of inquiry

Kassanda General Stockists

P.O. Box 14 Mityana
16/3/2009
The Sales Manager
Kikuubo General Suppliers
P.O. Box 402 Kampala

Dear Sir/Madam,
I am writing to inquire about the various types of soap, cooking oil and
wheat flour that you have. Please send me a price list of these goods and
indicate the conditions of supply.
Thank you for your cooperation.
Yours faithfully
MISS JOCELYN
PURCHASING MANAGER
39
Reply to inquiry
When the supplier receives an inquiry letter, he may answer it in one of the following
ways:-
a) Sending a price list
b) Sending a catalogue
c) Sending a quotation

PRICE LIST
This is a list of items sold by the seller with a respective price. A price list does not carry a
lot of information apart from showing the prices of the different goods. An example of a
price list
KIKUUBO GENERAL SUPPLIERS
P.O. BOX 402 KAMPALA.

19/03/2009
THE PURCHASING MANAGER
KASSSANDA GENERAL STOCKISTS
P.O. BOX 14 MITYANA

Dear Sir,

RE: PRICE LIST

I received your letter of inquiry dated 16/03/09 and I hereby forward to you the prices of the
goods you inquired about.
Quantity Item Price per unit
1 3 litres cooking oil 10,000/=
1 Box of star soap 25,000/=
1 Carton of Azam wheat flour 24,000/=
1 Carton of Excel wheat flour 23,000/=

A big purchase of over two million shillings attracts ten percent credit discount and free delivery between
the distance of 20km from Kampala.

Thank you.

Yours faithfully,
Sales Manager

A CATALOGUE
The seller/supplier may simply send a catalogue to the buyer. A catalogue is a booklet
which briefly describes each item offered for sale by the seller. In most cases it carries
illustrations of the items on sale. It gives much more information than the price list. A
catalogue usually gives information which includes the period of credit allowed, delivery
services available, packaging and posting expenses, after sale services offered by the seller
etc.

A QUOTATION
A quotation is more specific in nature. It is sent in a reply of an inquiry for which no
standard price list of catalogue is available. E.g. you may want to know the cost of

40
constructing a house of a particular design and size. There will be no standard price list for
such a house. The construction company would have to study the specifications and quote
for you the cost accordingly.

ORDER NOTE
After the buyer has received the necessary information from the seller, the buyer can now
place an order for the goods.

An order is a request from the buyer to the seller requiring the seller to supply the
specified goods. It states the type of goods required, the quantities required and the prices
of individual items ordered for.

An order note is usually written in duplicate. The original is sent to the seller/supplier.

An Order Note

KASSANDA GENERAL STOCKISTS

P.O. BOX 14 MITYANA

20th March 2009

TO: KIKUUBO
GENERAL TRADERS
P.O. BOX 402 KAMPALA (U)

Please supply the following:

Quantity Item Price Amount
3 10 litre cooling oil tin 10,000/= 30,000/=
2 Star soap boxes 30,000/= 60,000/=
6 Cartons of Azam wheat flour 20,000/= 120,000/=

Delivery instructions: As soon as possible.

Peter Mukasa
Purchasing Manager

CREDIT STATUS INQUIRY

The buyer may ask the seller to allow him take the goods on credit and pay at a later date.
The seller will then take the responsibility to find out information about the customer in
order to avoid losses through bad debts. The seller can get information about the buyer
from one or more of the following sources.

a) The bankers to the buyer

41
The seller may ask the buyer to give him the name of his bankers. The seller can then write
a letter known as credit status inquiry for the purpose of getting information about the
financial position of the buyer.

b) From other suppliers

The buyer may be asked by the seller to give the name of another supplier to the buyer
from whom information about the paying habits of the buyer may be obtained.

c) Other customers
Sometimes the seller may ask one of his regular customers who may happen to know the
potential buyer (Kassanda stockists) about his credit worthiness and his paying habits.

d) Trade Associations
If the buyer happens to be a member of the trade association (e.g. Kampala City traders
association), the seller may approach the offices of the association for a confidential report
about the potential buyer.

PACKAGE NOTE/SHEET
The order received from the buyer/retailer is passed to the warehouse section. The goods
ordered for will be packed in suitable container and the contents of each container are
noted on the sheet called package note/sheet.

Package sheets are usually prepared in four copies. The original copy is placed inside the
container, one copy is sent to the buyer, one copy is sent to the accounts department and
the last copy is retained by the warehouse for its own records.

ADVICE NOTE/DISPATCH NOTE:

When the goods ordered for by the buyer are ready, the supplier sends an advice
not/dispatch note to tell the buyer that the goods had been sent. It gives the exact time the
goods should be expected. This gives the buyer time to arrange for the collection and
storage of the goods.

DELIVERY NOTE:
This is a document required by the seller and signed by the buyer to provide evidence that
the goods have been delivered. The buyer signs the delivery note after cross checking and
establish that the goods that have been delivered correspond with the information of the
order note.

INVOICE:
An invoice is a document that informs the buyer of the amount that is due. An invoice is
sent only if the goods are sold on credit.

An invoice serves two purposes:-

42
 i. It serves to notify the buyer of the amount of money he has to pay for the goods
bought by him.
ii. It serves as evidence of the debt due to the seller.

An invoice contains the following information:-

i. A description of the goods sold.
ii. It contains the total cost of the goods sold.
iii. It also shows any discount
iv. It shows the net amount to be paid by the buyer (i.e. this amount is the difference
between the total cost of the goods and the trade discount allowed.
v. It also shows the length credit period.

An invoice is written in duplicate. A copy is kept by the seller and the original is sent to the
buyer.

INVOICE
KIKUUBO GENERAL TRADERS
P.O. BOX 402 KAMPALA
TO KASSANDA GENERAL STOCKISTS
P.O. BOX 14 MITYANA 24/03/09
QUANTITY DESCRIPTION UNIT PRICE AMOUNT
10 boxes Mukwano Cooking oil 8,000/= 80,000/=
20 boxes Star soap 25,000/= 500,000/=
20 cartons Azam wheat flour 20,000/= 400,000/=
4 boxes Imperial soap 30,000/= 120,000/=
Less 10% trade discount 1,100,000/=
Nine hundred ninety thousand shillings 110,000/=
Terms: strictly 20 days 990,000/=

E & OE:
These letters stand for “Error and Omission Expected”. This means that the seller reserves
the right to correct an invoice if he discovers an error in it at a later date.

An invoice is often referred to as a bill. A bill is usually served when the payment is asked
for a service rendered.

Professionals as doctors and lawyers issue bills to their customers.

PROCEDURE OF RECEIVING THE INVOICE

The buyer will take the following steps on receiving an invoice from the seller:-
i. He will check to establish whether the goods on the invoice are the goods that he
actually ordered.
ii. He will check against the package sheet, delivery note to ensure that the goods on
the invoice have actually been received.

43
 iii. He will check the prices and the trade discount allowed to ensure that he has bit
been over charged.
iv. If the invoice is found accurate, it is passed to the accounts department which
prepares payment for the goods.

Discrepancies in the invoice

If the invoice is found incorrect, the buyer must take steps to ensure that he pays only the
correct amount. An incorrect invoice may lead to either overcharge or undercharge.

An overcharge may result from incorrect pricing, error in trade discount calculation, errors
in totaling or inclusion of wrong items.
In case of such errors, the buyer should inform the seller about the error and the seller will
issue a correct note to correct the invoice.

A CREDIT NOTE
This is a document that informs the buyer that he has been credited by the seller. This
means that the buyer has been relieved of the amount overcharged in the invoice. A credit
note is therefore a document sent to the buyer to adjust an overcharge of the goods
supplied.

DEBIT NOTE
This is a document that adjusts an undercharge in the invoice. The undercharge may be due
to wrong prices spotted, errors in calculating the amount to be paid or due to omissions of
some goods.

PROFORMA INVOICE
This is a document sent by the seller to the buyer indicating terms and conditions under
which goods have to be supplied. It is normally sent to a customer who wants to buy goods
from the seller.

It is sent due to any of the following reasons:

i. When the seller does not want to risk credit with a new buyer. He will send to such a
buyer a proforma invoice.
ii. If the quantity order is small then the supplier will send a proforma invoice for a
buyer to inform him that he should pay cash.
iii. It may be sent with the goods that are sold under sale or return basis.
iv. A proforma invoice may be sent instead of a quotation.

STATEMENT OF ACCOUNT
This is a document sent by the supplier to the buyer requiring the buyer to pay for the
goods taken on credit in a given period usually a month.

A statement of account consists of the following:

a) The unpaid balance of the previous months.
b) The value of the goods bought on credit

44
 c) Some payments made during the month.

RECEIPT
As soon as the statement is sent to the buyer, the buyer is expected to pay the amount he
owes to the seller.

After the payment has been made, the seller issues a receipt to the buyer. A receipt is a
confirmation that the buyer has paid for the goods or services that he took from the seller.

TERMS OF SALE
When selling goods, the supplier has to indicate to the buyer the conditions (terms of
purchasing goods. These terms should have the following information:-
i. Type of transport used whether it is by road, railway or air.
ii. Whether the seller is to transport the goods to the buyer’s place.
iii. Whether the buyer is to pay for the transport.
iv. Whether the cost insurance is to be met by the buyer
v. Taxes involved.

Among the terms used are the following:-

i) COD
This means on delivery. The buyer is expected to pay for the goods as the y are
being delivered to him.

ii) Ex factory or ex ware houses:

This means that the price quoted only shows the cost of the goods at the suppliers place. All
the other expenses are not included, so they have to be meant by the buyer.

iii) LOCO
This means local price. It indicates that the price quoted is the one charged whenever the
goods are found. The buyer is responsible for the packing, insurance and transport to the
final destinations.

iv) E & O.E

It means errors and omission expected. It indicates that any errors or omissions that may
appear on the document such as invoices, receipts etc in figure and not intended. These
errors are subjects to corrections.

v) Carr pd
This means carriage paid. It indicates that the price quoted includes transport charges up
to the buyer’s place. Carriage paid is used in home trade.

vi) FRANCO
It is used in foreign trade. It means that the price quoted includes all expenses of delivering
goods to the buyer’s place in a foreign country.

vii) Carr Fwd

45
This means carriage forward. This indicates that the price quoted includes transport
charges up to the buyer’s place.

viii) C.I.F
It stands for Cost Insurance and Freight. This means that the price quoted by the seller
includes the cost of the goods, cost of insurance and shipping up to the nearby port in the
buyer’s country.

ix) C&F
It stands for cost and freight. It means that the price quoted includes the cost of the goods
and shipping charges. The price quoted does not include insurance. The buyer is expected
to arrange insurance for himself.

x) F.O.B
It stands for Free On Board. This means that the price quoted includes the cost of the goods
and expenses for loading on the ship. The other expenses such as paying for insurance and
transport charges have to be met by the buyer.

xi) Ex-ship
This means that the supplier is responsible for the freight transport by ship and insurance
up to the point of destination. The buyer will be expected to meet the expenses of taking
delivery from the ship.

xii) F.O.R
This stands for Free On Rail. This means that the seller will deliver goods to the nearest rail
station. The buyer would have to meet other chances to make the goods reach his premises.

xiii) F.A.S
This stands for Free Alongside Ship. It indicates that the price quoted includes all expenses
of putting the goods alongside the ship ready for loading. The buyer is responsible for
freight insurance and any other charges.

xiv) The bond

This means that delivery has to be made in the customs bonded warehouse of a named
port. The buyer is responsible for charges of withdrawing the goods from warehouses.

xv) Duty paid

This means that the price quoted includes all the expenses involved in bringing the goods
to the buyer. It also includes payment of the import taxes on the goods.

BUSINESS OWNERSHIP
A business unit is a firm set up with aim of making a profit. It may be owned by one person
or may be collectively owned.

46
Factors that determine the size of business unit
A business unit or firm may be large or small depending on the following:-

The area that it occupies:

Firms that occupy large areas are usually large scale firms e.g. agricultural enterprises,
textile firms etc.

Amount of capital employed:

Large firms usually employ large amounts of capital while small firms operate with little
capital.

Number of people employed:

Large scale firms usually employ many people while the small scale firms usually employ
few people.

The techniques used in production:

Large firms usually employ modern methods of production. They are characterized by
mechanization, computerization and on the other hand small firms do not use modern
methods.

Amount of goods produced:

Large scale firms produce large amounts of goods while small scale firms produce small
amount of goods.

The number of departments in firm:

Large scale firms have several specialized departments while on the other hand small scale
firms usually have very few departments.

Size of market:
Large scale firms usually have large market for their goods while on the other hand small
scale firms have small market.

ECONOMIES OF SCALE
This refers to the advantages that a firm or a business unit enjoys as a result of operating
on large scale. These include the following:-

 Large scale firms can easily employ specialists which result into increased
production.
 Large scale firms can easily borrow money from financial institutions.
 Large scale firms operate at low average costs since their costs are spread over large
amounts of goods that they produce and sell.
 Large scale firms can easily under take specialization which increases the amount of
goods produced.
 Large scale firms usually get their raw materials at lower prices because they
always get the raw materials in large quantities.

47
  Large scale firms can undertake extensive advertising which enables them to
expand their market.
 Large scale firms can easily expand in size since they are able to make profits than
small scale firms.
 Large scale firms can easily use their own by-products to produce other secondary
products.
 Large scale firms are able to use modern methods of production and equipment.
This enables them to produce goods of quality.

DISECONOMIES OF SCALE
These are disadvantages of large scale production:
 Large scale firms have management problems since they employ many people.
 Large scale firms are not flexible i.e. they cannot easily change from one line of
production to another.
 Large scale firms will incur heavy losses in case of disasters e.g. fire, wars etc.
 Wastage of resources e.g. raw materials tend to be high among large scale firms.
 Large scale firms employ large numbers of people. This may result in labour
disputes e.g. demands for higher wages, strikes among workers etc.
 Large scale firms usually use modern machinery. Such machinery is expensive to
install and maintain.

BUSINESS UNITS AND THEIR ORGANISATION

These include:-
i. Sole trader
ii. Partnerships
iii. Joint stock companies
iv. Cooperatives
v. Marketing boards
vi. Parastatal bodies

SOLE TRADE OR SOLE PROPRIETORSHIP

Sole trade is a business owned by only one person. A sole trader or sole proprietor is a
trader who owns a business done.

A sole trader contributes capital to the business alone.

He also takes all the profits alone.

He also bears the losses alone.

48
He remains the sole owner of the business and has total authority over the business
through he may have some people to help him run the business.

ADVANTAGES OF SOLE TRADE

i. It requires little capital to set up.
ii. The business is very easy to set up since it requires little capacity and few
documents. In most cases only a trading license is the document required.
iii. A sole trader takes all the profits of the business since he owns the business alone.
iv. A sole trader enjoys secrecy in all matter to do with the business since he does not
have to share information concerning the business with other people.
v. The business of the sole trade is flexible. A sole trader can easily make important
decision and even make any necessary changes in his business in the shortest end.
vi. The sole trader is able to establish personal contacts with his customer. He is
therefore able to learn the demand of his customers which help him to maintain
them.
vii. The sole trader has personal interest in the business therefore it is in his interest to
maintain the business. This means that the business is unlikely to fail.
viii. A sole trade is encouraged to work hard since he takes all the profits alone and
therefore has personal interest in the business.
ix. He usually works for long hours.
x. A sole trader gives advice to his customers regarding the goods he deals in. This is
because he is in close contact with his customers.
xi. A sole trader pays less taxes. This is because of the small size of the business.
xii. A sole trader enjoys a lot of independent. He works at his own pace because he is a
master of himself. He does not work under any body’s instructions or control.
xiii. A sole trader creates employment for the family members and other people.

DISADVANTAGES OF SOLE TRADE

i. There is limited room for expansion. This is because of the little capital that the sole
trade usually has.
ii. The sole trader may not provide a variety of goods for his customers since he has
limited capital.
iii. The life of the business of a sole trader depends on the life of the sole trader himself.
Once the sole trader dies, the business also dies.
iv. The sole trader does not usually maintain a proper accounting system for his
business. This is because he is not in position to employ trained people. As a result it
is difficult for him to know the financial position of the business.
v. A sole trader works for long hours because he is alone. He therefore overworks
himself.
vi. A sole trade has unlimited liability. This means that his personal property can be
taken if he fails to pay the debts of the business.
vii. The sole trader suffers losses of his business alone. He cannot share the losses with
any other person.
viii. There is lack of specialization because the sole trader does everything since it is a
one man’s business.

49
 ix. Wrong decisions may be taken since the sole trader takes his decisions alone
without consulting anybody else.
x. The sole trader cannot afford to use modern technology in his business.

Questions:
1. Define
(a) Sole trader
(b) Sole trade
2. What are the advantages and disadvantages of sole trade?

PARTNERSHIPS
A partnership is a business established by two or more people. It may be defined as the
relationship that exist between two or more people coming together to do business with
the aim of making profits.

The people who form partnership businesses are called partners.

In case of a partnership dealing in commercial activities, the minimum number of partners

is 2 and the maximum is 20.
(However if the firm is to provide a professional service where all members are
professionals e.g. lawyers the 2 and maximum 50).

TYPES OF PATNERSHIPS
(i) Temporary partnerships
This is a partnership formed for a specified period. At the expiry of this period the
partnership is dissolved.

(ii) Permanent partnership

This is a partnership whose time of operation is not known. The time for dissolution is
therefore unknown.

(iii) Limited partnership

This is where some partners have limited liability up to the amount they contributed as
capital.

(iv) Ordinary partnership

This is a type of partnership where the liability of the partners is unlimited. The partners
are fully responsible for all the debts to the extent of their personal property.

TYPES OF PARTNERS
Partners may be classified in the various ways as follows:-

a) According to the role they play

Under this category, there are dormant and active partners.

b) According to their liability to the partnership

50
Under this category, there are general and limited partners.

c) According to the age of the partners

They may be major or minor partners

d) According to the capital contributed by the partners

They may be real or quasi partners.

ACTIVE PARTNER
This is a partner who contributes capital, shares profits and losses of the partnership. In
addition this type of partner takes part in the day to day running of the business.

DORMANT/SLEEPING/SILENT PARTNER
This is a type of partner who contributes capital, shares profits and losses but does not take
part in the day to day running of the business.

GENERAL PARTNER
This is a type of partner who contributes capital, shares profits and losses but has
unlimited liability. A general partner may be called upon to meet the debts of the
partnership from his personal resources.

LIMITED PARTNER
This is a type of partner who provides capital, shares profits and losses but has limited
liability. This means that in case a business fails to meet its debts, a limited partner is not
required to contribute anything more than the amount he contributed as capital. The
personal property of a limited partner cannot be taken to meet the debts of the business.

MAJOR PARTNER
This is the type of partner whose age is 18years and above. This type of partner contributes
capital and also shares profits and losses of the business. He is allowed to participate in the
running of the business.

MINOR PARTNER
This is the type of partner who contributes capital, shares profits and losses and may be
responsible for the debts of the business.

QUASI PARTNER
This is a type of partner who does not contribute any capital and does not take part in the
running of the business. He only allows the firm to use his name as a partner. He is not
liable for the debts of the firm except when a creditor acts on the assumption that he is a
real partner.

FORMATION OF PARTNERSHIPS

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A partnership comes into existence by an agreement in writing known as partnership deed
or articles of the partnership as laid down in the partnership act.

Partnership deed
This is an agreement in writing made by partners outlining the basis for the partnership
formed. It states the terms and conditions under which the partnership business will be
run.

Contents of a partnership deed

A partnership deed states the following:
i. Name of the firm and its location
ii. Names of partners, their addresses and occupation.
iii. Types of each partners e.g. active partner, major partner etc.
iv. The capital to be contributed by each partner.
v. The profit and loss sharing ratio.
vi. Rights of each partner e.g. interest on their capital.
vii. Responsibilities allocated to each partner.
viii. The steps to be taken in case of dissolutions of the partnership.
ix. Time the partnership will last if it is a temporary partnership.
x. Method of calculating good will. Good will is the force of attraction created by an
individual that brings in customers.
xi. How the books of accounts will be prepared and kept.
xii. The aims and objectives of forming the partnership.

In case the partners have not prepared the partnership deed, the provisions of the
partnership act 1934 chapter 29 will apply. These are as follows:-
i. Every partner can participate in the running of the business.
ii. Decision making will follow the majority votes of the partners.
iii. Any changes to be made should be in consultation with the rest of the partners.
iv. No interest is to be allowed on capital.
v. No salary to any active partner.
vi. 5% interest will be paid to any loan advanced to the business.
vii. Profits will be shared equally.
viii. All partners have a right to inspect the books of accounts.
RIGHTS & DUTIES OF PARTNERS
i. In case of expelling a partner, the partnership must be dissolved.
ii. On admission of a new partner, all partners must be informed.
iii. If there is any private business of a partner that competes with the partnership, the
owner must surrender all the profits realized.
iv. Every partner must display utmost good faith in case he/she has access to fans.
v. The business must indemnify (compensate) a partner for the liabilities incurred by
him in the conduct of the business.
vi. All partners are liable for the debts of the business.
vii. All partners have a right to act on behalf of the business. E.g. signing of documents.
viii. They have a right to inspect books of accounts.
ix. They have a right to punish a partner who carries out his/her duties carelessly.

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DISSOLUTION OF A PARTNERSHIP
This is the expiry or bringing the existence of a partnership to an end. A partnership may
be dissolved under the following circumstances:-
i. Expiry of the term of operation in the case of temporary partnership.
ii. If the objectives of the partnership have been achieved.
iii. If one of the partners becomes insane or mad.
iv. When a partner dies.
v. If a partner gives sound reasons why the partnership should be dissolved.
vi. In case a partner is bankrupt.
vii. The court may dissolve the partnership on request by a creditor or when a
partnership incurs losses only.
viii. If the activity being carried out is unlawful.

ADVANTAGES OF PARTNERSHIP
i. More capital is raised through contributions by members than in the case of a sole
trader.
ii. There is division of work among the partners hence sharing of work.
iii. Experience is shared among partners because of contribution of talents.
iv. Since there are no legal requirements in its formation, it is easy to start.
v. There is free discussion and consultation among partners which easily brings out
proper solutions to various problems.
vi. More capital can be raised to expand the business by admitting more partners.
vii. The absence of a partner does not affect the running of the business.
viii. Partners may get bonuses in addition to the profits. This acts an incentive.
ix. A partner is a full agent of the firm. He has full authority in the daily running of the
firm e.g. he can order for goods and accept payment on behalf of the firm.

DISADVANTAGES OF PARTNERSHIP
i. The business by the dissolved due to the death or bankruptcy of any member.
ii. All partners may suffer a loss of penalty resulting from the mistake of one of the
members.
iii. Partners may disagree on certain matters of the business. This may hinder the
growth of the development of the business.
iv. Profits have to be shared among several people who make up the partnership. This
reduces the amount that each member gets as a profit.
v. A hard working partner may be discouraged because the profits that result from his
hard work are shared by all members.
vi. The making of decisions is slow and may often be delayed because of the need to
consult other members.
vii. Under ordinary partnership the liability of the members is unlimited. This means
that the personal property of the members may be taken to pay up the debts of the
business.
viii. The death of a partner seriously affects the business as a whole.

Revision questions:

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1. (a) What is a partnership deed?
(b) List down the contents of a partnership deed.
2. Give reasons for the dissolution of a partnership.
3. What are the advantages and disadvantages of partnerships?

JOINT STOCK COMPANIES

A joint stock company is an association of persons formed to run certain business activities.

According to the law company is defined as a legal person that owns properties, enters into
contracts, creates liabilities ,may sue others ,may be sued by others and carries out certain
specific function for which it was formed .

A joint stock company therefore exists as an independent entity separate from the
members who constitute it.

TYPES OF JOINT STOCK COMPANIES

1. Public Limited Companies

This is a type of company that has a minimum of seven members and has no fixed number.

Features of public limited companies

i. They have a minimum of seven members with no maximum number.
ii. They have a separate legal entity from the members who constitute them. The
members are known as share holders.
iii. The liability of the share holders is limited to the capital that they have contributed.
iv. The capital of the company is raised by selling the shares to the public. This capital
is divided into units of the same value and each unit is known as a share.
v. The owners of the company are called share holders as they hold its shares.
vi. The share holders have no direct contact with the employees or customers of the
company. People called directors are elected by shareholders among themselves
conduct the affairs of the company.
vii. The shares are freely transferable.
viii. The company is not affected if a share holder becomes insane or bankrupt or dies.
ix. Companies are formed with the aim of making profits.
x. Shares of the company are opened for the public to buy especially through stock
exchange.
xi. Companies are expected to publish their annual accounts.

2. Private Limited Companies

i. Private limited companies have the following characteristics:-
ii. A private limited company may have two or fifty (2 - 50) members (share holders).
iii. The shares of the private limited companies are not freely transferrable.

54
 iv. It can start business as soon as it receives the certificate of incorporation. It does not
have to wait for a certificate of trading.
v. It is not required to publish its account as public companies do.
vi. The size of the business runs by private is often smaller.
vii. Members’ liability is limited to their capital contributed.
viii. It has a separate legal entity separate from the members who form it.
ix. Members of the public may not be invited to buy shares from the company.
x. Promoters of a private company must prepare memorandum and article of
association.
FORMATION OF A COMPANY
Before a company begins business operation, it must register first. It is the promoters or
founder members of the company that furnish the registrar of companies with the
following documents:-
i. Memorandum of association
ii. Articles of association
iii. A list of directors
iv. A statement signed by directors stating that they have agreed to act as such.
v. A declaration that the necessary requirements for registration have been fully
comprised with. This declaration may be signed by secretary or by one of the
directors or promoters of the company .If the registrar of the companies finds these
documents in order, he may ask the director to pay registration fee. On receiving the
fee he issues a certificate of incorporation. This document gives legal existence of
the company.

MEMORANDUM OF ASSOCIATION
This is the most important document in the formation of the company. It lays down and
defines the power and limitation of the company. It governs the company’s relationship
with the outsiders or the general public.

Contents of Memorandum of Association

A memorandum of association contains 6 basic aspects or clauses:-

a) Name Clause:
This clause states the name of the company .The last word of the name of the clause should
be limited to serve as a reminder to the people dealing in the company that the reliability of
its members is limited. A company can take on any name as long as it is identical to the
name of an existing company.

b) Objective Clause:
This clause shows the aims and objectives for which the company is being formed. The
company cannot carryout activities beyond the objectives or scope stated in the
memorandum of association.

c) Situation Clause:

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This shows the registered address or location of the company to enable the public know
where to find it in case of contact. Every company must have registered office to which
notices can be sent.

d) Capital Clause:
In this clause, the share capital is stated that the company wishes to have. The following
information is given:-
i. The total amount of share capital.
ii. The units (shares) into which the share capital is divided
iii. The value of each share.
iv. The type of share e.g. ordinary, preference share etc

e) Liability Clause:
This clause states that the liability of the members shall be limited to their capital
contributions.

f) The Declaration Clause:

This is the clause of the memorandum of association and states the desire of the promoters
to form themselves into a company. This declaration must be signed by a minimum of 7
people who must agree to take at least one share each. The clause also states the names
and address of the promoters and the number of shares each has agreed to take.

Questions:
1. What is a memorandum of association?
2. Explain the contents of the memorandum of association.

ARTICLES OF ASSOCIATION
This is a document that lays down the rules and regulations that govern the internal
organization of the company. In other words it shows the internal rules of the company. It
includes the following:-
a) The rights and powers of each type of share holder.
b) The powers of the directors of the company.
c) The method of calling and conducting general meetings.
d) The rules governing election of directors and auditors.
e) Ways of raising finances for expansion.
f) How records of the company shall be kept.
g) Whether the shares can be transferrable and how they may be transferred.
h) The salaries to be paid to the management.

Note:
The most important difference between the Memorandum of Association and Articles of
Association is that while the Memorandum of Association defines the company’s
relationship with outsiders, the Articles of Association defines the rules and regulations
that govern the internal organization of the company.

DIRECTORS LIST:

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This shows the names of the directors and their written promises to take up shares in a
company.

CERTIFICATE OF INCORPORATION:
When all requirements have been satisfactorily completed, the registrar issues a certificate
of incorporation which allows a company to legally exist and offer its services to the public.

In case of a private company, it can start operating as soon as it receives a certificate of

incorporation. But a public limited company; it has to wait for a certificate of trading for it
to start operating.

PROSPECTUS:
This is drawn up by directors inviting the public to subscribe for the shares of the company.
It advertises the shares of the company to members of the public. A prospectus gives much
detailed information about the company describing the shares, the promoters and
directors of the company, the performance of the company.

SHARES:
A share is a unit of capital of a joint stock company.

Therefore the capital of the company is raised by selling shares to members of the public
and the capital of a company is referred to as a share capital.

Types of shares
There are basically two types of shares i.e.
a) Ordinary shares
b) Preference shares

Ordinary shares do not carry a fixed rate of return on capital while preference shares do
carry a fixed rate of return. Profits distributed to share holders is called dividend.
Preference share holders have a right on dividends but the dividend payable to them is
restricted to a certain percentage. Therefore ordinary shareholders get the reduce and in
years of good business, ordinary shareholders may get for more than preference share
holders.

Usually only ordinary shareholders have a right to vote on important matters concerning
the company e.g. election of directors.

Question
1. What are the differences between ordinary shares and preference shares?

Types of preference shares

Preference shares may be of different types:-
a) Accumulative preference shares
These shares are entitled to a fix rate of dividend till they are paid. This means that incase a
company doesn’t declare any dividend for a given year, holders of accumulative shares will

57
get two years dividends in the following year. It means therefore that there dividends keep
accumulating until when profits are declared and they are paid.

b) Non accumulative shares

These are entitled to a fix rate of dividend but only for the years which a dividend is
declared.

c) Redeemable preference shares

These shares can be brought back by the company after a stated period of time.

d) Irredeemable preference shares

These are shares that can’t be brought back by the company.

DEBENTURES
If a company finds its authorized share capital inadequate for its short term financial, it can
raise money by selling debentures.
A debenture is a document that evidences that a company has borrowed a specific amount
of money from the person named on its face and undertakes to pay a fixed rate of interest
for the loan.

Types of debentures
Debentures may be classified in two ways:-

a) They may be classified according to the security pledged against them i.e. they may
be naked or mortgaged debentures.

b) They may be classified according to redemption. Here debentures may be

redeemable or irredeemable.

(i) Naked debentures

These are not secured i.e. property is pledged against them. If the company goes bankrupt,
the holders of naked debentures rank among the ordinary creditors of the company.

(ii) Mortgaged debentures

These are secured i.e. some property is pledged against them such that in the event of a
company’s liquidation, the money received from selling the pledged property will be used
to pay off the holders of the mortgaged debentures.

(iii) Redeemable debentures

These are brought back by the company i.e. the amount borrowed against them is refunded
by the company after the specified minimum period.

(iv) Irredeemable debentures

They are never refunded. The amount borrowed against them remains outstanding till the
company is liquidated. In other words, holders of irredeemable debentures remain
creditors to the company until when the company is liquidated.

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Difference between Shares and Debentures
i. A share is a unit of capital whereas a debenture is a unit of loan. Therefore a share
holder is one of the holders of the company but a debenture holder is only a
creditor.
ii. Shares are paid in dividends while debentures are paid in interest.
iii. Shares are usually irredeemable while debentures are usually redeemable.
iv. Most share holders have a right to vote on the affairs of the company unlike
debenture holders.
v. When a company is liquidated, debenture holders are paid the face value of their
debentures plus an outstanding interest. But shareholders may receive much more
than the face of their holders.

Advantages of Private Limited Companies

i. Existence of personal contact between owners, employees and customers of the
business.
ii. Members enjoy limited liability.
iii. Decision making and implementation is quicker since it is not subject to
bureaucratic policies as in public limited company.
iv. It has continuity of existence i.e. not affected by death or bankruptcy of a member
because it is a legal entity.
v. Its property is separate from that of its share holders.
vi. It is capable of raising more capital than a sole trader or partnership.

Disadvantages
i. Raising capital may be difficult because private limited company cannot appeal the
secrets to the public.
ii. Shares are not easily transferrable.
iii. In case the share holder wants to leave a business, he has to seek permission from
the directors to allow him to do so.
iv. Risks are not spread over to many members.
v. Employees of the company are not allowed to purchase shares of the company. This
discourages hard work among the employees.
vi. The directors may have their own interests which may conflict the interests of the
company.

Advantages of Public Limited Companies

i. Limited liability: In case of collapse of the company, the responsibility of the share
holders to the debts of the company is limited to the amount contributed as capital.
They cannot lose their person property.
ii. A public limited company has continuity of existence. It cannot be affected by the
death, bankruptcy or insanity of a share holder.
iii. It can raise more capital through the sale of shares and debentures to the public
unlike private limited companies.
iv. Greater specialization of functions is possible because there are many people with
experience in difficult fields i.e. it is possible to specialize.

59
 v. Shares are transferrable and this an incentive to investors who are assured of
converting their shares into cash at any time they need it.
vi. It can enjoy economies of scale. This results from the lower costs of production and
higher profit.
vii. The legal regulation safe guard the interest of share holders as people who deal with
the company.
viii. Workers can be allowed to buy shares of the company which gives them an
incentive to work hard.

Disadvantages of Public Limited Companies

i. There is no direct control by the owners or share holders of the company i.e.
management and ownership are separated.
ii. The formation process of the company is very long and expensive since it requires
many documents and legal formalities.
iii. It must publicize its books of account which may make it difficult for the company in
performing to obtain credits from financial institutions.
iv. Decision making and implementation for important matters is very difficult because
of bureaucracy.
v. It lacks flexibility i.e. unlike the sole trader, public limited companies can only
engage in those activities which were stated in the memorandum of association.
vi. It is at a risk of suffering diseconomies of scale e.g. inefficient raw materials,
marketing diseconomies etc. in case the books of accounts show more losses than
profits.
vii. The directors may have their own interest which may conflict with the interest of
the company.
viii. There is no secrecy or confidentiality as regards business since many people owned
it.
ix. The company is owned by very many people and profits are shared by all share
holders.

SHARE CAPITAL OF A COMPANY

The capital of a company is called share capital for the reason it is raised by selling shares.
The share capital

Forms of Share Capital

1. Nominal/Authorized or registered share capital
This is a maximum amount a company may raise by selling shares. It is always stated in the
memorandum of association at the time of formation of the company. E.g. a company may
wish to sell 150,000 shares at 10/= each. Its nominal share capital will be
150,000 x 10
= 1,500,000/=

2. Issued Share Capital

This is a total face value of the shares that have been issued e.g. in the above case the
company may decide to issue out only 100,000 shares out of its 150,000 shares. Therefore
the issued share capital will be

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100,000 x 10
= 1,000,000/=

3. Called up Share Capital

This is the amount that shareholders have been asked to pay e.g. in the above company
where 100,000 shares were issued out, the company may ask share holders to pay only 7/=
for each share out of 10/=. So the called up share capital will be
100,000 x 7/=
= 700,000/=

Note:
The remaining balance of 300,000/= will be the un called up capital.

4. Paid up share capital

This is the amount that has actually been received from the share holders i.e. if in the case a
share holder has failed to call at 2/= per share, the paid up capital of the company will be
698,000/= as calculated below.
Called up capital = 700,000/=
Less capital in arrears = 10,000 x 2 = 20,000
700,000 – 20,000 = 698,000/=

Called up capital = 700,000/=

Less capital in arrears = 100,000 x 2/= = 200,000 shs
Therefore paid up = 700,000 – 200,000
= 500,000/=

Unpaid up capital or capital in arrears = 200,000/=

LIQUIDATION OF A COMPANY
This is the winding up of a company. In other words it comes to an end.

Winding up of a company may be:-

(i) Compulsory:
This is done by law for various reasons. It may be because it does not operate according to
standing orders or if its unable to meet its obligations. Once a company is declared
bankrupt, it may be winded up.

(ii) Voluntary:
This is done by the wishes of the members. It may be done for political, economic or social
reasons. Temporary companies may wind up if they complete their tasks.

LOAN CAPITAL
This is money obtained by a company by borrowing from the bank or by issuing
debentures.

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 MARKETING BOARDS
These are trading organizations usually set up by the government to buy agricultural
products from farmers and sell these products either within the country or on international
market.

Classification of Marketing Boards

Marketing Boards are classified according to the type of goods they handle and the areas
they serve. They are classified as follows:-

1. Commodity Marketing Boards

These are marketing boards that handle particular agricultural products. They are named
according to the products that they handle e.g. the Coffee Marketing Board, Link Marketing
Board etc.

2. Produce Marketing Boards

These are marketing boards that handle several agricultural products. The Produce
Marketing Board in Uganda used to handle products such as maize, beans, ground nuts etc.

3. Export Marketing Boards

These marketing boards sell various agricultural products to foreign markets (they export
products) e.g. the Coffee Marketing Board was responsible for selling Uganda’s coffee on
international market.
4. Advisory Boards
These are boards that carry out research and provide advise to farmers who produce
various agricultural products.

Marketing boards which are set up by the government are known as statutory marketing
boards. Such boards are managed by a board chairman who is appointed by the
government.

5. Voluntary Marketing Boards

These are normally set up and controlled by the producers themselves.

Functions of Marketing Boards

(i) Buying produce: Marketing boards buy produce from farmers in various parts of
the country and regulate prices favourable to both the farmer and the board.
(ii) Selling produce: Marketing boards are responsible for selling the produce from
farmers. The board may sell the produce locally or internationally.
(iii) Collection of produce: Marketing boards collect produce from the farmers
(iv) Storage of produce: Marketing boards provide storage facilities for the produce
bought from the farmers. Some seasonal produce may be stored to the next period
of no production. This ensures constant supply.
(v) Research: Marketing boards carry out research in agriculture. They advise and help
farmers to improve on the quality of produce.

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(vi) Assistance to farmers: Marketing boards assist farmers in various ways which
include:-
- Provision of fertilizers, pesticides, farm tools etc at reduced prices.
- Provision of packing materials to farmers such as sucks polythene materials etc.
- Provision of loans to farmers through co-operative societies.
(viii) Stabilizing prices: Marketing boards stabilize prices for agricultural produce using
a process known as buffer stocks. They buy up all the excess produce which may
store and sell later when there are shortages.
(ix) Control of production: Marketing boards may take measures to avoid over
production of certain crops. They may impose quotas to various produce or co
operative societies such that any crop produced in excess of the quota is rejected. (a
quota is the maximum quantity required to be supplied in the market.)

PROBLEMS OF MARKETING BOARDS.

(i) Transport:
Bad roads and bad weather create transport problems to marketing boards. These usually
lead to break down of vehicles.

(ii) Poor quality produce:

Some farmers sell poor quality produce to the marketing boards. This may be inform of half
dried produce e.g. in coffee and beans.

(iii) Political influence/intervention:

The management of marketing boards is usually influenced politically. Unskilled
administrators are usually appointed to manage marketing boards. This results in
mismanagement.

(iv) Over production:

Sometimes farmers produce output beyond what the board may handle. The major reason
for over production is usually favourable weather condition.

(v) Competition from other business men:

Business men have ready cash to pay for the produce from the farmers. This encourages
farmers to sell their produce to the business men instead of the marketing board.

(vi) Price fixing:

Marketing board often face the problem of fixing prices for the produce. They may fix the
prices that may be below or above the price at which they eventually sell the produce.

(vii) Disasters:
Natural disasters e.g. earth quakes, drought, frost, floods e.t.c. affect the quantity and
quality of agricultural produce that the board may obtain from the farmers.

(viii) Corruption:
Officials who manage marketing boards often embezzle or steal funds making the board to
suffer losses.

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(ix) Lack of support from the government:
Some marketing boards do not get support from the government as a result; they fail to
perform most of their functions due to limited funds and lack of support.

(x) Lack of proper storage facilities:

Some marketing boards do not have enough storage facilities to store all the produce from
the farmers especially when there is over production.

(xi) Political instability and insecurity:

This affects the level of production and makes it difficult for the marketing boards to collect
the produce from some areas.

(xii) Government policy of liberalization:

In Uganda, the government has liberalized trade activities whereby there are no
restrictions in terms of carrying out all types of economic activities. As a result, marketing
boards have been out competed by private companies that deal in produce as well.

CO-OPERATIVES
A co-operative society is a body of people who have agreed to come together in order to
attain a common objective collectively. There are different forms of co-operatives namely:-
i. Consumer co-operative societies
ii. Producer co-operative societies
iii. Savings and credit societies etc

PRINCIPLES OF CO-OPERATIVES
For any organization to be a co-operative, it must operate basing on the following
principles:-
1. Open and Voluntary membership:
Membership to a co-operative society must be open to all who can fulfill the regulations
governing a society. Membership should not be limited by tribal, political, religious, social
and racial differences.

2. Democratic administration
Each member of the co-operative society is free to hold any office as long as other members
feel that he/she is capable of carrying out the responsibilities effectively. This is done with
reference to the social position, background, political or religious background. Members
who hold offices or positions of responsibility in a co-operative society have to be elected
democratically. This is carried out on the basis of one man one vote.

3. Capital contribution
Members of a co-operative society must contribute a specified amount of money as
subscription. This is the money which makes up the capital of the society. This money is
used to run the society in order to achieve its objectives.

64
Members who may wish to withdraw from the society are entitled to a certain percentage
of what they contributed.

4. Payment of Dividends
The profits that may be made by the society must be shared amongst all members. This is
done according to how much this member has contributed to the making of profits. e.g. if it
a producer co-operative society, the sharing of profits depends on the sales that a
neighbour has done to the society. If it is a consumer co-operative society, the sharing of
profits depends on purchases a member has made from the society.

5. Payment of interest
Members get interest from the society according to the capital contributed by each
member. The interest is fixed at a given rate which should be known by all members.

6. Promotion of Education
Every co-operative society has got the responsibility of educating its members so that each
fully understands the aims of the society and how the society operates. This is done in
order to promote a sense of loyalty to the society.

7. Co-operation with other co-operatives at different levels

A co-operative society is expected to co-operate with other co-operatives at different levels.
This may be at village level, regional level, district level, national level or international level.

8. Cash payments
All sales and purchases within the co-operative society should be made at the prevailing
market prices and on a cash basis.

TYPES OR FORMS OF CO-OPERATIVES

i. Consumer cooperatives
ii. Producer
iii. Savings and credit societies
iv. Transport cooperation
v. Banking
vi. Insurance

Consumer Co-operative Societies

These comprise of consumers who get together in order to protect themselves against
exploitation by producers. The consumer co-operatives buy items that the members
require in bulk thereby buying as wholesalers. They then sell these items to members at
reasonable prices. In some cases consumer cooperatives may sell to non-members at the
market price and by so doing make profits. the profits made may be shared by the
members and some of it may be retained to strengthen the financial position of the co-
operative.

Functions/advantages of consumer co-operatives

i. They bring items nearer to the members.

65
 ii. They promote social understanding amongst the members.
iii. They provide the items at reasonable prices to the members.
iv. They protect the consumers (members) against exploitation by the business
community.
v. Members get some advice as regards use and handling of certain items.
vi. Members enjoy limited liability if the co-operative society is registered as a limited
company.

Producer Co-operative Societies

These are made of individual producers who come together for the purpose of maximizing
the benefits of the productions.

These benefits may include a bigger market, better transport etc. In East Africa, the
producer cooperatives have been the most successful because most of the people in the
region are involved in agriculture. The main function of the producer co-operatives is to
stand united in order to protect against exploitation by consumers and middlemen. They
collect, store and sometimes process produce before selling it off.

Functions/Advantages of producer co-operatives

i. They provide transport from the production centres to the markets.
ii. They look for market for the members’ products.
iii. They give advice as may be required by the producers.
iv. They extend credit facilities in form of short term loans to help the producers
improve on the quantity and quality of their produce.
v. They provide services essential to the producers e.g. tractor hire services at the
lowest prices possible.
vi. Members receive a fair price for their produce.
vii. They also provide tools necessary for production at subsidized prices.

Saving and Credit Societies (Thrift and Loan Co-operative Societies)

These are made up of low income earners who come together in order to be able to carry
out activities or undertake investments that require big sums of money. Individuals pay
subscription and membership fee. The collective amount saved will then constitute a pool
from which members of the society can borrow and bring back the money with interest.

Savings and credit societies are important because they encourage low income earners to
save and also provide capital to the members in form of loans for investment.

The interest earned from the loans is used by the members to run the society and to
improve on the members’ welfare.

Functions of Savings and Credit Societies

i. It encourages low income earners to save money.
ii. It lends money to members for investment purposes.
iii. Savings made enable members acquire expensive assets.

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GENERAL PROBLEMS AFFECTIGN CO-OPERATIVE SOCIETIES
i. Lack of skilled and experienced administrators since the majority of the members in
the co-operatives lack enough education.
ii. They lack inadequate finance because of low incomes of the members.
iii. They lack proper storage facilities which eventually affect the quality of the produce.
iv. There is no sufficient transport facilities i.e. no enough vehicles to transport
farmers’ produce, impassable roads and at times no roads at all.

GOVERNMENT INVOLVEMENT IN COMMERCE

Reasons why government gets involved in Commerce:

i. To provide essential services like schools, hospitals etc at affordable prices so as to
reduce over exploitation by private individuals.
ii. In the case of large ventures that require a lot of capital which private individuals
cannot easily raise. The government usually undertakes such ventures e.g.
construction of hydro electric power stations.
iii. To ensure equal distribution of economic opportunities by setting up industries in
different parts of the country.
iv. To ensure balanced development of all parts of the country by setting up industries
in those parts of the country that are still underdeveloped.
v. To break the monopoly powers of private enterprises that usually exploit
consumers in terms of high prices.
vi. The government may also get into involved in commerce in order to handle the
production of sensitive and dangerous products that should not be left to private
individuals e.g. guns.
vii. To provide products of high quality and of the right quantities in order to avoid
exploitation from the consumers.
viii. It may be the policy of the government to nationalize the economy.

The government gets involved in commerce through the following ways:-

i. Nationalization
ii. Consumer protection
iii. Privatization

NATIONALIZATION
It is a government policy that involves the takeover of the ownership of private enterprises
by the government.

CONSUMER PROTECTION
It is a government policy to protect the consumers against exploitation by the
businessmen. It is done by the government to ensure the well being of the citizens.

Ways of consumer protection

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 i. Through the national bureau of standards. This is an institution set up by the
government to ensure that the goods produced and sold to the consumers meet the
proper requirements or standards in terms of quality, quantity among others.
ii. Price controls: This is where the government fixes prices of commodities in the
country.
iii. Through weights and measures department: This department carries out regular
inspection of weighing scales and other equipments used in trade. This is to ensure
that the right quantities of goods are sold to the consumer.
iv. Through the ministry of health: The ministry of health through the public health
department is supposed to ensure that the goods used especially foods and drinks
do not have bad effects on consumers.
v. Through the ministry of agriculture and animal industry, veterinary department.
Officials from the veterinary department are supposed to check animals before they
are slaughtered for meat. The department also has power to stop the movement of
animals from areas affected by animal diseases.
vi. Trade license: No trader is allowed to operate without a trade license from the
government. This means that only those who qualify to sell the goods are allowed to
do so.
vii. Through consumers’ association: These are associations set up by the consumers
themselves. These associations carry out investigations regarding the quality and
prices of goods on market.

Reasons for Consumer Protection

i. Traders often overcharge consumers so that they may get a lot of profits.
ii. Sometimes consumers may not be aware of the quality and disability of the
products.
iii. Use of wrong weights and measures is a common practice among sellers hence need
for consumer protection.
iv. Misleading advertisements by the sellers tend to attract consumers to buy goods
which may instead be useless.
v. Some traders sell goods that may be dangerous to the health of the consumers e.g.
expired drugs, unhygiene, food stuffs etc.
vi. Some produces may use inferior components in the production of certain goods to
make the cost of production low. However such producers end up selling such
commodities at higher prices.

PRIVITISATION
This refers to the government policy of transferring ownership of public enterprises to
private individuals as companies.

REASONS FOR PRIVITIZATION IN UGANDA

(i) To improve the efficiency of public enterprises so that they may produce good
quality goods and services.

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 (ii) To encourage competition among firms so as to improve on the utilization of
resources hence high production.
(iii) Privatization is favoured by the major donors, World Bank and IMF. It has
therefore been given to Uganda as a condition for aid.
(iv) To reduce corruption among government officials by promoting
accountability, transparency and better management.
(v) To reduce government expenditure on public enterprises in form of subsidies.
(vi) To widen the tax base of the country through taxation of the private
enterprises.
(vii) To encourage the participation of many people in production.
(viii) To create more employment opportunities by allowing private individuals
and companies to run the enterprises.
(ix) To enable the government to concentrate for the provision of social services
like health, education etc.
(x) To encourage domestic production so as to avoid balance of payment problems.
(xi) To encourage inflow of capital when foreign investors are involved.
(xii) To encourage the transfer of modern technology from the developed
countries.

DISADVANTAGES OF PRIVATIZATION
(i) Planning for the economy by the government becomes difficult since most
enterprises are owned by private individuals and even foreigners whose interests
may not be the same as those of the government.
(ii) Privatization leads to increased exploitation of the consumer through high prices
and even poor quality goods and services.
(iii) It also leads to unemployment in the short run. This is because the buyers of
the public enterprises often reduce the number of workers employed by the
enterprise.
(iv) It leads to a reduction in the provision of some essential goods and services
especially if such goods and services do not fetch high profits.
(v) It also leads to over exploitation of natural resources leading to environmental
degradation.
(vi) Privatization increases income inequality among the people. The few private
individuals who own the enterprises earn a lot of profits and therefore become
much richer compared to the economy of the government.
(vii) Privatization tends to be unpopular among the citizens. It may therefore lead
to loss of support for government among the local people.
(viii) Privatization may result in losses to the government. This comes about as a
result of valuation and high costs of advertising.

STATE CORPORATIONS
These are organizations set up and owned by the government. The government finances
and also controls those organizations. State corporations are of three types i.e.
i. Parastatal bodies
ii. Public corporations
iii. Local authorities

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PARASTATAL BODIES
These are government organizations set up to undertake developmental functions. They do
not aim at making profits but instead to assist the public in various ways.

Organizations such as Produce Marketing Board and Link Marketing Board were set up by
the government to assist farmers for looking for market for their produce and also to help
them transport their produce to those markets.

PUBLIC CORPORATOMS
These are set up by the government to provide goods and services to the public either
freely or at reduced costs. The aim is to reduce the exploitation of the public by the private
sector. Examples include: National Water & Sewerage Corporation, the former Uganda
Railways Corporation etc.

LOCAL AUTHORITIES
These are controlled by the local government to provide certain essential services which
may be unprofitable and therefore not easily provided by private individuals e.g. cleaning
of the streets, road maintenance

Advantages of state corporations

i. State corporations undertake some activities that are unprofitable but essential to
the people. Such activities cannot be easily undertaken by the private sector. E.g.
cleaning of the streets, maintenance of toads.
ii. Some activities require a lot of capital to undertake. The capital required may be so
much that the private sector may not easily raise it. Such activities have to be
undertaken by the government through state corporations e.g. electricity supply,
water supply, the railways etc.
iii. Some activities are very risky and therefore cannot be left in the hands of private
individuals e.g. the production of weapons, maintaining law and order.
iv. State corporations provide services to the public at low costs e.g. water, electricity,
medical services etc.
v. Some state corporations may make profits. These profits benefit the citizens in form
of financing medical services etc.
vi. State corporations also provide employment to the public.
vii. Through state corporations, the government can achieve balanced development
throughout the various state enterprises in different parts of the country.
viii. State corporations eliminate duplication in the production of goods and services.
This reduces wastage of resources.

Disadvantages of state corporations

i. Political influence: The management and administration of State Corporation is
politically appointed. This tends to promote political objectives rather than business
objectives.

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 ii. Corruption: There is a wide spread misuse and stealing funds in public
corporations.
iii. Inadequate funds from the government: Some state corporations are very big to
the extent that the government may not have enough funds to operate them e.g. the
railway services.
iv. Inefficiency: Workers in state corporations have no personal interest with these
organizations and as a result there are high levels of inefficiency.
v. Poor quality goods and services: State corporations tend to produce poor quality
goods and services since many of them are monopolies which operate without any
serious competition.
vi. State corporations overburden the tax payer: This is because many of them do
not realize profits and therefore the costs of the operations have to be met by the
people in terms of increased taxes.
vii. State corporations discourage private enterprises: This is because they compete
with the private enterprises and they tend to produce goods and services at low
prices.
viii. There is too much bureaucracy (red-tape) in the state corporation: This result
into unnecessary delays in decision making which results into delays of goods and
services.

INTERNATIONAL TRADE
This is the exchange of goods and services between countries. It is also referred to as
foreign trade or external trade.

International trader involves export trade and import trade.

Export trade is the selling of goods and services to another country.

Import trade is the purchase of goods and services from another country.

REASONS FOR THE EXISTENCE OF INTERNATIONAL TRADE

(What gives rise to International trade?)

i. Differences in climatic conditions: Certain crops may grow very well in certain
countries but may not grow at all in other countries.
ii. Differences in the location of national resources: Some countries have certain
resources as minerals. Other countries do not have such resources and thus creating
a need to get these resources through international trade.
iii. Differences in skills also give rise to international trade: Countries that do not
have enough skilled man power need to get such man power through international
trade.
iv. Differences in the level of technology: Countries with poor technology need to get
advanced technology from the developed countries.

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 v. To dispose of surplus: Countries that produce certain goods in surplus (excess of
what is required) need to send the surplus to other countries and get other things
from these countries.
vi. Specialization: This is where different countries concentrate on the production of
particular items.
vii. Differences in the costs of production: This enables some countries to produce
more goods than other countries because of the low costs of production.
viii. To enable countries to get what it cannot produce.

TERMS OR WORDS COMMONLY USED IN INTERNATIONAL TRADE

Bi-lateral trade:
It is the exchange of goods and services between two countries.
Multi-lateral trade:
It is the exchange of goods and services among more than two countries.

Visible trade:
It involves exchange of tangible goods. The goods may be tangible exports and tangible
imports.

Invisible trade:
It involves exchange of services such as tourism, transport, insurance, banking etc.

Balance of payment:
This refers to the difference between the receipts and payments (both visible and invisible
of a country). A country receives money for exports (receipts and pays of imports and pays
for exports (payment). When receipts of a country are more than payments then a country
is said to be having a favourable balance of payment. If the payment are more than the
receipts then the country is said to be having unfavourable balance of payment.
Unfavourable balance of payment is also known as deficit.

Balance of trade:
This refers to the difference between visible exports and invisible imports a country is said
to be having favourable balance of trade when the visible exports are more than the visible
imports. Unfavourable balance of trade arises when the imports are more than the exports.

Terms of trade:
This refers to the cost of a country’s imports relative to the price of the exports. When a
country spends more money as imports than what it earns from exports, it is said to have
unfavourable terms of trade. However if it earns more money from the exports than what is
spends on imports, it is said to have favourable terms of trade.

Exchange rate:
It is the rate at which the currency of the county is exchange for a foreign currency. It is the
value of one currency in terms of another currency.

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Devaluation:
It is the official (legal) reduction of the value of the country’s currency on terms of foreign
currency.

Customs duties:
These are taxes charged on imported goods. Customs duties are also known as tariffs or
import duties.

Customs authorities:
These are responsible for the collection of the customs duties.

Customs Drawback:
This refers to the money refunded to the importer after payment of customs duty. This
refund is made when the importers decide to re-export the imported goods and services in
a given period of time.

ADVANTAGES OF INTERNATIONAL TRADE

i. It enables a country to get goods that it cannot produce e.g. Uganda is able to get
vehicles from other countries.
ii. It enables the people in a particular country to have variety of goods. This widens
the choice of consumers.
iii. It encourages specialization which leads to increased production.
iv. It provides a market for the surplus (excess) goods produced by different countries.
Such goods are not wasted.
v. It increases government revenue through taxes charges on imports.
vi. It creates more employment. Jobs are created by industries producing for export,
company importing and exporting goods, workers who collect taxes etc,
vii. Encourages competition among producers in various countries. This leads to
production of improved quality goods.
viii. It enables the country with surplus skilled labour to export such labour while those
with labour shortages are able to get such labour.
ix. It enables the poor countries to get better technology from the developed countries.
x. In case of natural calamities such as floods, drought etc, countries can easily get
supply from other countries to overcome such problems.
xi. It promotes international cooperation and understanding. This is because countries
depend on each other and at the same time people move from one country to
another.

DISADVANTAGES OF INTERNATIONAL TRADE

i. Continuous exchange of goods may lead to exhaustion of resources e.g. minerals,
fish etc.
ii. Importation of goods that are of better quality than the locally produced goods
retards the growth of the local industries.

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 iii. Imported goods may be harmful to the citizens. Such goods may include
pornographic materials, expired drugs which may affect the health and morals of
the citizens.
iv. It may lead to over dependence of the country on other countries. The dependant
country may therefore be subjected to undesirable conditions.
v. The final price of imported goods is usually high. This is due to high import duties
and handling charges.
vi. It may discourage the development of local skills. This happens when a country
depends on imported skilled man power and does not invest in the training of its
own people.
vii. It may result into imported inflation. This happens if a country imports goods from
another country that is experiencing inflation.
viii. It encourages dumping. This is the selling of a commodity in a foreign country at a
price lower than the price at which the commodity is sold in the home market.
ix. It may lead to balance of payment problems if the country imports more goods that
it exports.
x. It may result into shortages of commodities in the importing country. Countries that
depend on experiences problems such as wars, droughts etc.
xi. It is characterized by delays in the clearing of goods by customs authorities. Some
goods may therefore reach their destination when they are expired.
xii. It promotes competition among countries. This may promote conflicts among
countries.
xiii. It promotes international inequality. The developed countries export manufactured
products whose prices are very high while the poor countries export low qualities
whose prices are low. The rich countries become richer while the poor countries
become poorer.

AGENTS IN INTERNATIONAL TRADE

Import brokers:
These are middlemen who connect the buyers in purchase of goods from abroad to the
suppliers. They do not possess the goods but just facilitate the sale of goods. An import
broker earns a commission known as brokerage.
Del-credere agent:
These are agents who possess the goods and guarantee the sale of the goods and collect any
debts after sell. If the buyer fails to pay the Del-credere agent, he has to pay the debt
himself. A del credere agent earns a del credere commission.

Import Merchants:
These agents buy goods from foreign countries with their own capital. They buy on their
own accounts, store and sell the goods under their own names.

Import commission agent:

These are agents who import goods for others. They earn a commission.

RESTRICTIONS (BARRIERS) IN FOREIGN TRADE

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This refers to the limiting of goods coming in or moving out of the country. It is known as
protectionism.

REASONS FOR INTERNATIONAL TRADE RESTRICTIONS

The government may decide to restrict international trade for a number of reasons which
include the following:-
i. To protect local infant industries against competition with industries of other
countries.
ii. To attract investments particularly industrial investments in a country.
iii. To maintain the health standards of the citizens. Restrictions on imported goods
discourage importation of harmful goods and poor quality goods that could affect
the health of the citizens.
iv. To create and maintain employment in a country. Trade restrictions lead to the
growth of home industries which provide employment to the people.
v. Restrictions on foreign trade enable the government to earn revenue. This revenue
is got from taxes on imports.
vi. To discourage importation of dangerous goods e.g. cigarettes, guns etc.
vii. To ensure favourable balance of payments. There the country spends less on
imports compared to what it earns from exports.
viii. To ensure that the country is self sufficiable by reducing dependence on imported
goods.
ix. To avoid imported inflation where the country may have increased prices because it
is buying the goods from another country where the prices are increasing.

MEASURES THAT ARE USED IN RESTRICTING FOREIGN TRADE.

(Ways of Restricting Foreign trade)

1. Use of Quotas
This is where the government puts restrictions on the amount of goods which can be
imported into the country in a given period.

2. Total ban
The government may use its powers to completely stop the importation of certain goods
that are considered harmful to certain people.

3. Use of import duties

Import duties are taxes imposed on imported goods. The government may restrict foreign
trade by increasing import duties on certain goods thus making such goods expensive and
therefore limits their importation.

4. Use of subsidies

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These are payments made by the government to home based industries so that they are
able to produce and sell goods at low prices.

5. Foreign exchange control

The government may reduce on the amount of foreign currency that is allocated or given
for the importation of goods into the country. This will reduce the amount of goods
imported into the country.

6. Quality control
The importing country may set strict requirements in terms of the quality of the goods that
have to be imported.

7. Administrative control
The government may set length and completed procedures that have to be followed by
importers. This discourages importers.

8. Licensing policies
Licenses for the importation of some commodities may be given to only a few importers.

9. Physical barriers
The government may set up check-up points and road blocks at the borders as a way of
restricting the importation of some goods.

FACTORS THAT LIMIT INTERNATIONAL TRADE

i. The long distances between countries limit trade among the various countries.
ii. Poor transport and communication networks e.g. poor roads make trade between
some countries very difficult.
iii. The language barrier: Lack of a common language among various countries limit
international trade among such countries.
iv. High taxes on imports: This makes imports very expensive.
v. High competition among those countries that produce similar goods. As a result,
those countries that produce low quality goods cannot easily sell these goods on the
international market.
vi. The problem of getting credit from the suppliers by the importers.
vii. The use of many documents in international trade also discourages some of the
people who could have taken part in the international trade.
viii. There is the risk of being cheated especially where the agents are used by the
suppliers.
ix. The differences in currencies used by different countries also limit international
trade.
x. There are many risks in foreign trade than home trade. These include damage of
goods, loss of goods on the way, failure to pay the importers etc.

DOCUMENTS USED IN FOREIGN TRADE

1. INDENT

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This is an order for goods in international trade. An indent may be close or open. A closed
indent is one where the supplier is named by the buyers. An open indent is one where the
importer or agent is free to name any supplier.

2. CERTIFICATE OF ORIGIN
This is a document that shows where the goods imported are coming from.

3. CONSULAR INVOICE
This is the document issued by the embassy of the imported country which embassy is
located in the exporting country. Before goods, the country must be inspected by importing
country representative so that the importer does not put a wrong price on the invoice to
pay less tax.

4. BILL OF LADING
This is a document with a form of contract between the sender of the goods and the
shipping company. It contains all the details of the goods loaded on the ship.

A dirty bill of lading refers to the bill for goods that are accepted on the ship when they are
damaged.

A clear bill of lading refers to the bill of goods accepted on the ship when they are in good
condition.

Functions of a bill of lading

i. It contains details of goods loaded onto the ship.
ii. It contains the name of the sender (consigner) and the name of the receiver
(consignee) and the name of the shipping company.
iii. It is an official receipt for the goods by the shipping company.
iv. It shows the terms and conditions under which the shipping company is
transporting the goods.
v. It is a negotiable instrument. This means that the goods can be transferred to
another person by the receiver signing this bill.

5. EXPORT LICENSE
A license is issued for the export of certain goods. The main purpose of a license is to
control the exports of certain goods e.g. food stuffs and military goods.
6. AIRWAY BILL
This is a contract between the importer and the airline company for goods transported by
air. An airline bill is similar to a bill of lading except that the airline bill is not negotiable.
This means that the goods cannot be transferred to another person by signing the airway
bill.

7. SHIPPING NOTE
It is issued by the shipping company to the sender giving details of the goods and
conditions under which the goods are transported. This document informs the port
authorities the goods involved on the ship on their destination.

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8. WEIGHT NOTE
This document shows the quantity of goods delivered at the dock. It states the number of
boxes in a particular consignment in the name of the person responsible for all costs.

This is necessary because weight is one of the ways of determining the dock charges.

9. FREIGHT NOTE
This is a document that shows the cost of transporting goods from one place to another.

10. LETTER OF CREDIT

It is a document that authorizes the named bank in the exporter’s country to accept the bill
of exchange drawn by the exporter on the importer up to a certain limit in a given period of
time indicated in the letter.

11. CALLING FORWARD NOTE

This document informs the seller (exporter) the date and time by which the goods should
be at the dock ready for loading on to a particular ship.

12. LETTER OF HYPOTHICATION

This is a letter from the supplier of goods to his bank authorizing the bank to obtain and
sell goods that had been sent to the importer. This arises when the bank fails to obtain
payment of the bill of exchange drawn on the importer.

13. SHIPS MANIFEST

This is a document that gives full details of the contents on the ship. It shows the crew,
passengers and cargo carried.

OTHER COMMON TERMS IN INTERNATIONAL TRADE

i) Customs authority
These are responsible for collecting taxes on imports (import duties). They also ensure that
import regulations are followed. They also prevent smuggling of goods in and out of the
country.

ii) Customs draw back

This is the money refunded to the importer after the importer has paid customs duties.
This may happen if the importer re-exports goods within a certain period of time.

iii) Customs duties

These are taxes on imported goods. An importer must fill a bill of entry giving details of
goods imported so that the customs officials may determine the taxes to be paid.
a) Protective duties:
These are taxes imposed to protect domestic industries and also to protect the health of the
citizens.

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b) Advalorem duties:
These are charged according to the value of goods imported.
c) Specific tax:
This is the tax charged according to the quantity of the commodity.

iv) Free good form:

If there is no duty to be paid on certain goods entering the country, a free goods form has to
be completed.

v) Ex-ship form:
If there is duty to be paid on the goods entering a country, an ex-ship form is filled. The
goods will only be released when it is indicated that the duty has been paid.

TERMS OF SALE IN INTERNATIONAL TRADE

When selling goods, the supplier/exporter should clearly show the buyer all the possible
terms of buying the goods. The terms used must be clearly interpreted by the buyer. They
include:-

1) Cost Insurance and Freight (CIF)

This term means that the price stated by the seller includes the costs of goods, costs of
insurance and the cost of shipping the goods up to the nearest part in the buyer’s country.

2) Cost and Freight (C & F)

This tem means that the price includes the costs of the goods and the shipping charges. It
means that the buyer has to arrange for insurance since it is not included in the quotation.

3) Free on Board (FOB)

This means that the price stated includes cost of the goods and the expenses of loading the
goods and the shipping charges. It means that the buyer has to arrange for insurance since
it is not included in the quotation.

4) Free on Rail
This means that the seller will make agreements to deliver the goods to the nearest railway
station for delivery to the buyer. It means that it is up to the buyer to make other
agreements and meet the charges at transporting the goods to the buyer’s place.

5) Free alongside Ship (FAS)

This means that on top of the cost of goods, the price stated includes:-
- The cost of putting the goods alongside the ship ready for loading. The buyer will
therefore be responsible for meeting the shipping costs, insurance costs and any
other charges.

6) Ex-ship

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This means that the price stated include the costs of the goods, shipping costs and
insurance. It means that the buyer will be responsible for meeting the costs of taking the
goods from the ship up to the final destination.

7) Loaded
This means that the price stated includes all the costs to the parts of destination. However
the costs of unloading is not included in the price and therefore has to be met by the buyer.

8) Free On Quay (FOQ)

A quay is a place where ships are loaded and unloaded. Free On Quay therefore means that
the seller has to transport the goods up to the Quay.

9) Duty paid
This means that the price stated include the payments for customs duties for the goods.

10) In Bond
This means that the seller will deliver the goods to the customs bonded ware house at the
named port. It means that the buyer has to meet the costs of getting the goods out of the
warehouse.

11) LOGO
This means that the price stated is charge wherever the goods are found.

12) FRANCO
This means that the price stated involves all expenses including the delivery of the goods to
the place of the buyer.

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 ECONOMIC INTEGRATION
(Regional Integration)

This is the coming together of several countries with the aim of enjoying common
economic benefits.

It involves the removal of international trade barriers among the national states.

Examples of groups of regional co-operation include; East African Community (EAC),

Economic Community of the West African States (ECOWAS), European Union etc.

Advantages
i. It widens the market for commodities from the member countries as a result of the
removal of international trade barriers.
ii. It leads to the expansion of manufacturing industries in the member states as a
result of the bigger market.
iii. It reduces duplication of industries among the member states. One industry may be
established in a given member state to provide all the member states with a
particular commodity.
iv. It leads to improved quality of the goods produced by the member countries. This
results from competition among the industries in the neighbouring countries.
v. It encourages specialization and greater use of resources. This leads to increase in
the amount of countries to share common services at low costs. E.g. the railways, air
lines.
vi. It increases employment opportunities in the member countries. This is as a result
of the expansion of industries.
vii. It may involve the use of a common currency. This makes trade much easier among
the member countries.
viii. It enables member countries to carry out research jointly at low costs.
ix. It leads to close cooperation and understanding among the member countries. This
prompts peace.
x. It enables consumers in the member countries to get cheap goods since there are no
taxes imposed on goods imported from the member countries.

Disadvantages
i. Loss of revenue. Member countries lose revenue since they could not collect taxes
on goods imported from fellow member countries.
ii. Poor quality goods. Member countries are forced to buy poor quality goods from
their fellow member countries instead of importing better quality goods from
elsewhere.
iii. Surpluses may result due to the limited market among the member countries.
Sometimes member countries may even be producing similar goods.

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 iv. It results in the loss of independence of individual member states in the making of
economic decisions.
v. It may lead to uneven distribution of industries. Those member countries that are
more developed and have better infrastructure usually attract more industries than
the less developed member countries.
vi. It may worsen the balance of payment problem of the poor member countries. This
happens when they import more goods from other member countries as compared
to what they export.
vii. It may result in the loss of political independence of the individual member state if
the member states form a political re-union (join together to form one country).
viii. It promotes economic dependency of the poor member countries on other member
countries for goods, services, labour etc.
ix. It leads to high cost of staffing as a result of the free movement of labour among the
member countries.

AIDS TO TRADE
MARKET RESEARCH

It is a process of finding out people’s opinions about the goods and services of the
producer. It may also be defined as the collection of statistical data from various sources
that may be used to determine the future demand for a good/service.

Methods of Carrying out Market Research

1. Internal Research (Statistical data method)

This involves obtaining various figures from past records of the sales of the organization.
These records are compared with the present situation to determine the future market.

2. Consumer Survey (Contact method)

This is a form of market research that is intended to find out the way consumers feel about
the product. A selection of consumers is made and their recommendations of these
consumers determine the market of the producer.

3. Area Retail Tests (Observation method)

This is where a place is selected to represent the whole market and given the task of testing
a given commodity. The recommendations from this area becomes of vital importance in
determining the market for the producer.

AIMS OF CARRYING OUT MARKET RESEARCH

i. To avoid wastage or under production of goods.
ii. To determine the type of sales promotion activities to be used.
iii. To study interest of the public in terms of size, colour and type of package.
iv. To specify areas where demand is high.

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PROBLEMS FACED BY MARKET RESEARCHERS
i. Inadequate research personnel. There are not enough research personnel to carry
out this work.
ii. The work is tiresome to carry out.
iii. Political instabilities in some areas make it difficult to carry out market research.
iv. Market research is expensive to carry out. Many producers may not have sufficient
funds to carry out market research.
v. Illiteracy among the consumers. Many consumers are unable to fill questionnaires
since they cannot read and write.
vi. Diversity of languages. This creates problems in getting information in certain areas.
vii. Poor transport facilities. This makes it difficult to reach many areas.
viii. Some individuals do not give correct information. Researchers therefore get
unreliable information.
ix. Poor shortage of information. This may not give the researchers the correct figures
about the demand of the consumers.

Guide Questions
1. What is market research?
2. Why do entrepreneurs carry out market research?
3. What problems do market researchers experience while carrying out their work?

COMMUNICATION
This is an aid to trade which involves conveying information from one person to another or
from one organization to another.

Communication involves sharing and exchanging of ideas.

Communication comes from a Latin word commune meaning to share.

Methods used in Communication

These are also called channels of communication. They include oral or verbal
communication and non-verbal or written communication.

Oral communication may be through personal contact, radio, TV, telephone etc.

Written communication takes different forms like letters, newspapers, telegrams, telex,
journals etc.

Oral Communication
It is the exchange of messages from one individual to another verbally. It may be face to
face. It may also involve use of drums and bells in some communities. It also involves use of
telephones, televisions, radio calls etc. It may also involve conversations, meetings,
conferences, interviews, training etc.

Advantages of Oral Communication

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 i. It saves time compared to written communication.
ii. It is cheap especially for short distances since no costs are involved at all.
iii. It avoids errors/mistakes which may result from the use of telegrams. Telegrams
tend to be too brief.
iv. It creates direct contact between the two parties i.e. buyers and sellers.
v. It gives room for detail discussions about the goods, their prices, terms of payment
and terms of deliverance.
vi. It can be used by illiterates i.e. those who do not know how to read and write.
vii. First hand information is given to the listener.
viii. The sender gets a feed back immediately.

Disadvantages of Oral Communication

i. It may not be taken seriously because of lack of written evidence between the two
parties.
ii. It may turn out to be expensive if the message is sent to a long distance by phone
system.
iii. Errors may arise from misunderstandings of speakers especially where the message
is misheard or poorly pronounced.
iv. Illustrations in form of diagrams cannot be made through oral communication.
v. Information cannot be stored. This means that information can be forgotten easily.
vi. People who are deaf and dumb cannot use this communication.

Written Communication
It involves messages/information sent or received in writing. It includes letters, magazines,
newspapers, fax etc.

Advantages of Written Communication

i. It provides written records for future reference.
ii. It serves as legal evidence for contracts between two parties.
iii. It makes it possible for information to be reproduced and distributed to different
parties.
iv. The message can be sent or received at any time.
v. It is suitable for sending messages over long distances e.g. by telex, fax etc.
vi. Illustrations like pictures can be sent.

Disadvantages of Written Communication

i. It tends to be expensive for long distances especially fax services.
ii. There is lack of direct contact between the parties involved.
iii. There is a danger of changing the message through forgery.
iv. Some messages are too brief to provide enough information e.g. telegrams.
v. It can only be used by those who are literate.
vi. It takes a lot of time to write and sent information or messages.
vii. One can lose information through destruction by fire, water etc.
viii. The blind cannot easily use this form of information.

Importance of Communication

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 i. Modern communication systems enable producers to keep in touch with buyers
hence widening the market for their goods.
ii. Communication saves money and time e.g. the telephone system when used for long
distance communication.
iii. In case of accidents, communication helps to save lives of victims and also save
goods from damage.
iv. It enables consumers to forward their complaints or opinions about a particular
commodity to the producers.
v. It provides employment opportunities to business mean, mobile phone companies,
post office etc provide jobs to many people.
vi. Communication is important in linking up markets. Regions of scarcity and surplus
are linked up hence overcoming shortages and unnecessary surpluses.
vii. Communication provides a link between a firm (producer) and the outside world.
Information about other countries can be got through communication.
viii. It enables goods and services that are available to be advertised to the public. This
creates market for goods and services.
ix. Written communication provides permanent records about transactions and can be
used for future reference.
x. Communication makes it possible to acquire information concerning delivery,
packing, payment, distribution of goods etc.
xi. It makes the public aware of the nature of goods and services in the market which
may increase the level of consumption.

SERVICES PROVIDED BY POST OFFICE

1. Postal Services
These are available to send or deliver messages. These messages can be in form of letters
or parcels. Letters are sent by the following means:-

a) Ordinary Post
This is where letters are sent through post office after fixing the necessary posting stamps.
Ordinary post may be:-
(i) Surface mail: These are transported by road.
(ii) Air mail: These are transported by air.

b) Registered Post Mail

This is a method of ensuring safe delivery of messages and valuable items. On top of the
post stamp, an additional fee is charged and a letter is registered at the post office. A
receipt is issued in return. The letter is put in a special envelope from the post office and in
case it gets lost, compensation is made by the post office.

c) Expressed Mail
Under this service, extra attention is given to the letter to ensure that it is quickly delivered.

d) Speed Post

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Under this service, letters are normally delivered on the same day they are posted. For this
purpose, the sender had to pay more money than it is the case with other services.

Advantages of Letters
i. Letters keep information for future reference since they can be kept as records.
ii. Letters enable details to be included. Such details may include personal information,
diagrams, illustrations etc.
iii. Letters are less costly than other forms of communication.
iv. Privacy is assured through letters since the information may not be accessed by any
other person other than the rightful person.

Disadvantages of Letters
i. They do not provide immediate replies because it takes time for the message to
reach its final destination.
ii. It is a slow means of communication and therefore not suitable for urgent message.
iii. The illiterate and blind cannot benefit from letters unless helped by the third party.
iv. It is time consuming especially for the busy people since it involves writing and
sending.
v. Only those people with post office rental boxes enjoy the services of post office for
receiving letters.
vi. Letters may get lost on the way.

2) Telecom or telephone services

This is one of the quickest means of oral communication where people speak to each other
through the telephone receiver.

Advantages of Telephones
i. Telephones make it possible for one to make or receive a call from anywhere as long
as the area has network.
ii. It is a very fast means of sending and receiving messages.
iii. It is accurate and relatively cheap.
iv. It saves money and time for moving.
v. It is convenient for the blind.
vi. Any language may be used on the phone.
vii. Mobile phones may be used for sending text messages hence being economical.
viii. It is easy to receive immediate responses as compared to a written letter.
ix. No land lines can be used or fixed on a fax machine to facilitate communication
through fax.
x. Telephones are portable and therefore easy to move around with.

Disadvantages of Telephones
i. Their use is limited to only those who can afford to buy and maintain them.
ii. They are expensive to buy in addition to the cost of buying air time for making calls
increases the expenses.
iii. There is no physical contact between those who are communicating.

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 iv. There is limited privacy since phone information can be trapped by the phone
companies.
v. Mobile phones have negative health effect on the people who use them.
vi. Mobile phone sets can easily be stolen.
vii. Mobile phones have promoted moral decay in society.

3. Telegram services
Telegrams are brief forms of written information sent by a method called telegraph.

The cost of ca telegram depends on the number of words you say and therefore it is
necessary to use as few words as possible when sending a telegram.

The addressee receives a printed copy of the message either the same day or the following
day.

Consider the given information:-

Dear Aunt, how are you? We are all fine at home except that Andrew has not been
going to school for the past seven days. He is suffering from malaria and was admitted in
Nsambya Hospital yesterday. You need to come and see him and also give us some funds
for treatment and requirements.
Your loving daughter,
ANGELLA .K.

Below is the above letter summarized in form of a telegram.

Aunt, Andrew is sick admitted in Nsambya Hospital. Come with funds for treatment.
Angella.

4) Telex services
This is sending of information by a machine called telex printer. This provides a directory
between subscribers and other users all over the world. The messages are typed on a
sender’s machine and directly sent on the receiver’s machine.

The advantage with the telex is that even if the receiver’s machine is unattended to, it will
keep the sent messages. This is common among large companies like air lines at embassies.

Another advantage is that information is sent very fast and the reply is received
immediately.

Written information by a telex can be stored for future references. It works even if there is
no operator at the receiving end.

The system is disadvantageous because it is only used by big companies which is a dis-
service to small companies.

5) Fax services

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This is a method of written communication where hand-written messages are transmitted
over long or information appears on the paper automatically.

It is one of the modern methods of written communication and it can be used to transmit
drawings, marks over long distances in their real form.

6) Radio call services

This is also a modern communication system by which messages can be transmitted in one
direction at a time such that when one is speaking, the other only listens. It is therefore
necessarily to say over after one person has finished speaking as a signal to the other
person to reply.

7) Franking machine services

This is a machine that prints the amount of postage on the envelope, name of the sender
and the point of destination. The post office is paid the total amount indicated by the
machine at the end of each month. Firms using franking machines therefore do not have to
buy postage stamps.

8) Business Reply service

This is a method used by firms/individuals who want to get replies to the letters they have
sent without the addressee meeting any expenses. Usually a card or an envelope is
enclosed within the letter by the sender such that the addressee defects the reply using
that card of envelope without meeting any expenses for postage.

9) Express and special delivery services

Under this service, the post office operates a messenger service where the letters are
delivered to the addressee by the fastest means possible. An additional fee is charged for
this service depending on the distance and weight of the letter.

The letter is marked with the words express at the left hand side/corner.

10) Select post

This is where an organization requests the post office to arrange the letters that the
organization is to receive according to the departments in that organization. This means
that the letters should bear the department where they are to be delivered. An extra fee is
paid to the post office to this service.

FACTORS TO CONSIDER WHEN CHOOSING A COMMUNICATION MEDIA

i. The cost: One has to consider the cost involved when sending a message e.g.
sending a letter may be cheaper than making a phone call.
ii. Urgency of the message: If the message is very urgent, it is better to use the fastest
means of communication e.g. telephone.
iii. Reply: If the message requires an immediate reply, then it is better to use the
telephone instead of using a letter.

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 iv. Confidentiality: If the message to be sent is confidential then the best method
would be by using a letter or face to face.
v. Content of the message: If the message is detailed, it is better to send it using
letters of face to face than using telephone.
vi. Need for reference: Messages requiring record of reference should be sent using
letters instead of telephone, radio, face to face etc.
vii. Distance involved: Letters and telephones are the best for long distances compared
to face to face communication.

BARRIERS TO EFFECTIVE COMMUNICATION

i. Language barrier: Language is a problem where interpretation of some
information may be difficult
ii. Lack of interest in the message: Sometimes people may lack interest in the
message. This means that the message may not be understood.
iii. Poor listening by the people who are supposed to receive the information. This
may lead to misunderstanding of the information.
iv. Differences in the way of communication among different people: This may be
due to differences in age, cultural backgrounds etc.
v. Wrong contact address: Some letters may not reach their proper destinations as a
result of using the wrong address.
vi. Distractions in the surrounding: This may interfere with effective communication
e.g. noise, bad smell, people passing by etc.
vii. Delay in the transmission of information: For example if a letter has been sent to
inform some person about the death of another and such a letter is received after
one month, it may not serve any useful purpose.
viii. Political instability in some regions: This leads to interference with the
communication network.
ix. Poor mobile phone networks in some areas: This makes communication to such
areas very difficult.
x. Personality of the sender: If the sender is hostile or if the information/message is
not properly prepared, it may create a negative attitude among those who are
supposed to receive the information.
xi. Faulty translation: This may result from the use of difficult words in letters and
even telephone communication.

MEASURES TAKEN TO IMPROVE COMMUNICATION IN UGANDA

i. There has been liberalization of the communication industry. Many private
investors have been allowed to invest in communication.
ii. Many new private investments have been set up to improve on communication e.g.
F.M radios, mobile phone networks etc.
iii. The Uganda posts and telecommunications have been split into two i.e. Uganda Post
Limited and Uganda Telecom Limited etc.
iv. Postal buses have been introduced to enable quick delivery of letters and parcels.
v. The computerization of telephone exchange systems has enables the handling of
many calls at the same time.

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 vi. Mobile phone companies e.g. MTN, AIRTEL, Orange, UTL have expanded their
networks to many parts of the country.
vii. Introduction of mobile phones has also increased use of phone services in the
country.
viii. The introduction of the internet has also improved the level of communication and
provision of information.

Guiding Questions:
1. Explain the various ways how the post office sends/remits money.
2. Write short notes on each of the following:-
i. S.T.D (Subscriber Trunk Dialing)
ii. P.B.X. (Private Branch Exchange)
iii. P.M.X.B (Private Manual Exchange Branch)
iv. P.A.B.A (Private Automatic Branch Exchange)
3. Explain the methods of communication
4. Explain the barriers to effective communication
5. What are the advantages and disadvantages of using telephones?

HOW THE POST OFFICE REMITS MONEY?

 Through money order:
The person wishing to send money is required to fill an application form which he must
hand over to the post officials with the amount to be sent plus a small fee. The issuing post
office will issue the sender with a receipt which will be sent in a different envelope to the
payee. On receiving this letter, the payee takes it to his post office and claims the money.

 Through telegraphic money orders:

This is used for emergency payments. The payee is sent a telegraph that he uses to claim
the money from the post office.

 Postal orders:
These are used for sending small sums of money. They are issued in fix denominations
payable to any post office. Payment can be made to any person upon presenting it.

 Money order:

 Paying through the registered post office:

Under this form, a person pays a creditor by sending cash or cheques through registered
post office. The post office usually offers special envelopes where money is sealed and sent
to the payee’s nearest post office.

 Postage stamps:
Some individuals accept postage from their debtor as payments to smaller or minor debts
e.g. if you are staying in a rural area and you have a debtor living in an urban area, if it is a
small debt for example one thousand, you can easily ask him to send you stamps of the
same value. You take the stamps to the post office and money equivalent is given to you.

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S.T.D - Subscriber Trunk Dialing
This is a system under which an individual can dial any number without passing through
the switch board operator or post office.

P.B.X - Private Branch Exchange

This is an internal telephone service/system that connects various extensions of the same
firm e.g. in a school there can be this system to bursar’s office, staffroom, warden’s office,
secretary’s office etc.

P.M.X.B - Private Manual Exchange Branch

This is a telephone system where the telephone operator connects all incoming and
outgoing telephone calls in the organization.

P.A.B.X- Private Automatic Branch Exchange

This is where incoming and outgoing calls are made without connecting the telephone
operator in the organization.

WAREHOUSING
This is an aids to trade which involves storing of raw materials until they are required. It
protects goods and raw materials against atmospheric conditions, pests, rainfall, theft etc.

A warehouse is a place or room where raw materials, finished goods and essential tools are
kept.

Types of warehouses

1. Wholesalers ware housings (houses)

These are warehouses owned by wholesalers and located at the wholesaler’s premises
where goods are purchased in large quantities and are stored until other traders (retailers)
come for them.

Wholesalers also store seasonal goods in these warehouses and sell them during periods of
no production at higher prices to make profits.

2. Manufacturer’s warehouses
These are warehouses owned by manufacturers where they store raw materials and
finished goods. Goods are stored by manufacturers until other traders come to collect or
purchase them. Manufacturers without their own stores normally keep their goods in
public ware houses.

NB: Manufacturers and wholesalers warehouses are at times referred to as private

warehouses.

3. Public warehouses

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These are warehouses owned by individuals which can be rented to any member of the
public who needs warehousing facilities. Public warehouses are located in areas where
people need warehousing facilities for hire e.g. near airports, docks, railway stations etc.

4. Bonded warehouses
These are special warehouses owned by the custom’s department or government where
people especially importers keep goods which have not cleared customs duty. Such goods
can only be releases from the warehouse when duty has been cleared. Bonded warehouses
are located near ports, airports and other handling terminals. These warehouses may also
keep illegal goods.

Importance of Bonded warehouses

a) To the government:
i. The government is ensured of revenue collection from imported goods since they
are only released after customs duty is paid.
ii. Bonded warehouses help the government to check on smuggling.
iii. Undesirable goods can easily be detected and prohibited to enter the country.
iv. It is not easy for importers/people to evade customs duty since goods are only
releases after paying it.

b) To the importer:
i. The importer pays low customs duty in case the goods lose weight while in the
bond. This is possible since customs duty is levied according to the weight of goods.
ii. The importer can look for market/buyers before paying customs duty or while the
goods are still in bond.
iii. The importer may decide to re-export the goods and therefore pays low duty but
only pays storage charge.
iv. While in bond goods may be advertised, blended, pre-packed and branded while in
bonded warehouses.
v. The importer does not pay customs duty in case the goods are bought while in bond.
In this case customs duty is passed onto the buyer.
vi. The owner of the bonded warehouses allows payment of duty installment which
help business men with insufficient funds to get small quantities of goods they can
sell and get the funds to clear the rest of the goods in the bond.
vii. The importer’s goods are safeguarded against theft since security is provided at the
warehouses.

To the public
 The consumer receives better quality of goods.
 The consumers are assured of constant supply of goods.

CHARACTERISTICS/QUALITIES OF WAREHOUSES
i. It should be large enough to accommodate goods in large quantities and ensure
steady supply of goods to people.
ii. It should have good security to protect goods, raw materials and other property in
the warehouse.

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 iii. It should be well ventilated and not leaking.
iv. It should have skilled and committed personnel to create efficiency (for proper
record keeping to avoid losses).
v. It should be properly planned i.e. set under proper departments for effective
operations.
vi. It should be strategically located for proper utilization.
vii. It should be free from pests and diseases to avoid losses.
viii. It should have enough transport and communication facilities.
ix. It should have enough facilities for handling goods e.g. cranes (lift heavy things,
refrigerators etc)
x. It should have a good accounting system to determine the income and expenditure
of different debts.
xi. A large warehouse is made of several departments which include the following:-

a) General administration department

The warehouse is headed by the board of directors under a skilled chairperson. Under this
board, there is a general manager/managing director to whom all heads of other
departments are answerable. In other words, it controls all departments.

b) Purchases department
The department is headed by the purchases manager and it is responsible for buying stock
to the warehouse. Other functions of this department include:- placing orders for goods
needed in the warehouse, looking for cheap sources of supply and accessing changes of
fashion etc.

c) Sales department
This department is headed by the sales manager/marketing officer and it is responsible for
ensuring the market for the goods stocked by the warehouse. Other functions of the
department include:-
- Carrying out sales promotion strategies or advertising goods.
- Receiving orders from buyers and ensuring that the goods ordered for are sent out
or delivered.
- Handling customers complaints regarding the goods supplied.
- Ensuring that goods required by the customers are available.

d) Transport department
This department is headed by the transport officer and ensures that the distribution of
goods is done efficiently.

Other functions include:-

- Moving goods from suppliers and delivering them to the warehouse.
- Delivering goods to the buyers who purchase in large quantities but without
transport means.
- Ensuring that necessary vehicles are available and are in good conditions to carry
goods or raw materials.

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e) Accounts/Finance department
This is headed by the chief accountant or the finance manager and it is responsible for:-
- Preparing financial reports about all transactions.
- Handling the budget of the warehouse.
- Controlling the availability of money in the warehouse.
- Finding out the employment opportunities available in the warehouse.
- Preparing invoices and sending statements to customers.

f) Legal department
This department is headed by the company secretary or legal officer and it handles all legal
procedures and documents of the warehouse. Such documents may included; certificate of
incorporation, insurance policies etc.

The department also ensures that there is good relationship between the general public
and the warehouse.

ADVANTAGES OF WAREHOUSING
i. Warehousing helps in stabilizing prices of goods since goods are kept safely when
they are produced in plenty and released gradually in the market to meet the
prevailing demand.
ii. Warehousing encourages traders to stock a variety of goods.
iii. Public warehouses provide shortage for goods belonging to producers who do not
have enough room for such commodities. This protects them against damage.
iv. Warehouses act as reservoirs thereby enabling shortage and supply of goods to
continue throughout the year.
v. It helps in preparation of goods for sale, goods can be graded, branded, packed and
even processes while in the warehouse.
vi. It facilities re-export or entreport trade i.e. exporting a commodity that was
formerly imported.
vii. It facilitates payment of duties. The trader may procure funds for duties or taxes
while goods are in the warehouse.
viii. It helps in reduction of operation expenses of the trader by way of saving on
transport costs.
ix. Warehousing enables the importer to pass on duties to the buyer while still in the
warehouse.

Guiding questions:
1 (a) What is warehousing?
(b) Explain the types of warehouses found in Uganda.
(c) Of what benefit is a warehouse to a business man?

2 (a) Describe the organization of a warehouse of a large scale business.

(b) How does warehousing facilitate trade?

3 (a) Explain the advantages of a bonded warehouse to

(i) the government (ii) the public (iii) the importer

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 (b) What are the qualities of a good ware house?

TRANSPORT
This is defined as the movement of people, goods and services from one place to another.
Transport is another aids to trade in commerce which assists in the production process.

Importance of Transport
i. Good or efficient transport leads to the development of regions by opening them up to
the production process.
ii. Transport provides employment opportunities to people like drivers, pilots, road
workers etc. This helps to improve on their standards of living through the income
they earn from the sector.
iii. It promotes international trade. Countries interact with one another through
transactions that are made by transporting goods from one country to another.
iv. It avails goods and services to people enabling them to make a better choice.
v. It enables movement of goods from places of surplus to places of scarcity which also
enables people to enjoy goods which are not produced in their local areas.
vi. It facilitates industrial growth and development through transportation of raw
materials from their production areas to manufacturing plants.
vii. It also enables people to reach their places of work in time.
viii. It promotes international specialization in terms of production. Countries produce
goods where they incur low costs of production and exchange with others through
transport.

Forms of Transport
1. Road transport
It consists of cars, buses, lorries, head porters, wheel barrows, bicycles and motorcycles
and it involves the movement of goods and services from one place to another.

Advantages
i. It is the cheapest means of transport especially for short distances compared to air
transport.
ii. It is easy to construct roads as compared to other systems e.g. the railway transport.
iii. Road transport is in use all the time since it also does not have any timetable. It is
therefore convenient to the passengers.
iv. It promotes advertisement especially trade shows, promotions e.g. Coca Cola, video
promotion by use of trucks that use roads to travel to different places.
v. It helps in carrying goods over short distances especially perishables like tomatoes,
bread, drinks etc.
vi. It is flexible especially when picking people from the main road to small feeder roads.
vii. Selling and collection of goods along the roads is possible especially food stuffs which
has led to the development of small towns along the roads.
viii. In road transport, insurance costs are low compared to railway where they are high.

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Disadvantages
i. The rates of accidents are high especially in urban areas like Kampala to Masaka road
ii. Traffic congestion and jam normally occur in urban centres making a delay for goods
and services. Some of the perishable goods may go bad in the process.
iii. It is expensive for long distances due to high taxes on fuel.
iv. Highway robbery is possible especially through heavy forests like Mabira, Mpanga
where robbers and thugs hide.
v. Road transport is too slow especially heavy lorries or trucks that cover long distances
while loaded.
vi. Road transport may not be used during bad weather conditions especially murrum
roads during heavy rains.

2. Rail transport
This involves the using of trains to transport people and goods from one place to another.
Railway transport is suitable for carrying heavy cargo for long distances.

Advantages
i. Trains cannot be easily affected by traffic jam since their movement is timetabled.
ii. Goods transported by railway transport are not affected by robbers and thugs
because they are kept in containers which are safe.
iii. It is suitable for carrying heavy and bulky goods like copper, coffee etc since
containers are used.
iv. It cannot easily be affected by bad weather unlike for the case of road transport.
v. The rate of accidents is minimal as compared to road transport.
vi. It is quiet cheaper when transporting heavy goods for long distances as compared to
other forms of transport like air and road transport.
vii. Return cargo can be arranged since trains move with timetable schedules.
viii. Special containers may be designed for particular commodities and people.
Disadvantages
i. It is a slow means of transport for over long distances.
ii. Some perishable goods cannot be transported by railway transport especially food
stuffs because trains tend to delay on the way.
iii. It is only possible in areas with a flat environment and impossible in areas which are
mountainous and hilly.
iv. Construction of a railway line is very expensive because it requires skilled and
adequate man power/personnel, equipment and financial resources to do the work.
v. Railway transport is not flexible because it follows a given timetable (railway system
is rigid and inconvenient) unlike road transport where people can board on and off at
their own convenience.
vi. Goods normally delay at the deposits station because of clearance procedures.
vii. Railway transport is expensive over short distances.
viii. Railway transport involves high maintenance costs e.g. high insurance costs as well as
repair.

Question:
a) What are the advantages of railway transport over road transport?

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b) Explain the advantages and disadvantages of road transport in Uganda.

3. Water Transport
This involves the movement of goods, passengers and cargo over water bodies on mainly
rivers, lakes, oceans etc. There are several water vessels used i.e. oil tankers, boats, ships,
steamers, ferries etc.

Advantages

i. It is cheap for bulky goods and materials.

ii. It is not affected by traffic jam unlike road transport.
iii. The rates of accidents under water transport are minimal compared to road transport.
iv. Container packing is possible when using water transport hence reducing the rate of
theft, loss and damage of goods.
v. The use of automatic cranes makes easy work of loading and off loading.
vi. Special vessels can be constructed to carry particular goods e.g. refrigerators.
vii. Water transport can be used to carry perishable goods e.g. milk, fish, flowers, fruits etc.

Disadvantages
i. It is affected by weather changes especially during rainy seasons, where it can affect
the direction to which the water vessels are to go hence leading to accident.
ii. In case of an accident, chances of survival are limited depending on where the accident
has occurred.
iii. The ports or harbours may lead to loss of cargo because of condition during the time of
clearing.
iv. Some water bodies tend to freeze during winter making them out of use.
v. Port or harbour congestion may lead to delay of delivery of goods.
vi. Water transport is limited to only areas of water bodies.
vii. The speed of water vessels is low and therefore this may not favour perishable goods
to be transported over long distances.
viii. Heavy loads may not go over shallow water vessels.
ix. It is not flexible.

Containerization
This is the packing of goods in a metallic container or wooden container which are then
sealed at the exporter's premises until they reach at the importer's place.

Advantages
i. Goods packed in containers are not affected by weather changes i.e. in case of rain,
goods are not affected.
ii. Theft and robbery problems are minimized since goods are packed and sealed at the
exporter's premises and are not opened until they reach at the importer's premises.
iii. It saves time which be wasted loading small number of packages on the ship. Cranes
are used to load on and off the containers hence time saving.
iv. It is also labour saving since one crane is used to lift a large package when many men
could be involved.

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v. Special containers may be constructed to carry special goods e.g. crude oil, chemicals,
consumable goods like salt, sugar, food stuffs etc.
vi. It is possible for the producer (exporter) to avoid taxes since sometimes goods are
mixed up leading to tax avoidance.
vii. It promotes the use of modern cargo loading or handling facilities like cranes which
reduces on the chances of damage which is likely to occur when human beings are
used.
viii. Properly packed goods in containers accommodate or take large quantities of goods
than it would be possible for goods packed on ships.
ix. Empty containers can be used for other purposes i.e. shopping arcades, barber shops,
stores etc.

Disadvantages
i. Containers are very expensive to acquire i.e. special equipment, shops etc.
ii. Containers are not good to transport some goods like animals.
iii. Containers are too heavy i.e. cannot be handled without the use of machines which
makes work difficult in case of absence of machines.
iv. Incase there is delay in packing goods, there will be delayed delivery of goods as a
result of using containers.
v. It is unsuitable for small quantities of goods. Container is shared (used) by many
exporters. One may take another's goods accidentally or intentionally.
vi. It is at times uneconomical since containers are returned empty after off loading the
commodities.
vii. In case the taxes are dodged, the government is likely to lose revenue since
exporters always look for the gap or loop hole to avoid taxes.

Types of Water Vessels

1. Passenger linnears:
These are vessels which transport passengers and some cargo. They sail on a time table
and do not wait for passengers of cargo delayed.

2. Cargo linners
These are vessels mainly for cargo and they carry only the driver and the turn boy. They
are sometimes called stamps.

3. Bulky carriers/freighters
These are vessels bought for transporting particular bulk type of goods e.g. iron ore, copper
etc.

4. Oil tankers
These are basically to carry crude oil to refine it and sometimes carry refined oil to
markets.

5. Roll on and Roll off ferries

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These are large ferries/carrying vessels that are used to transport goods i.e. vehicles are
simply driven onto the ferries at the trading plant and off loading point/point of
destination.

Terms used in Water Transport

a) Charter party
This is an arrangement between the shipping company and the consigner or owner of the
goods to carry the goods to the specified destination. The consigner and the shipping
company will agree on terms of transporting goods and takes the responsibility of ensuring
that the goods have reached the final or right destination.

b) Bill of lading
This is a contract between the ship owner and the cargo owner to transport the goods to
another destination by hiring in specific period of time. It involves all the details of
transporting the goods to the importer's premises.

4. Air Transport
This is the most convenient and fastest means of transport. It involves the movement of
goods and passengers from one place to another using crafts.

Advantages
i. It is the fastest means of transport as compared to other forms like road, railway
and water transport.
ii. It is the best means for delivering delicate goods i.e. goods that can easily break e.g.
glass.
iii. There are limited chances of loss of property because security is highly observed.
iv. It is suitable for long distances without stopping since the crafts cannot stop
anywhere until they reach the point of destination i.e. airport.
v. It is the most comfortable form of transport free from topographical barriers e.g.
mountains, hills etc. Even meals and drinks are served in the crafts.

Disadvantages
i. It is the most expensive system of transport compared to other forms of transport
like road, railway and water transport.
ii. It is costly in terms of fuel and flying operations since fuel is expensive.
iii. Air crafts cannot take cargo and passengers to their final destination but they are
dropped at the airports unlike road transport which moves door to door while
delivering. (boda-boda)
iv. Weight of cargo and passengers to the final destination is limited i.e. specified in
terms of quantity due to the fear of accidents.
v. In case of accidents, all cargo and passengers are likely to be destroyed completely
since it flies at a high altitude.
vi. Weather conditions may interfere with air services. In case of weather changes it
may affect the direction of movement of the air craft.
vii. Procedures involved e.g. passports, visas, medical forms etc.

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Note:
Airway bill: This is the document drawn between the airline company and business
organizations using it to carry their goods.

An airway bill is similar to the bill of lading except that an airway bill is used for air
transport and a bill of lading is used for water transport.

5. Pipe line transport

Under this system, pipes are used to carry fuel, water and gases from one place to another.

In Uganda today pipes are used to carry water and sewerage disposals in major urban
centres. From Nairobi to Mombasa, there is a pipe line for petroleum.

Advantages
i. Because they pass underground, pipeline transport is not affected by atmospheric
changes i.e. weather changes.
ii. Speed is reasonably high because the flow of movement is not limited until it is
tapped off.
iii. The cost of running/operating pipe line transport is quiet as compared to other
forms of transport since it does not involve fuel costs.
iv. Large volumes of liquids and gases can be transported within a short period of time
since they can flow in large amounts hence saving time and cost of production.
v. It reduces traffic congestion and the rate of accidents on roads which could be
caused by fuel tanks.

Disadvantages:
i. Pipe line transport is only limited to transportation of liquids and gases. It does not
transport solid goods.
ii. In case of pipe rusting, it can easily lead to contamination of water and any other
liquid which may lead to complication to those who consume it.
iii. Pipe repairs are too costly and difficult to locate where the pipes passed.
iv. It may be affected by thieves in certain places not occupied by people.
v. Installation of pipes is very expensive especially with long distances. This is because
the cost of acquiring pipes is so high thereby making it expensive.
vi. In case of leakage of pipe, this breakage leads to loss of resources since the liquid
will flow out thus being wasted.

Factors that influence the choice of means of transport

i. The nature of commodity to be transported e.g. fragile and perishable goods need
special handling. They may not be transported by rail or water transport.
ii. The cost of transport. This cost should be reasonably small in proportion to the
value of goods.
iii. Speed and urgency. Goods needed urgently may be transported by urgent means e.g.
air.
iv. Distance involved. For short distances, road transport may be used while long
distances rail and water transport may be used.

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 v. Weight and size of goods. Heavy goods are economically transported by water and
rail transport while light ones are transported by road and air.
vi. Value of goods. Highly valued goods should be transported by air e.g. diamonds.
Less valued goods should be transported by foot and secure means of transport of
air.
vii. Flexibility. The ability of mode of transport to reach any destination is important. In
this case, road transport is flexible than any other means of transport.

MONEY AND BANKING

Money is defined as anything that is generally acceptable as a medium of exchange.

Evolution of Money
The earliest form of exchange was barter trade. This is a form of trade where goods are
exchanged for goods. Due to the disadvantages of barter trade, this type of trade was
abandoned leading to the coming up of commodity money. Commodity money involves the
use of certain commodities such as salt, tobacco, maize etc to determine the value of other
commodities. These commodities were used because they had value i.e. they could be used
to satisfy human needs.

However commodity money also had its disadvantages. Some of the commodities were
bulky while others were perishable and therefore could not serve as good money.

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Commodity money was replaced by durable metals/items e.g. copper, iron, gold etc. These
were adopted because they were long lasting.
However these durable metals/items also had disadvantages. At times they were in plenty
and at times they could be scarce. This made them less suitable as a medium of exchange.

Later on coins were developed as an alternative. These coins were made mainly from the
metals of high value e.g. gold and silver.

BARTER TRADE
This refers to the exchange of goods for goods. It was the earliest system of exchange.

Advantages
i. It enables one to get a commodity or service one never had before.
ii. It eliminates the use of money or different currencies which also have problems of
exchange rates.
iii. Barter trade can easily be carried out since it does not involve the use of many
documents.
iv. It reduces the risk of moving with large amounts of money which may easily be
stolen.
v. Barter trade promotes social understanding between the parties involved in
exchange.

Disadvantages
i. Barter trade is based on double coincidence of wants. For exchange to take place,
each person involved must be willing to take what the other person has. This is
often very difficult.
ii. Transport problems: It involves moving long distances looking for a person who has
what you want and also needs what you have.
iii. The problem of determining the amount of goods to be exchanged. It is difficult to
decide on the value and quantity of each commodity to be exchanged with another.
iv. The problem of commodities that are not divisible. It is difficult to exchange
commodities that are not divisible for small units of other commodities.

FUNCTIONS OF MONEY
i. Money is a medium of exchange. People exchange what they have for money which
money they later use to buy what they do not have.
ii. Money can be used as a tool of monetary policy.
iii. Money is a store of wealth/value. People can keep their wealth in form of money
since it is portable, durable and can easily be converted in other forms of wealth.
iv. Money is a means of future payment. It facilitates commercial transactions on credit
where payment is done in future.
v. Money is a unit of account used to express prices of goods and services and at the
same time facilitating business calculations.
vi. Money acts as a measure of value. The value of commodities and the assets is
expressed in money terms.

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QUALITIES OF GOOD MONEY
i. Acceptability: Good money should be generally accepted.
ii. Portability: Good money should be convenient to carry. It should neither be too
heavy or too bulky to carry from one place to another.
iii. Divisibility: Good money should be divisible in a way that it is easy to pay even for
the cheapest items.
iv. Homogeneity: One unit should be identical with others especially when they are at
the same value. A 1000 note should be exactly similar to another 1000 note.
v. Durability: Good money should be able to last for a long period of time so that it can
be used for longer periods since it is expensive to print this money.
vi. Stability: It should have a stable value for a long period of time so that it can be used
for longer periods of time without changing.
vii. Scarcity: Good money should be relatively scarce (limited) in supply so that it
maintains its value since money losses value it is in plenty.

BANKING
A bank can be defined as an institution that accepts deposits, credits and safeguards the
money received from its clients and makes it available when they need it.

It also advances loans to those who wish to borrow therefore a bank is generally defined as
a business organization that undertakes the safe keeping of people’s money.

TYPES OF BANKS
1. Central Bank
This is an institution which controls all other banks in the country and it also acts as a
financial agent of the government.

A central bank is established by the government e.g. in Uganda, Bank of Uganda is the
central bank that regulates the circulation.

2. Commercial Banks
These are banks established to the aim of making profits for their owners. The main source
of their earning is the interest charged on the loans advanced. Examples include, Standard
Chartered Bank, Stanbic Bank, Bank of Baroda, Centenary Bank, Housing Finance Bank etc.

3. Co-operative Banks
These are mainly banks for the fast growing movements like co-operative unions. These
lend money to organizations but not individuals.

4. Development Banks
These lend money to the public for development of projects and are mainly used by
farmers and business men to carry out trade. They also accept deposits from such
individuals e.g. Central Development Bank.

5. Specialized Banks

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These are banks that serve a special type of customers all that are aimed at providing
special type of service. E.g. Housing Finance Company that provides funds for buying and
building houses only and co-operative banks which mainly serve co-operative societies.

6. Saving Banks
These are banks mainly intended to provide a safe place for keeping money on behalf of
their clients. They accept small deposits, pay interest on such deposits and offer a limited
withdraw facilities. The most common and biggest saving bank in Uganda are the Post
Office Savings Bank.

FUNCTIONS OF COMMERCIAL BANKS IN UGANDA

i. Commercial banks provide facilities for domestic and foreign trade i.e. they assist
traders in international trade by generating payment to overseas supplies through
telegraphic money transfer.
ii. They safeguard consumers’ money (accept deposits) by permitting them to open up
various types of accounts.
iii. They provide excellent means of payment in form of cheques.
iv. They offer advise for investment matters, types of accounts to open to their clients.
v. They often provide working cash for the businessmen by extending short term loans
to them.
vi. Commercial banks can advise and encourage entrepreneurs on whether to invest on
a project or not through the section or department. This enables entrepreneurs to
invest in productive ventures.
vii. They collect money on behalf of their customers and this is through:-
- Accepting money from individuals and deposit it on their customer’s account.
- Presenting cheques deposited by their customers to others.
- Accepting credit transfers from their customers’ accounts.
viii. Making payment on behalf of their customers. Commercial banks serve as paying
stations of money from the customers through the cheque system.

TYPES OF ACCOUNTS
There are mainly three (3) types of accounts used in Uganda namely:- Saving account,
current account and fixed deposit account.

1. Current Accounts
These are normally operated by business men like sole traders, partnerships and limited
companies. Current account has the following characteristics:-
i. It requires a minimum initial deposit of 100,000/= especially in commercial banks.
ii. The holder of the account can make deposits any time in any form e.g. cash, drafts
and cheques.
iii. Withdraws can be made in form of cheques and cash and it does not require a
minimum balance to be maintained i.e. an account holder is free to withdraw all his
deposits.
iv. Cheque book facilities are available i.e. cheque books are issued to current account
holders.

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 v. A current account holder is issued with a bank statement at the end of each calendar
month.
Note: A bank statement is a record of all transactions made by an account holder during
the month.
vi. In a current account, draft facilities are allowed.

2. Savings account
These are accounts offered by both saving and commercial banks and they are provided to
encourage small savings.

Characteristics of saving account

i. A minimum initial deposit is required and differs from bank to bank e.g. Centenary
bank and Post Bank require an initial deposit of 10,000/=
ii. Money can be deposited any time.
iii. Withdraws are allowed at most twice a week and there is always a limit and the
maximum amount that can be withdrawn at a time.
iv. No cheque books are provided to account holders.
v. Account holders are issued with passbooks which contain recent deposits and
withdraws. This is common with Post Bank Uganda Limited.
vi. On a saving account, there is a fixed minimum balance required e.g. Stanbic Bank is
10,000/=
vii. Saving accounts do not offer overdrafts services to their account holders.
viii. No bank statements are issued to saving account holders.

3. Fixed/Time deposit account

These are accounts opened by those individuals who have spare money that they do not
need in the near future.

Characteristics/features
i. Accounts are opened for a specific period e.g. month, 2 years etc.
ii. This account can be opened with a specific amount and no withdraws are allowed
before the expiry date.
iii. The deposits can be used by commercial banks to advance loans to other people.
iv. The account holders are issued with a receipt which they must present to withdraw
their money at expiry date. The account holders also have to remind the bank one
week before so that they may make payment arrangements.
v. The deposits can be used as security to apply for a loan in another bank.

CHEQUES
A cheque is a written order by the drawer to his bank to pay on demand a specific sum of
money to a person named on it.
Or
It is a written order from an account holder to his bank to pay a specific sum of money of
the named person.
It has three parties
(i) Drawers

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 (ii) Drawee
(iii) Payee

(i) Drawer
This is a person who writes a cheque including the account number, where payments are to
be made and signs it. In other words, a drawer is an account holder with specified bank
instructing it to pay the named person by use of cheques.

(ii) Drawee
This refers to the bank to which the bank the cheque is drawn. In other words the paying
bank is the drawee.

(iii) Payee
This refers to the person entitled to receive money and it is to whom the cheque is made
payable.

FORMAT OF A CHEQUE
a) A date
A cheque is dated on the day it is drawn and this is to remind where the drawee has an
account and that it was issued or given out.

b) Name of the payee

The name of the person to be paid is stated immediately after the word pay.

c) Amount
The amount of money to be paid is written in words and figures. It must correspond.

d) Signature
The drawer of the cheque must sign in designated cheques of the bottom. This sign must be
the same like the specimen signature used in the bank and sometimes a thumb print may
used for people who cannot read and write.

e) Counter foil/serial No.

Each cheque is attached to a counter foil which bears the same serial number as that of the
cheque. The counter foil enables the customers to keep records of the payment by the
cheques and it also enables him to check on the bank statement.

Specimen of a cheque
A. No. 24/973 B. No. 24/973
14/03/009 Centenary Rural Development Bank
Payment Pay Mr. Mpanga an order
One hundred thousand shillings only
Account No. 6,301
Signature

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A is the counter foil
B is the cheque

A + B is a cheque list

Drawer - Mukasa Steven

Drawee - Centenary Rural Development Bank
Payee - Mr. Mpanga
Drawer’s account no. 61301

TYPES OF CHEQUES
They are basically divided into two:-

1. Open cheque
This is a cheque that can be cashed across the counter but money on the cheque may be
deposited on the payee’s account. There are two forms of open cheques:-
(i) Bearer cheques
These are cheques on which the payee is not named. This means that anyone presenting it
will be given money provided the drawer’s account has enough money at the bank. These
cheques are very risky in that even a thief can get a chance to get the money.

(ii) Order cheques:

These are cheques in which the payee is named. An order cheque is only payable to a
named person on its space.

2. Crossed cheque
This is one which bears two parallel lines across its face. This cheque cannot be cashed at
the counter but may be deposited in the bank to be credited on the payee’s account in the
near future. There are two types of crossed cheques:-

(i) General crossing

This is made by drawing two parallel lines writing between them any of the following i.e.
Account payee only, not negotiable.

Account Not
Payee nego
only tiabl
e

(ii) Special crossing

This is made by drawing two parallel lines and entering between them in addition to the
words mentioned above.

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 CERCIDEE EBB . BR
& CCO LTD

CERUDEB BB . BR
A/C PAYEE ONLY

CERUDEB EBB.BR
not negotiable

The difference between the general and special crossing is that with a cheque that has been
crossed generally, funds can be transferred to another person legally while special
crossing, the payee cannot transfer funds to another payee.

Other categories;
1. Post dated cheques
This is one being written out with a date which has not yet come. The aim of this cheque is
to delay payments especially where the drawer has insufficient funds on his account or has
refunds. The person named can only be cashed when the date stated has matured/come.

2. Stale cheque
This is one that has been written out and stays for 6 months beyond which the bank may
refuse to pay.

3. Blank cheque
This is a cheque bearing the drawee’s account only. This cheque is signed by the account
holder without indicating the amount to be paid out. This kind of cheque is very risky
because anyone can fill in any amount of money and gets paid by the bank in case the
account holder has sufficient money.

4. Stopped cheques
These are cheques that cannot be paid by bank because of the account holder instructing
the bank not to advance any money to a specified cheque. This may happen if some cheques
were stolen from him.

5. Counter cheques
These are cheques sold at the bank counter to the customers who on reaching the bank
may realize that they do not have their cheque books. In such situation, proper
identification by the customer to the bank is required before a counter cheque is sold to
him. However, it should be noted that most banks discourage the use of this system for
security reasons.

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6. Dishonoured cheques
These are cheques which the bank has refused to cash. A cheque may be dishonoured
under the following circumstances:-
i) When the cheque is not dated
ii) When the cheque is not completely signed.
iii) When the cheque is forged.
iv) If the drawer does not have enough money on his account to cover the amount
written on the cheque.
v) If the amount in words is different from the amount in figures.
vi) If the cheque is post dated and is presented to the bank before the maturity date.
vii) If the drawer’s signature is different from the special signature held by the bank.
viii) If the drawer has notified the bank that no payment should be made due to
occurrence of the death of the account holder or due to stolen cheques.
ix) When the drawer has closed his account with the drawee (bank).
x) In case the cheque is stale i.e. if it has stayed beyond the expected date.
xi) If the cheque is damaged or mutilated torn.

Advantages of cheques
Payment by cheque system is one of the most common ways of settling debts in the modern
commercial world and the following are the advantages of cheques:-
i. The cheque system is convenient because it takes a very short period of time to
write than counting the bank notes and coins.
ii. It enables large sums of money to be transferred from one person to another with
little or no risk of theft.
iii. It is very safe. Cash can be used after the cheque has been deposited especially
through crossed cheques.
iv. Counter foils of the cheque books are necessary for payments and this helps the
account holder to keep records.
v. Cheques are easier to move with than cash which is bulky in most cases and heavy
in case of coins.
vi. A cheque paid is evidence that payments have been made and consequently a
written receipt needs to be obtained.

Disadvantages of cheques
i. A cheque may be rejected by the bakers for some reasons like if it is not dated, if it is
forged, not signed etc.
ii. Cheques are not legal tenders unlike bank notes meaning that an individual has a
right of refusing payment by a cheque.
iii. Cheques are not safe because they can be cashed to anybody presenting it to the
bank.
iv. A person paid by use of a cheque may not easily and quickly use the money because
he has to move to the bank to deposit the cheque and at times wait for the day to get
the money.
v. Cheque books are paid for by the account holder e.g. leaf book may cost 5000/=
which means that for any cheque written out the drawer incurs 200/= as extra.

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 vi. Cheques written to be paid by the bank take a long period of time to mature i.e. 2 – 3
weeks which delays a person to use his money.
vii. Given the high illiteracy levels prevailing in the country, the majority of people will
not understand the function of the cheque and can end up rejecting them.

Reasons why the use of cheques is not very popular in Uganda?

i. Cheques sometimes take long to mature.
ii. Most people are illiterates or ignorant and do not know how to use cheques.
iii. Some people fear cheques to be dishonoured by banks due to dishonesty among
people because it is not legal tender.
iv. Most banks are limited to urban centres i.e. not well distributed hence leaving the
rural people out of the system.
v. Most people prefer operating accounts which do not use cheques.
vi. Majority of people prefer keeping the money at home instead of banking.
vii. Most people are engaged in small transactions which make cheques economical.

BANK OVERDRAFT
This is defined as a temporary loan whereby a bank current account holder is allowed to
withdraw money over and above what he has on his account.

THE ROLE OF COMMERCIAL BANKS IN THE DEVELOPMENT OF AN ECONOMY

i. They facilitate the process of capital accumulation or formation through the
promotion of savings and investments. This expands the capacity cad leads to
economic growth and development.
ii. Commercial banks provide the desired infrastructure like roads and research
centres which facilitate development.
iii. They are media through which the government programmes are executed e.g. rural
farmers’ schemes, crop finance schemes which are sponsored by commercial banks.
iv. They offer employment opportunities to the nationals at different branches.
v. By advancing loans on industry, agriculture and other productive capacity of the
country.
vi. They cultivate savings habits in the nationals by offering reasonable interests on
saving deposits.
vii. Commercial banks increase government revenue through taxing the profits they
make.
viii. A well developed commercial sector facilitates the development of international
trade through enjoying its advantage.
ix. Commercial banks carry out investments. Some of their money is invested in form of
shares, debentures and other assets which improve the capital accumulation and
lead to development.

PROBLEMS FACED BY COMMERCIAL BANKS

i. The large subsistence sector: Uganda’s economy is largely subsistence and
depends on a few crops for export which restricts the banking sector.

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 ii. The high illiteracy level: These have also hindered the development of banking
habits especially in rural areas where many people do not know how to open
accounts.
iii. Conservation: Many people in Uganda are still conservative about keeping money
in the bank. Some still want to keep it in tins, under beds or underground and this
hinders development of commercial banks.
iv. Low income levels of many people in Uganda: This limits level of saving hence
limiting banking.
v. Poverty: This is widely spread in the country and people tend to look at current
survival rather than saving for the future.
vi. Political instability: In some parts of the country e.g. northern Uganda, there are
rebel activities which scare away the establishment of commercial banks.
vii. Presence of untrustworthy customers: These make the conditions of giving out
loans rigid hence limiting the service of commercial banks to the customers.
viii. Foreign ownership: Since most of the common banks are owned by foreigners
ix. Nationalization of commercial banks: Such as commercial banks are
characterized by mismanagement and corruption hence leading to
x. There are limited skilled personnel in the banking sector. This hinders development
as well.
xi. High interest rates set by Bank of Uganda scares away borrowers hence limiting the
development of banks.

THE CENTRAL BANK

A central bank is the national bank of any country that is established and managed by the
government to control and guide other financial institutions in the country. It is the main
financial institution in the country established and controlled by the government. To
control and guide government finance, commercial banks and other financial institutions.
In Uganda, Bank of Uganda is the central bank.

FUNCTIONS OF THE CENTRAL BANK

i. The central bank offers banking facilities to the government as well as the
commercial banks which then provide such services to general public.
ii. It is also responsible for controlling the volume of money in circulation through
monetary policies. The central bank is the only body in the country allowed to print
and issue new currency on behalf of the government.
iii. It acts as a banker to financial institutions like IMF, World Bank etc. Each of these
organizations has an account with the central bank of the country.
iv. It acts as a lender of last resort. If commercial banks fail to raise the necessary cash
to settle their customers’ demands, the central bank can lend them money; likewise
the government too can borrow from the central bank.
v. It controls and monitors all financial activities of commercial banks.
vi. It acts as the controller of credit in the economy through regulating the amount of
money in circulation by using a number of monetary tools like bank rates, open
market operation.
vii. It collects and keeps data or information concerning various aspects of the country’s
economy.

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viii. It is responsible for paying the money that the government borrows.
ix. It controls foreign currency in the country and therefore before any foreign
currency is converted to local currency, permission has to be sought from the
central bank.

FUNCTIONS OF CENTRAL BANK TO THE GOVERNMENT

i. It accepts deposits from the government e.g. extra revenue from taxes.
ii. It extends short term loans to the government.
iii. It makes out payments to commercial banks on behalf of the government.
iv. It connects the government to the foreign institutions abroad like the IMF and
World Bank.
v. It manages the public debt on behalf of the government.
vi. It helps in the formulation of budgets and establishing statistics on behalf of the
government.
vii. It advises the government on financial and economic affairs.
viii. It is the bank where government bodies and institutions keep their money for their
activities.

TOOLS OF MONETARY POLICY/MTDS/INSTRUMENTS

This refers to a government policy established to regulate money in circulation and other
economic activities within the country through the central bank.

Alternatively, it refers to the various methods adopted by the central bank to control credit
(money); during inflation, the central bank adopts measures to reduce money in circulation
through the use of the same policies.

These tools include:

1. Bank Rate:
This refers to the rate of interest charged on commercial banks when they borrow money
from the central bank.

When the central bank wants to increase money in circulation, it will decrease the bank
rate to create room for the customers to borrow while if the central bank wants to reduce
money discouraging other banks to get loans which they would give their customers.

2. Open market operation:

This involves the sale or purchase of government security to and from the general public
respectively. When government wants to reduce money in circulation, it buys off security
from general public which reduces their purchasing power and when government wants to
increase money in circulation, it sells off big securities to the general public hence
increasing their purchasing power.

3. Selective Credit Control:

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Under this the central bank may restrict or limit leading to only specific creditors. This
reduces the amount of money in circulation while when government wants to increase
money in circulation. It lends money to the different institutions that need it through
commercial banks.

4. Cash Ratio/Liquid Reserve Ratio:

This is a counter foil used by commercial banks to keep a certain percentage of the deposit
in cash. The central bank may rise the cash ratio in order to reduce money in circulation
and may reduce the cash ratio when it wants to increase money in circulation.

5. Compulsory deposit
This is one of the most effective instruments of monetary policy. Under this, commercial
banks are required to make and maintain certain proportions of their deposits with the
central bank which varies according to the prevailing conditions in the economy. When the
central bank increases the deposit, money in circulation reduces and when it reduces the
deposit money in circulation increases.

6. Legal Reserve Requirement

This is where by law commercial banks are required to keep a minimum balance with the
central bank. The central bank may raise the legal minimum revenue required or reduce it.
If it reduces it, there will be increase in money in circulation and if it increases, there will be
a decrease in money in circulation.

7. Marginal Requirement
This is the difference between the amount of the loan and the value of the asset given in.
when the central bank wishes to restrict credit, it will increase the marginal requirement
while when it wishes to increase money circulation, it reduces the marginal requirement.

8. Currency Reforms
The central bank asks the public to forward certain notes and coins for exchange. When
money becomes excessive, the government finds it necessary to carry out currency reforms
so as to reduce the amount of money in circulation and then the value of money.

9. Moral Suasion
This is where the central bank persuades, requests, appeals and advises the commercial
banks to control and regulate their lending policies. This reduces inflation and money in
circulation.

FACTORS THAT HINDER SUCCESSFUL OPERATION OF THE MONETARY POLICY IN

UGANDA
i. Ignorance of the public about the tools used by the central bank e.g. open market
operation, selective credit etc. Many people do not understand how these tools are
used.
ii. There is a lot of corruption in Uganda which hinders tools like selective credit
control.

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 iii. Most banks do not follow instructions and guidelines given to them by the central
bank since they are mainly privately owned.
iv. External influence from donor and financial institutions like IMF and the World
Bank.
v. There is a lot of borrowing outside the banking system therefore the effectiveness of
the bank rate policy is low.
vi. High liquidity preference: Many people in the country prefer keeping their money in
cash than in banks. Therefore banks have less influence over such money.
vii. Government influence: There is a lot of government interference in the operation of
the central bank to print more money to help it finance its programmes.
viii. Limited capital and financial markets: These are under developed and so the
government securities and shares cannot be sold and bought easily.
ix. Limited entrepreneurship in LDC’s limits the utilization of credit for investment.
x. The banks are not evenly distributed in the country. They mainly concentrate in
urban centres hence making the rural population unaware of the operation of these
tools.
xi. Political instabilities also hinder the effectiveness of the banking systems thus
limiting monetary policy.
xii. The dominance of private foreign commercial banks which are not under direct
control of the central bank also hinders the policy.
xiii. The existence of large subsistence sector where people basically produce for their
own consumption and have little or nothing to save with the bank.

Reference Questions:
1 (a) State the difference between a bank loan and bank overdraft.
(b) How does a current account differ from the savings account?

2 (a) Explain the difference between a cheque and a bank rate.

(b) What services are offered by commercial banks to their customers?

3 Under what conditions may a bank refuse payment against a cheque or refer a
cheque to a drawer?

4 (a) What are the functions of money?

(b) Describe the qualities of good money.

5. (a) Distinguish between a bill of lading and a bill of exchange.

(b) What are the features of the bill of exchange?
(c) Under what conditions may a bill of exchange be dishonoured?

6 (a) Explain the types of banks.

(b) What problems do commercial banks experience in Uganda?
(c) What functions does the bank of Uganda perform?

7. What factors will the bank manager consider in giving a loan to the applicant?

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 SALES PROMOTION
It refers to an attempt made by a business enterprise to give a temporary boast to its
products in order to create a high demand which increases sales.

Traders employ various forms of sales promotion activities which include the following:-

1. Offering free gifts (premium)

The premium is an item of value or a free gift given to a buyer of a good or service as taken
of bonus e.g. offering one free opener when he buys ten creates of beer. Omo and soap for
buying more litres of fuel.

2. Offering credit facilities of worth customers

This can also promote sales since it attracts buyers to buy more goods at ago than they
would otherwise buy if they were to be sold on cash basis.

3. Offering free samples

A sample is an item given to the intending buyer to try out and later buy the product if
she/he is impressed. This may lead to an increase in sales. (free sanitary pads are always
given to girls in free samples).
4. Price reduction
Reducing prices of products can promote sales since more customers will be attracted by
the reduced prices to buy the products. Both the new and old should be shown e.g. Bata
shoes.

5. Offering after sales services

After sales services are free services offered by the seller to the buyer after he has bought
goods and services from him. This can be in form of free transport, advise, free packing
material etc. This may attract more customers and increases sales as well e.g. roofings,
Lweza clays etc.

6. Advertising
This is the means by which information is spread by producers and sellers about the
availability of their goods and services in an attempt to increase sales e.g. coca-cola
advertises on radio, TVs and newspapers.

7. Market research
This means the act of obtaining information about the demand of the products and opinion
of the customers regarding the products of the competitive firms. In view of this
information, a firm can make better decisions to promote he sales of its products.

8. Branding
This is the act of giving trade marks and names to enable customers differentiate the
products. It is used to attract/win more customers which also increases sales e.g. Garden
tea.

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9. Packing
This is the designing of attractive containers for goods being sold and also making sure that
containers can be put on to other uses e.g. omo, NOMI, Kimbo etc.
10. Exhibition and trade fairs
E.g. UMA’s regular shows at Lugogo and the agricultural shows in Jinja will also promote
sales.

11. Sponsorship of programmes

This is done on both radio and TV e.g. MTN, Airtel, Coca-cola, Katumwa Sports Centre,
Peacock paints etc.

12. Giving out brochures and manuals to customers

These will increase or promote sales of products.

13. Promotional offers

It is a system where by a firm gives a customer more units for a given amount of money e.g.
an extra crate of beer for 10 crates bought, hire purchase, wide use of bill boards etc.

QUALITIES OF A GOOD SALESMAN

i. A good salesman should be able to offer credit facilities especially to his trustworthy
customers.
ii. One should be honest to his customers.
iii. He should have good customer care.
iv. He should have good sales language i.e. should be polite.
v. He should offer after sales services to his customers and those who buy in bulk.
vi. He should have thorough knowledge to the products he is selling i.e. how to operate
them.
vii. He should be attractive to the customers because some are attracted by the
appearance.
viii. He should be able to take up the advice given by his clients/customers as far as the
products are concerned.

Questions:
1 a) Distinguish between sales promotion and market research.
b) Outline ways a firm producing a new brand of soda would make its products
to be known to the public.

2 (a) With examples, explain the forms of sales promotion.

(b) What are the qualities of a good salesman?

ADVERTISING
This refers to the means by which producers and sellers convey information to consumers
regarding the availability of their goods and services in attempt to increase sales.

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It is also defined as the publication of facts and opinions on goods and services available for
sale in order to influence the public to purchase or buy them.

OBJECTIVES/AIMS OF ADVERTISING
i. To inform the potential consumers of new products or services.
ii. To indicate new uses of the existing product.
iii. To increase on the sales of the product.
iv. To give information on price charges, special orders etc.
v. To build the firm’s image.
vi. To create more employment opportunities.
vii. To encourage more efficient use of the products e.g. an advertisement like MTN
everywhere you.
viii. To create brand loyalty. Advertising creates brand loyalty so that the consumer
continues to buy a firm’s product in preference to other firm’s products.

GENERAL FUNCTIONS OF ADVERTISING IN BUSINESS

i. It bridges the gap between the manufacturer and the consumer.
ii. It enables the consumer to know the available goods on market for proper choice
making.
iii. It induces customers to buy hence increasing sales.
iv. It enables introducing of new products on sale to the consumers.
v. It encourages competition leading to better quality products and at reasonable
prices.
vi. It provides necessary information about the salient features of different products
e.g. size, quality, colour etc.
vii. It helps consumers to know the technical use of products and their applications.

TYPES OF ADVERTISING

a) Indirect Advertising
This is advertising to the public as a whole e.g. means of posters since it does not appeal to
any specific groups of customers. It is the most effective when used for basic essential
commodities like salt, sugar, soap etc which are bought by the majority of the population.

b) Direct Advertising
This is meant for certain income groups or people in certain professions. It is applicable
when a product or service appeals only to a limited number of people e.g. through the press
aims of selling to those who can read.

c) Informative Advertising
This simply alerts/makes the consumer aware of the existence of a commodity. It merely
announces the presence of the products and gives details to the potential buyers e.g. cold
soda is sold here, buy spare parts from here.

d) Persuasive Advertising

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This aims at convincing the consumers that the advertised product is better than one of the
similar kind/better than another e.g. “omo digests stains and dirt”. MTN, the better
connection etc. Persuasive/ competitive advertising aims at creating and maintaining
demand and market respectively and it is commonly used by firms producing similar
products.

ADVANTAGES OF ADVERTISING TO THE PRODUCER

i. Advertising expands the market for producers’ goods and services by informing
consumers of the existence of the products on the market inducing them to buy.
ii. It increases sales of the producer leading to mass production and more profits to the
producer.
iii. It bridges the gap between producers to establish contacts with customers.
iv. It enables the producer to retain his share of the market through constantly
reminding consumers of his products.
v. It encourages consumers to frequently use the products which increase sales for
profits.
vi. In areas where their demand of the producer product is low, advertising may
remind the consumers about the producer’s product hence promoting sales.

TO THE GOVERNMENT
i. Advertising provides employment to some people which enable the government to
solve the problem of unemployment.
ii. The government gets revenue through taxation of advertising firms, advertising
media and all those engaged in advertising which enables it to finance its activities.

TO THE CONSUMERS
i. It creates employment among producers of similar goods which forces them to
improve on the quality of goods and services which is an advantage to the
consumer.
ii. Through advertising, consumers are exposed to a wider range of goods and services
from which to make choice.
iii. Advertising enables consumers to know the prices of different goods and services
which saves them from being overcharged by traders.
iv. It creates companionship among producers of similar goods or services which force
them to reduce prices.
v. It saves the consumers form the burden of looking for the products since they are
fed with the information of where to find the commodities, their appearance, size
etc.
vi. Consumers get to know the commodities available on the market.
vii. Some adverts explain to consumers how best to use some goods which saves the
consumers from the problems associated with the misuse of the products.

DISADVANTAGES OF ADVERTISMENT/ADVERTISING
i. Advertising is expensive and its costs are usually passed onto the consumers in form
of high prices.

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 ii. Persuasive advertising may force consumers to buy goods or services which they do
not really need.
iii. Some adverts are misleading and end up driving consumers to buy poor quality
goods.
iv. Advertising interferes with the free choice of goods or services to the consumers
especially persuasive advertisements.
v. It may sometimes force consumers to live beyond their means because at times
consumers are forced to borrow money and buy what they cannot afford under the
influence of advertising.
vi. It outcompetes some industries which lead to the rise of monopolies which have a
tendency of overcharging the consumers and offering poor quality goods and
services.
vii. Some advertisements promote immorality such as adverts for condoms, cigarettes,
videos, lockers etc witch doctors, child abuse like kidnapping.

ADVERTISING MEDIA
This refers to the various ways or means/channels through which advertising information
is conveyed to the public. They include the following:- Newspaper, magazines, TVs, radios,
trade fairs and exhibitions etc.

Newspapers:
This is one of the most important medium in E. Africa (Uganda) firms and sellers advertise
their products and services through daily English newspaper like New vision, monitor,
Bukedde.

The national newspaper circulates throughout the country and they are therefore suitable
for advertisements addressed to the general public.

ADVANTAGES OF ADVERTISING USING NEWSPAPER

i. Newspapers are cheap: Many people can afford buying them which enables the
message to reach many people.
ii. Adverts made in newspaper can stay for a long time so that it cannot easily be
forgotten. Any time a person reads a newspaper, the message will be received.
iii. Newspapers can be found in different languages which favour those who can read
and write the language used e.g. English, Luganda, Swahili, Langi etc.
iv. Newspapers have got a wide coverage i.e. can be sent to distant places within the
country and beyond.
v. They favour both the deaf and the dumb who cannot read and write since it involves
seeing and writing only.
vi. They promote sports activities in the country since most of them give sports details
to the teachers.

DISADVANTAGES
i. It is very expensive to buy them everyday.
ii. They do not favour the blind who may also need the information contained in them.
iii. They do not favour the illiterates since they involve reading and writing.

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 iv. Some newspapers do not reach all parts of the country while others reach very late
and when some information has already passed.
v. It is expensive to advertise through newspapers and therefore small firms are not
favoured which makes their commodities less known to the public.
vi. Newspapers can easily be destroyed by water, fire, rain and can easily be harmed in
case of mishandling.
vii. Newspapers sometimes lead to moral decay especially those which display rude
pictures e.g. red pepper.
RADIOS
This is where advertisements are broadcasted from the radio station.

Advantages
i. It covers a wide area and therefore information reaches very many people.
ii. It favours both the illiterates and literates since it involves only listening.
iii. Adverts can be conveyed in different languages.
iv. It caters for the blind since it does not involve seeing.
v. It is fast since messages are received as soon as they are sent.
vi. Once an error is made, it can be corrected unlike written messages

Disadvantages
i. Only people with radios can receive the information.
ii. It leaves on record for future reference since radios do not share information.
iii. It is expensive to advertise using radios; the adverts need to be repeated over and
over.
iv. Languages used to advertise over the radio are limited because of the limited time.
v. Radio advertisements need to be over exaggerated since a lot of persuasive words
are used which may encourage buyers to buy poor quality goods.
vi. Many people with radios may not listen to the advertisement especially the youth
who prefer music and sports.

TELEVISION
This is where advertising information is brought to the notice of viewers and listeners
within a short time.

Advantages
i. It favours both the literates and illiterates since it does not require writing and
reading but seeing and listening.
ii. It is fast. The time taken is short and messages are required effectively.
iii. It covers a relatively wide area and hence the message reaches a big number of
people.

Disadvantages
i. It can only favours people with T.V sets yet very few people can afford to buy TV
sets. Therefore many people do not receive the message.
ii. The costs of advertising on TVs are too high to be afforded by many businessmen.
iii. It does not leave any record for future reference so information is easily forgotten.

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 iv. It does not favour the blind since it involves seeing.
v. Information is not always detailed compared to that in newspaper because of the
cost involved.
vi. T.V transmission is limited to a particular geographical distance therefore some
people especially in areas which are not reached do not get the information.
vii. Exaggerations hence enjoying poor quality goods sometimes e.g. omo.

MAGAZINES
Advantages
i. Magazines are widely circulated both domestically and internationally so the
message is received by many people.
ii. They are published in many languages both local and foreign making it easily for the
message to be understood by many.
iii. The use of colours is possible which makes the adverts attractive to read.
iv. It leaves record for future reference i.e advert made can be stored for quite a long
time.

Disadvantages
i. Adverts made in magazines tend to be expensive compared to newspapers.
ii. They are mostly written in foreign languages neglecting the local language.
iii. Some adverts tend to be more persuasive than informative.
iv. Some magazines carry immoral pictures which may be a problem especially to the
young children.

OUTDOOR
This involves all adverts displayed outside shops, stadium and on streets. They include
posters, sign post, banners etc.

POSTERS
This refers to all paper advertisements hanging up or displayed. They are attractively
designed which encourages people to read them. Posters have a wide coverage but they are
usually affected by rainfall and wind.

SIGN POSTS
These are designed on wooden or metallic material and are displayed in strategic places
alongside roads. Sign posts are permanently natured and are affected by weather e.g.
school, sign posts, witch doctors etc.

BANNERS
These are in form of a cloth bearing the message being advertised.

NEON SIGNS

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These are normally hanged outside shops and are lighted at night so that the message can
be read both during day and night.

They are advantageous because information can reach many people since they are
displayed in strategic points.

Disadvantages
i. They are not suitable for illiterate people since they involve reading.
ii. Installing and maintaining neon sign is expensive.
iii. They do not favour blind since they involve seeing.

TRADE FAIRS AND EXHIBITIONS

Trade fairs is a media advertising whose manufactures and businessmen deal in various
products display their products from well designed stocks to show grounds to make them
known to the public e.g. UMA (Uganda Manufacturers Association).

Trade exhibition refers to an occasion whereby one or more producers of related produced
display their products a t a show ground on well designed stocks at a show ground to make
them known to the public e.g. Uganda National Farmers’ Association Annual Agricultural
show in Jinja.

Advantages
i. It is effective especially with advertising new products on the market since it
attracts many potential customers from outside and within the country.
ii. Manufacturers are able to interact face to face with potential customers which
enable them to find out the customer’s opinion about their goods.
iii. Manufacturers can interact with one another to trade fairs and may be able to
improve on the quality of their products to match those of other competitive firms.
iv. Businessmen and manufacturers can get agents since trade fairs attract many
buyers both domestically and internationally.
v. It boosts the sales of businessmen since during trade fairs many customers take
advantages of price reduction to buy in bulk.

Disadvantages
i. Trade fairs are limited to few areas.
ii. They are in most cases temporary.
iii. They are expensive to organize
iv. They do not favour the blind.

WINDOW DISPLAY
This is the placing of goods in glass windows of shops, well arranged in such a way that
they attract people who stop, look and admire. This practice is known as window shopping.

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Advantages
i. Goods can be seen clearly attracting people to buy them.
ii. It is available to all passersby at free charge.
iii. Goods can be arranged at a low cost.

Disadvantages
i. Window glasses are very expensive.
ii. Once glasses break, they can cause injuries
iii. It does not favour the blind.

SPECIALITY ADVERTISING
This involves producers or business firms offering specific articles to customers with their
trademarks, trade names and symbols. Such articles may include T-shirts, openers,
containers, pens, cigarettes etc.

TRANSPORT ADVERTISING
This is where a firm advertises their products in moving vehicle e.g. local musicians. It is
also direct mail advertising which involves suppliers and producers sending catalogues to
potential customers advertising their goods through the post office.

This in most cases takes place in reply to the letters of inquiry.

FACTORS AFFECTING THE CHOICE OF AN ADVERTISING MEDIA

i. Cost of the media: Manufacturers or traders should consider the cost of the media in
relation to the value of the commodity to be advertised. More expensive goods like
cars, machinery etc can be advertised through more expensive media like
televisions while cheap products advertised mainly through less expensive media
like radio, posters etc.
ii. The age group to which the media appeals its goods to be advertised mainly for
teenagers than media such as magazines, T-shirts etc which supply to teenagers
should be used.
iii. The geographical area covered by the media. If the producers want to introduce a
product aimed at the local market, then the media such as posters and other local
appeal media may be used. However if the product to be advertised is intended for
the whole country, then media with national wide appeal such as radio, televisions
and newspaper may be used.
iv. The common group to which the media appeals with advertising a commodity
which is mostly demanded by the rich people, one can use television or magazines.
On the other hand when advertising commodities demanded by common people,
sign posts and posters and local newspapers can serve best.
v. Social class: If goods are mainly demanded by local people, radio and local
newspaper can work, televisions and magazines can work better for commodities
demanded in urban centres. Radios and televisions are good for literates and
illiterate society. If the advertising is intended to cover many people, the

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 manufacture and traders may prefer using radios, newspapers, magazines and
televisions.

INSURANCE
This is the protection against events which may or may not take place e.g. fire, theft,
accidents. It is an aid to trade whereby individuals or organizations subjected to certain
receipts contribute money (premiums) to a common pool from which who suffer financial
losses from the stated risks can be compensated.

The protection against events which will definitely occur is what is termed as assurance e.g.
death, old age etc.

Examples of insurance companies include:

i. East African General Insurance National Company (EAGIN)
ii. National Insurance Corporation (NIC)
iii. Pan World Insurance Company (PAWIC)
iv. United Assurance Company (UAC)
v. Excel Insurance Company (EIC)
vi. State World Insurance Company (SWICO)

TERMS USED IN INSURANCE

1. Premium
This refers to the amount of money paid by a person or organization towards an insurance
produce. Premium make up a pool from which compensation is made to those who suffer
losses.

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2. Insurer
This refers to the insurance company offering the insurance policy. It is also called Assurer
or underwriter.

3. Insured
This refers to the person or organization which takes up an insurance policy.

4. Risk
This refers to the event against which insurance is taken up with the insurer e.g. risks
include fire, accidents etc.

5. Loss
This is the occurrence of the lost events against which insurance is taken out. If the entire
property insured is destroyed, the loss is said to be a total loss and if only part of the
property insured is destroyed, the loss is said to be a partial loss.

6. Surrender value
This refers to the amount of money given back to the insured person or organization when
he or she decides to cancel the insurance agreement before the period specified.

7. Co-insurance
This is where an item is insured against similar risk to the number of insurance companies.
The insurance companies are called co-insurers. It should be noted that co-insurance is of
no value to the insured since in case of a loss of them will contribute only the amount for
the loss just as it would have been with one insurance company.

8. Re-insurance
This is when an insurance company insurers a risk with another insurance. This normally
happens when the property is too expensive to be handled by the first insurance company
or when the original insurance company does not offer that particular insurance product.

9. No – claim bonus
This is the discount given to the insured in form of reduced premium when it makes no
claims from its policy. Careful drivers who avoid accidents benefit from this.

10. Sum insured

This refers to the exact value of the items insured which the insurance company
undertakes to pay inform of compensation in case of a loss.

11. Insurance policy

This is a document that acts as an evidence of a contract between the insured and the
insurance company giving all details and commissions of a contract.

12. Proposal form

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This is the document given by the insurance company to a person or organization intending
to take up insurance where all the relevant material acts are filled concerning the property
to be insured i.e. it is an application to the insurance company.
13. Cover note
It is a document given by the insurance company to the prospective insured or payment
and the first premium as the policy is being prepared. It indicates the amount of money
paid to the insurer by the prospective insured and a grace period of 30 days is given within
which the policy is prepared.

14. Actuary
This is a person who calculates the premium to be paid by a person or organization
intending to take up insurance basing on the first statistics.

15. Assessor
This is a specialist in insurance who determines the amount of goods. His work is to
quantify the magnitudes of a loss and to help with advises during the time of compensation.

16. Over insurance

This is when the insured overvalues his property at the time of taking up the insurance
policy. However should the insurance company discover such a lie, the policy may be
canceled and the already paid premium may not be refunded.

17. Under insurance

This is when the insured under values his property at the time of taking up the insurance
policy. The insured is paid only the sum insured which is less than the actual value of the
property.
18. Pooling of risks
This is where people or organizations exposed to the risk pay small amounts to insurance
from where a few suffering from losses arising from such risks are compensated.

19. Insurance broker

This is a middleman who connects people or organization in need of insurance cover to the
insurance companies. They do not handle the policy themselves but simply connect
prospective insured to the insurers.

20. Insurance underwriters

These are individuals who work on their own account to offer insurance cases to the
prospective customers in need of them.

21. An insurance market

It is a medium through which an insured and insurer are brought into contact.

PRINCIPLES OF INSURANCE
These are the regulations that govern insurance business. They are basically 5 and they
include:-

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1. Indemnity
This principle states that compensation has to be made to those who suffer losses but one
should not make profits from his policy. The aim of the insurance company is to
compensate the insured from what is lost but not to put him in financial position, therefore
the insured is not allowed to make a gain out of the compensation.

2. Utmost good faith

This is a principle of insurance which requires the person or organization intending to take
up insurance to disclose all the relevant material facts concerning the items to be insured.

Should any information be hidden regarding the item, the policy may be canceled and the
already paid premium may not be refunded.

3. Subrogation
This principle states that after compensation, the remains of the destroyed property should
not be left to the insured but must go to the insurance company. This is because the insured
may sell off the remains hence making profits from his policy which is against the principle
of indemnity.

4. Proximate cause
This principle states that before compensation is made, the cause of the loss must be close
to the actual risk insured against. According to this principle therefore it one’s car s insured
against accidents and then it is destroyed since there is no relationship between fire and
accidents.

5. Insurance interests
This principle states that one must insure an insure an item in which he has interest such
that when a loss occurs to property, he or she is bound to suffer e.g. one cannot insure his
friend’s car or neighbour’s house according to their principle.

STEPS TAKEN (PROCEDURE) IN OPENING AN INSURANCE

i. Selecting an insurance company to insure with. It must be financially stable.
ii. The person willing to take an insurance against a particular risk must fill in a
proposal form. A proposal form is a questionnaire consisting of questions which are
answered by the intending insured and who should take great care when filling the
form. All the material facts about the property to be insured must be disclosed and
the insurance company or its agent calculates the premium.
iii. The insured pays the first premium and is issued with a document called a cover
note, (Acts as an evidence of payment of a premium). After 30 days, the insurance
company gives the insured a policy. This is the main document of insurance which
contains the conditions of insurance.
iv. It is an agreement between the insured and insurer and in the agreements the
insured agrees to pay a premium to the insurer and the insurer in turn promises
compensation to the insured in an event of loss.

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 v. If the loss occurs, the insured must notify the insurer immediately and fill a
document called claim form. He must give full details of the loss and no lies should
be told.
vi. Valuing of the loss takes place where the assessor values the extent of the loss and
the amount to be paid as compensation. Compensation is done when the insurer is
satisfied with the assessor’s work and he claim made.

TYPES OF INSURANCE
There are two major categories of insurance i.e. life insurance and general insurance or
insurance of property.

1. LIFE INSURANCE
It is referred to as life insurance. This covers insurance of human life. A person can enter a
contract with an insurance company to guard or give protection to life he has got as
insurable interest e.g. his own life, a debtor’s life, a business partner’s life etc. policies
which are available under life insurance include:-
(i) Whole life policies
This is a life assurance policy aimed at assisting the family of the insured when he dies.
Premiums under this policy are paid throughout the life of the insured or specified period.
Therefore the policy is meant to provide financial assistance to beneficiaries after the death
of the insured.

(ii) Endowment policy

This is a life insurance policy aimed at benefiting the insured after he has retired from the
job or during his old age.

Premiums under this policy are paid for a specified period of time. Claims are made at the
expiry of such a period or at death which proves to be earlier. These life policies are
normally taken by individuals.

(iii) Group life insurance policy

This is a life assurance policy under which families or businesses take up insurance to
provide them persons during old age.

(iv) Sickness policy

This is a life assurance policy taken up to cover the insured against a specified disease or all
forms of curable diseases. Under this policy, the insurer pays the medical bills of the
insured and other expenses involved depending on contract.

2. GENERAL INSURANCE (INSURANCE OR PROPERTY)

There are three branches of general insurance namely:-
(i) Fire insurance
(ii) Accident insurance
(iii) Marine insurance

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(i) FIRE INSURANCE
This covers property against damage and destruction by fire or loss through household
breaking. It is sometimes referred to as fire and theft insurance. Fire insurance has policies
like:-
a) Fire policy
This is a policy aimed at protecting property against fire outbreaks.

b) Household risk policy

This is a policy that covers household property against damages or loss especially house
hold furniture and kitchen utensils.
c) Burglary (theft policy)
This is a policy that covers against forced out breaking of burglars. This policy is normally
taken up by businessmen, banks and landlords.

d) Fidelity guarantee
This policy covers against losses arising from the dishonest of particular employees or the
entire working staff. This policy is necessary especially for cashiers, accountants and
banking officers who handle large sums of business money.

e) Cash in transit policy

This policy safeguards money losses while going to or leaving the business firm.

f) Cash in safe overnight

This policy covers against loss of money which has been kept in office overnight. It is
necessary for businesses which receive large sums of money after banks have closed e.g.
night clubs, bars etc.

g) Bad debts policy

This policy protects the insured against losses arising from debtors failing to pay the firm.

(ii) ACCIDENT INSURANCE

This protects the property against damage or loss arising from accidents. This insurance
has got a number of policies which include:-

a) Motor vehicle insurance policy

This policy insures vehicles or motor cycles against damage or loss resulting from crashing
or over turning.

b) Comprehensive policy
This covers the vehicle, its occupant and any other person who might be affected by the
accident.

c) Third party policy

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This policy covers against damages or losses caused by the vehicle to the people either
travelling in that vehicle or knocked down by the vehicle e.g. pedestrians.

Note:
There are three parties involved in motor vehicle insurance:-
- The 1st party is the owner of the vehicle
- The 2nd party is the insurer.
- The 3rd party are the passengers travelling in the vehicle.

The third party policy therefore covers passengers travelling in the vehicle and the people
injured or property destroyed as a result of accident.

By law, all vehicles in Uganda are required to take up the third party policy.

d) Aviation insurance policy

This policy safeguards against large damages or life losses resulting from air craft clashes.
It is usually taken up by airline companies.

e) Personal accident policy

This is a policy taken up by individuals to cover against any accident which may affect them
especially due to vehicles.

f) Employer’s liability policy

This policy is taken up by employers to cover their employees or customers against any
injury that may occur to them while at work during working hours.

g) Public liability policy

This policy covers against any injury which may occur to a person who is passing near the
property of the injured. This policy is normally taken up by building construction
companies.

ROLE OF INSURANCE IN DEVELOPMENT OF A COUNTRY

i. Businessmen can use insurance policies as security for loans.
ii. Insurance companies act as trustees for the businessmen.
iii. Promote trade.
iv. Compensation in case of sickness or loss of life leads to reduction f costs.
v. A larger party of the funds collected are used to set up real estates and re-
investments in development projects e.g. factories, buildings etc.
vi. It enhances the habit of saving among people especially in life insurance.
vii. Insurance contributes to a country’s invisible exports hence earning foreign
exchange.
viii. Employment opportunities.
ix. Provide revenue to the government through payment of taxes.
x. Compensation in cases of sickness or loss of life leads to reduction of social costs to
the government.

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Disadvantages of insurance
i. It does not cover all risks.
ii. The doctrine of insurable interest limits the scope of items to be insured.
iii. The compensation is not obtained immediately.
iv. The legal principles of insurance are confusing e.g. proximate cause.

Problems facing insurance industry

i. Many people are not well sensitized about insurance business.
ii. Loss of confidence in insurance because of reluctance to compensate in case of loss.
iii. High rates of inflation
iv. Limited market for insurance policies due to widespread poverty.
v. Insufficient capital by the insurance company.
vi. Getting an insurance policy has many complications with confusing policies.
vii. Benefits as the insurance are invisible.

Similarities between gambling and insurance

i. Both have participants contributing money to a common pool.
ii. Both are based on the element of probability or chance.
iii. In both, membership or entry is voluntary and out of free consent.
iv. In both, at least two parties are involved.

Differences between gambling and insurance

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 BUSINESS CALCULATIONS
A business is an activity carried out with the aim of making profits while standing a risk of
making losses.

Every business person must keep records of the day to day transactions. These records are
kept for the following reasons:-

i. To enable the owner of the business to know whether he is making profits or losses.
ii. To enable the owner of the business to establish the amount of stock existing in the
business.
iii. To enable the owner know the debtors and creditors of the business.
iv. The records enable the government to determine the amount of tax to be paid by the
business.
v. To enable potential investors to access the performance of the business so as to
decide whether they should do the same business or not.
vi. It helps business persons to determine the amount at which to sell off their
businesses.

COMMON TERMS USED IN BUSINESS CALCULATIONS

1. Opening Stock
This refers to items or goods which a business starts with at the beginning of its operations.
For a starting business, open stock consists of the goods bought from producers and
wholesalers.

However for a business that has operated for at least one year, its opening stock is a
combination of what has been bought at the beginning of the new year and remain unsold
at eh end of the previous trading period.

2. Closing stock
It refers to goods that remain unsold at the end of the trading period.

3. Stock taking
It is the act of making a list of goods possessed by the business. During the period of stock
taking, trading activities are stocked and each item is physically counted and recorded on
the stock sheet.

4. Stock valuation
This is the act of calculating the values of all goods held in the business. After stock taking, a
stock sheet is handled over to the accounts department for stock valuation.

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Stock can be valued at cost price i.e. the price at which goods were bought or at selling
price i.e. the price at which the business intends to sell the goods.

5. Purchases
This refers to goods or items bought for sale in the business during the year. The business
will continue to buy more goofs for sale throughout the trading period/year. At the end of
the trading period, these goods are valued at their cost price to get purchases for the year.
6. Carriage Inwards
This refers to transport charges for the goods purchased. Carriage inwards are part of the
cost of buying goods and therefore it is added on the value of purchases.

7. Carriage Outwards
This refers to the transport charges for the goods sold. These are charges for goods leaving
the business to its customer. It is treated as a business expense.

8. Net purchases
Sometimes some of the goods that are bought by the business for sale may be returned to
the suppliers. This may be on the grounds that some of these goods are damaged, poor
quality, expired etc. The value of these goods that are returned to the suppliers is
subtracted from the value of purchases of the year to get net purchases.
Net purchases = purchases - returns outwards (purchases returned)

9. Returns inwards (Sales returns)

This refers to goods sold to customers but they are returned to the business. This may be
due to damages, expiry etc. Returns inwards are also referred to as sales returns.
Net sales = sales - sales returns (returns inwards)

10. Returns outwards

These are goods purchases by the business for sale but later returned to the supplier
before selling them.

11. Average stock

This refers to the average of opening stock and closing stock
Average stock =

12. Turn over (sales)

This refers to the total sales of the business. It means the total value of goods sold from the
beginning up to the end of the trading period.
Turn over = cost of sales + gross profit

13. Cost of sales/Cost of goods sold

This refers to the value at which the goods were purchased.

14. Expenses

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This refers to the cost in money terms incurred to run the business on day to day basis.
These include wages, salaries, rent, rates, transport expenses, electricity, telephone,
stationery etc.

15. Gross Profit

This is the difference between money got from the sales (turnover) and the total cost of
sales. It is the difference between the sales revenue and the cost of the goods sold.
Gross profit = sales (turn over) – cost of sales.
NOTE: Expenses are not deducted when calculating gross profit

16. Net profit

This is the final profit after all expenses of charges have been deducted from the gross
profit and after all other incomes have been added.

Net profit = gross profit - expenses

Net profit as percentage = x 100

17. Rate of Turn over

This refers to the number of times the stock has to be sold and replaced in order to make
up total sales during the trading period. (It measures the speed at which the stock is
cleared in a given year).

Rate of Turnover =

18. Mark up (Gross profit mark-up)

It is the gross profit expressed as a percentage of cost of sales (cost price).

Mark-up = x 100

19. Margin (Gross profit margin

It is the gross profit expressed as a percentage of the sales.

Margin = x 100

SUMMARY OF THE FORMULAE

Average stock =

Purchases = Net purchases + purchases returns

Cost of sales = opening stock + net purchases - closing stock
Gross profit = sales - cost of sales
Net profit = gross profit - expenses
Sales = cost of sales + gross profit
Net sales = sales – sales of return (return inwards)
Rate of turnover =

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Mark up (Gross profit) = x 100

Margin (gross profit margin) = x 100

Given the following information from John’s books of accounts

Stock(1 -1 – 2000) 200,000/=
Purchases 700,000/=
Sales 950,000/=
Purchases return 50,000/=
Sales return 40,000/=
Expenses 50,000/=
Stock (31-12-2000) 200,000/=

Calculate
a) Average stock
b) Net purchases
c) Cost of sales
d) Net sales
e) Gross profit
f) Net profit
g) Rate of turnover
h) Markup

a) Average stock =

= 200,000/=

b) Net purchases = Purchases - Purchases returns

= 700,000 - 50,000
= 650,000

c) Cost of sales = Opening stock + Net purchases - closing stock

= 200,000 + 650,000 – 200,000
= shs. 650,000

d) Net sales = Sales - sales of return (return inwards)

= 950,000 - 40,000
= shs. 910,000

e) Gross profit = sales (net sales) - cost of sales

= 910,000 – 650,000

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 = shs. 260,000

f) Net profit = Gross profit - expenses

= 260,000 - 60,000
= shs. 200,000
g) Rate of turn over =

= 3.25 times

h) Mark – up = x 100

= x 100

= 40%

Given
Opening stock = shs. 12,000
Closing stock = shs. 15,000
Net purchase = shs. 82,000
Net sales = shs. 82,000

Calculate
a) Average stock
b) Cost of sales
c) Gross profit
d) Rate of turnover

a) Average stock =

= 13,500/=

b) Cost of sales = opening stock + net purchases - closing stock

= 12,000 + 82,000 - 15,000
= 79,000/=

c) Gross profit = Net sales – cost of sales

= 82,000 - 79,000
= 3,000/=

d) Rate of turn over =

= = 5.85 times

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BALANCE SHEET
This is a statement that shows the financial stand of a business at a given date/time.

It shows assets, liabilities and capital at a given date.

Balance sheet equation:

Assets = liabilities + capital

COMMON TERMS USED

1. Assets
These are items/goods owned by the business. They are divided into two:-

(i) Fixed Assets

These are items that stay in the business for long. They are assets bought for use and not
for sale. They include land, buildings, machinery, vehicles, furniture etc.
Fixed Assets = Total assets - currents assets

(ii) Current Assets

These are items/goods that stay in the business for a short time. They are always in
continuous circulation. They include: the stock of goods, debtors , cash at hand, cash at
bank etc
Current Assets = Total assets - fixed assets

2. Liabilities
This refers to money borrowed from outside used in the business and has to be paid back.
Liabilities are also categorized into long term liabilities and current liabilities.

(i) Current liabilities

These refer to liabilities of debts that are payable in a short periods of time usually less
than a year. E.g. creditors, bank overdrafts, wages, short term loans like of 3 months.

(ii) Long term liabilities

These are liabilities or debts payable after a long period of time e.g. loans of 1year, 3 years
etc.

3. Capital
This refers to the total resources contributed by the owners/owner at the start of the
business. It is the claims by the owners against the business.

Therefore
Capital = Assets - liabilities

Capital is classified into:- borrowed capital, capital owned, capital employed, working
capital, circulating capital and fixed capital.

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(i) Working Capital
It is the capital needed for the daily running of the business e.g. for purchase of stock,
paying wages and any other transactions.
Working capital = current assets - current liabilities
(It is the excess of current assets over current liabilities)

(ii) Capital employed

This is the total of all assets used in the business both fixed and current assets.
Capital employed = fixed assets + current assets

(iii) Capital owned

The amount of money the business owes to its owners. It is the net worth of the business.
Capital owned = total assets - total liabilities
Note:
Total assets = fixed assets + current assets
Total liabilities = long –term liabilities + current liabilities

(iv) Borrowed capital

This is the money borrowed by the owner of a business from other people to be used in the
business e.g. bank loans, overdrafts etc.

(v) Circulating/liquid/floating capital

This refers to capital tied up in current assets.
Circulating capital = total assets - fixed assets
Therefore circulating capital = current assets

(vi) Fixed capital

This is capital tied up in fixed assets. It is the same as fixed assets.

4. Solvency
This is a situation where the business has more assets than the liabilities.

5. Insolvency
This is a situation where a business has more liabilities than its assets. It means that even if
the business sells off all its assets, it cannot pay off all its debts.

6. Bankruptcy
This is when a business is not in position to pay off its debts.

7. Drawings:
It refers to the goods of cash withdrawn by the business from the owner for its uses. This
shows what the owner of the business owes the business.

SUMMARY OF THE FORMULAE USED IN BALANCE SHEET

1. Working capital = current assets - current liabilities

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 Current assets = working capital + current liabilities
Current liabilities = current assets - working capital

2. Capital employed = fixed assets + current assets

Fixed assets = capital employed - current assets
Current assets = capital employed - fixed assets

3. Capital owned = total assets - total liabilities

Total assets = capital owned + total liabilities
Total liabilities = total assets - capital owned

4. Borrowed capital = liabilities

5. Circulating capital = current assets

6. Fixed capital = fixed assets

Example
Mukasa had the following assets and liabilities as on 31-12-2009
Land 6,000/=
Buildings 4,000/=
Machinery 20,000/=
Capital 53,000/=
Stock 30,000/=
Creditors 5,000/=
Loan of 2 years 10,000/=
Cash at bank 4,000/=
Debtors 2,500/=
Cash at hand 2,000/=

a) Prepare Mukasa’s balance sheet

MUKASA’S BALANCE SHEET AS AT 31-12-2009

Capital 53,500 Assets
Long term liabilities Fixed assets
Loan for 2 years 10,000 Land 6,000
Current liabilities Building 4,000
Creditors 5,000 Machinery 20,000
Current assets
Stock 20,000
Cash at bank 4,000
Debtors 2,500
Cash at hand 2,000
68,500/= 68,500

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Using the balance sheet to calculate
(i) Capital owned = total assets – total liabilities
(ii) Capital employed = fixed assets + current assets
(iii) Borrowed capital = long term liabilities
(iv) Working capital = current assets – current liabilities
(v) Circulating capital = current liabilities
(vi) Fixed capital = fixed assets

Capital owned = total assets - total liabilities

68500 - 15,000
= 53,500/=

Capital employed = fixed assets + current assets

STOCK EXCHANGE MARKET

This is an organized capital market where buyers and sellers of securities (shares, bonds,
stocks etc) represented by licensed brokers/dealers meet to acquire or dispose of
securities.

It is a market where already issued shares and stocks are bought and sold.

Securities
A security is term given to any document which gives its holders a right to money or other
property not actually in his possession e.g. share certificates, bills of exchange, loan stocks,
bonds and debentures.

Uganda Securities Exchange (U.S.E)

This is a secondary market where already issued securities are bought and sold through
licensed stock brokers.

The licensed brokers/members of Uganda securities exchange are:

i. Baroda Capital Market (U) Ltd
ii. Crane Financial Services Ltd
iii. Equity Stock brokers (U) Ltd
iv. G.A. Onegi Obel and Co. Ltd
v. MBEA brokerage Service (U Ltd
vi. Dyer and Blair (U) Ltd
vii. Africa Alliance Uganda Limited

TYPES OF SECURITIES TRADED ON THE STOCK EXCHANGE MARKET

1. Blue chips

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These are shares in companies which have a high and sound reputation from the historical
perspective. Holders of blue chips are normally assured of their repayment of dividends.

2. Gift edged securities

These are securities sold by the government to raise money. They are very safe in that they
carry a fixed rate of interest payable on due dates and re redeemable.

3. Bonds
These are long term fixed interest securities issued by the central government, national
corporations and parastatals to raise money in case of financial difficulties.

4. Treasury bills
These are short term high liquid financial instruments issued regularly by the government
to raise money for short term obligations.

5. Bearer securities
These are securities that can be transferred by endorsement rather than using registers
and transfer forms e.g. cheques, bills of exchange, promissory note.

6. Portfolio securities
This is a collection of various securities held by an individual investor or institution in a
number of firms or companies with the aim of diversifying sources of profits and reducing
the risks of losses.

AGENTS OF STOCK EXCHANGE (STOCK EXCHANGE MEMBERSHIP)

The business is carried out by specialized agents who are legally registered by the stock
exchange council called brokers and jobbers.

Stock brokers
A stock broker is a licensed professional authorized to buy and sell shares on behalf of
others. (his clients). A person wishing to buy shares approaches the broker who then looks
for a person willing to sell the type of shares his client is interested in buying.

Stock jobbers
These are principals who buy and sell shares on their own behalf. They buy shares and
stocks in large quantities for the purpose of trading in these shares and stocks. Usually the
jobber makes a profit known as the jobbers turn.

Types of Jobbers

a) A bear
This is a stock exchange jargon used to denote a jobber who sells stocks and shares on the
market when the prices are high with anticipation that the prices will soon drop (fall) for
him to buy them back at a lower price thus making a profit.

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b) A bull
This is stock exchange jargon used to denote a jobber who buys shares on the market with
anticipation that the price will raise sufficiently for him to be able to sell them at a profit in
the future.

c) A stag
This is a stock exchange jobber who specifically deals in new shares. A stag is contacted by
companies to sell and issue new shares.

TERMS USED IN STOCK EXCHANGE

1. Par Value of Shares

This is the face value or nominal value of a share. When all the par value of shares are
added, we get the share capital of a company.

2. Market Value Shares

This is the price at which a share is selling on the stock exchange. If a company has good
reputation, its shares are likely to be sold at a higher value than the face value. The market
value of a share may either be below or above the nominal value.

3. Dividends
A dividend is the amount paid out of profits by a company to the shareholders.

4. Bonus shares/scrip issue

These are shares issued usually free of charge by a company to its existing shareholders out
of accumulated reserves so as to increase the capital and allow them to earn higher
dividends in the future.

It is actually the distribution of profits in form of shares and this act is called capitalization
of reserves.

5. Right issue
This is when an already established company gives existing shareholders priority to buy
shares out of the new issue.

This method encourages existing share holders to invest more because they are given
preferential treatment and usually buy the new issues at a lower price than the other
applicants.

6. Public offering
This is when a company issues a prospectus advertising for the sale of shares to the general
public. Public limited companies use this method to raise capital.

7. Quoted/listed companies
A quoted or listed company is one whose shares are bought and sold on a stock exchange.

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Only public limited companies can be quoted at the stock exchange because their shares
are freely transferrable.

8. Unquoted companies
An unquoted company is one whose shares are not traded on stock exchange.

All private companies are unquoted companies.

9. Tar go public
This is an act of converting a private company into a public company thereby enabling it to
obtain a stock exchange quotation and sell shares to the general public.

10. Issuing House

This is a bank that specialized in launching new issues of shares.

11. Underwriter
This is an institution or a person who buys any shares of a company that may not be taken
up by the public during the launching of new issue of shares by a company.

SELLING PRICE OF SHARES

Shares may be bought and sold at the following prices.
1. Cum - div
This stands for “with dividend”. It means that the shares have been sold along with rights of
the new shareholder to receive dividend that has been already declared.

2. Ex – div
This stands for “Without dividend”. It means that the seller retains the right to receive
already declared dividend when it is paid by the company.

3. Cum rights
This means that the shares have been sold with the rights to the new shareholder to buy
shares out of the new rights issue.

4. Ex – rights
This means that the seller of the shares retains the right to buy shares out of the new rights
issue.

5. Cum – cap
This stands for cum capital. It means that the shares have been sold along with the right to
the new shareholder to receive the bonus shares. i.e. the buyer gets free bonus shares in
addition to the ones he is now buying.

6. Ex – cap
This stands for ex- capital. It means that the seller of shares retains the right to the free
bonus shares. The buyer only gets the shares he is now buying.

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STEPS IN PURCHASE OF SHARES
An investor who wishes in stocks and shares can buy them through a broker.

The following steps are followed:-

i. The investor approaches the buying broker.
ii. The buying broker makes inquiries for the type of shares that the investor wishes to
buy.
iii. The buying broker informs the investor of the deal being processed. If the buying
broker concurs with the investor he proceeds and seals the deal.
iv. The buying broker prepares a contract note and sends it to his client (investor).
The contract note contains price of shares, commission rate of the broker,
registration fees, stamp duty and transfer duty.
v. The selling broker on the other hand prepares a stock transfer from which is signed
by the seller for whom he is acting.
vi. The selling broker passes the stock transfer form and share certificate to the buying
broker.
vii. The investor/buyer pays the buying broker.
viii. The buying broker pays the selling broker.
ix. The selling broker deducts his commission and tax on capital gain on the sale of
shares and pays the balance to the seller.

PROBLEMS FACING THE STOCK EXCHANGE/SECURITIES EXCHANGE IN UGANDA

i. Limited liquidity in the country due to poverty which limits savings and investment
in securities.
ii. Lack of country wide education on capital markets. Majority of people have not been
sensitized about the importance of stock exchange and the need to invest in
securities.
iii. Limited awareness of who the brokers are hence difficulty to place orders through
the stock brokers.
iv. Lack of confidence among the public to incest their savings with some companies in
form of shares due to fear of incompetent and corrupt managers.
v. Slow growth in the securities exchange market. There are few public companies in
the country and very few have been listed so far.
vi. Political instability in the country and poor economic performance of the country
scares away investors.
vii. Low interest rates offered on securities. They discourage people to buy securities.
They instead prefer to invest in real assets like land, buildings, cattle etc.

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 STUDY QUESTIONS (MULTIPLES)

1. A consumer will demand a commodity which

A. Satisfies his/her needs C. Is sold in bulk
B. Is often scarce D. Has been extensively advertised

2. The provision of services falls under the production called

A. Commerce B. Primary C. Tertiary D. Secondary

3. A carpenter who makes furniture for his or her own use is engaged in
A. Indirect production C. Direct production
B. Indirect services D. Direct services

4. Which one of the following activities is an example of primary production?

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 A. Road construction C. Teaching
B. Manufacturing D. Fishing

5. The bearing of risks in production process fall on

A. Capital owners C. Land owners
B. Labourers D. Entrepreneurs

6. Which of the following is classified under secondary industries?

A. Mining and farming C. Mining and textile milling
B. Textile milling and road construction D. Farming and road construction

7. Which one of the following is not considered a productive activity?

A. Looking after cattle C. Preparing food for the school
B. Hunting for leisure D. Playing football for a soccer club

8. ………..is the final stage in the process of production.

A. Exchange B. Distribution C. Consumption D. Trade

9. Two kinds of goods usually produced are

A. Investment goods and capital goods C. Assets and capital
B. Labour and capital D. Consumer goods and capital goods

10. What does the word “market” mean in commerce?

A. A place where items are bought and sold
B. Buying and selling of goods and services
C. A place where consumers haggle over prices
D. An arrangement by which buyers and sellers are kept in close contact.

11. Land and capital are factors of production, which of the following would provide a
3rd factor?
A. Staff B. Premises C. Vehicles D. Machinery

12. Retailers who sell only coca cola products are examples of
A. Single shops B. Multiple shops C. Tied shops D. Mobile shops
13. A retail business that depends on extensive advertising is the
A. Mail order shops C. Departmental stores
B. Multiple shops D. Self service stores

14. A commission agent is one who

A. Links buyers and sellers for a fee
B. Sells goods on behalf of the manufacturer
C. Sells goods by auction
D. Guarantees payment for the principal

15. The practice by large scale retailers to keep prices as low as possible is called
A. Resale price maintenance C. Loss

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 B. Minimum price legislation D. Maximum price legislation

16. The process of distinguishing related products by producers is called

A. Branding B. Blending C. Pre-packaging D, Standardisation

17. A wholesaler offers the following services to a manufacturer except

A. Giving credit facilities C. Prompt cash payment
B. Buying goods in bulk D. Advertising the goods

18. An agent who sells goods on behalf of his/her client is known as

A. Broker B. Commission agent C. Factor D. Del –
credere

19. Which of the following is an advantage of the retailer to the consumer?

A. Offering wide variety of goods to consumers
B. Selling goods at low prices to consumers
C. Keep prices stable for the consumers.
D. Buying for the consumers only cheap goods from wholesalers

20. Which one of the following functions of a wholesaler benefits consumers?

A. Helping in keeping prices of goods stable
B. Extending credit facilities to consumers
C. Buying goods in large quantities and selling in small quantities to consumers
D. Transporting goods to the consumer’s premises

21. What is a retail established stocking one class of goods under one management?
A. Department store C, Multiple shops
B. Hyper market D. Super markets

22. Supermarkets are different from other large scale retail businesses because of
A. Selling one type of goods C. Extending credit facilities to customers
B. Self service D. Selling to only registered members

23. The difference between a broker and a factor is that a

A. Broker owns the goods unlike a factor
B. Factor possesses goods unlike a broker
C. Factor gets higher commission unlike a broker
24. The act of giving names to commodities is known as
A. Pre-packing B. Branding C. Trade mark D. Blending

25. Departmental and multiple shops are grouped under

A. Wholesaler C. Chain stores
B. Supermarkets D. Large scale industries

26. Loss leaders are used by large scale retailers to

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 A. Keep the price as low as possible C. Dismiss unfaithful shop
attendants
B. Stock more goods in the shelves D. Increase sales

27. Which of the following form of small scale retail business?

A. Departmental stores C. Supermarkets
B. Multiple shops D. Mobile shops

28. …………guarantees payment against goods to the principle whether the goods are
sold or not.
A. Factor B. Broker C. Jobber D. Del – credere

29. “Sales psychology is scientifically applied.” This is one of the chief feature of
A. Multiple shops C. Supermarkets
B. Retail co-operatives D. Departmental stores

30. Itinerant traders would include

A. Tied shops B. Village stores C. Barrow boys D. Supermarkets

31. The document that acknowledges settlement of a debt is

A. An order B. An invoice C. A receipt D. A statement of account

32. A document which shows a summary of transaction between a seller and a buyer for
a particular period is called
A. An invoice B. A statement of account
C. A consignment D. A credit note

33. The term of payment where the carrier demands for payment before releasing
goods to the buyer is
A. Spot cash B. Prompt cash C. Cash on delivery D. Cash with order

34. Which of the following abbreviations included in an invoice signifies the seller
reserves a right to correct on invoice?
A. F.O.B B. C & F C. C.I.F D. E & OE
35. What is a kind of trade where a buyer can claim compensation from the seller if the
goods are found defective?
A. A condition B. Caveat emptor C. Subrogation D. Warranty

36. Which of the following documents does a buyer receive if he has been overcharged
in an invoice?
A. Advice note B. Debit note C. Credit note D. Proforma invoice
37. In the following sets, which one is the correct order of use of the document?
A. Price current, Advice note, Invoice and Debit note
B. Order, Price current, Invoice, Advice note and Debit note
C. Price current, Invoice, Order, Advice note and Debit note
D. Price current, Order, Advice note, Debit note and Invoice

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38. Which of the following three combinations is a correct alternative for each
transaction?
A. Cash with order, C.T.L, Spot cash
B. Cash and delivery, F.O.B, cheque
C. Price list, Cash on delivery, Catalogue
D. Cash with order, cash on delivery, Spot cash

39. When estimates for the cost of supplying a certain product are required, a buyer
may invite supplier to submit
A. Contracts B. Tenders C. Invoice D. Proforma invoice

40. Status inquiries will always be conducted on a new prospective customer. A

procedure carried on by………….
A. the buyer B. the seller C. the bank D. an agent

41. F.O.B quoted prices exclude

A. cost of carriage to the docks C. Insurance charges
B. Loading expenses onto the ship D. Handling charges at the docks

42. Which one of the following documents enables the correct calculation of customs
duties on the goods?
A. Bills of lading C. Letter of credit
B. Letter of hypothecation D. Certificate of origin

43. Entrepot trade refers to

A. Re-export trade C. Barter trade
B. Trade between two countries D. Multi-lateral trade

44. A price quotation which excludes the buyer from the import expenses is referred to
as
A. Ex-works B. In-bond C. Franco D. Loco

45. Government can best control imports through

A. Levying low excise duties C. Charging high taxes on foreign goods
B. Fixing import and export quotas D. Giving subsidies to local producers

46. If import prices rise faster than export prices, a country is said to be experiencing
unfavourable
A. Terms of trade C. Terms of payment
B. Balance of trade D. Balance of payment

47. A document where the importer specifies the manufacturer of the goods to be
imported is called

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 A. An order B. A closed indent C. An invoice D. A certificate of origin

48 Dumping as applied in trade means

A. Disposal of goods that have gone stale
B. Disposal of goods in water to save a ship from sinking
C. Producing of too many goods that cannot be bought
D. Selling of goods abroad at a give away price.

49. Which of the following sets are functions of a bill of lading?

i) It acts as a receipt
ii) It is a contract of carriage (for the goods)
iii) It is a document of title to the goods
iv) It puts the liability of damages in transit on to the shipper

A. (i), (ii), (iii) B. (i), (iii), (iv) C. (i), (ii), (iv)D. (ii), (iii), (iv)

50. Which one of the following methods of trade restriction is being used by OPEC?
A. Tariffs B. Total ban C. Price control D. Quotas

51. A bill of lading is

A. An indent
B. A document of title which evidences the ownership of goods
C. A certificate of inspection
D. A bill of goods in international trade

52. ………is the document that is signed by Uganda High Commissioner in London for an
importer in Uganda.
A. Letter of hypothecation C. Letter of credit
B. Proforma invoice D. Consular invoice

53. The law of comparative advantage encourages countries to

A. Dump in each other’s country
B. Set up limited trade barriers
C. Increase friendship amongst themselves
D. Specialise in production of the goods suitable to their resources

54. Why do you think Government policy may put restriction on international trade?
A. To evaluate its currency
B. To encourage expatriates into a country
C. To encourage expatriates into a country
D. To improve on its balance of payment position

55. Which of the following expenses will the importers not incur if his supplier quotes
F.A.S price?
A. Ship freight C. Insurance
B. Dock handling charges D. Ship loading expenses

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56. In a consumer’s co-operation society, profits are shared according to each
member’s……
A. Role in the society C. Initial contribution to the society
B. Purchase from the society D. Number of shares held

57. Which one of the following is true about marketing boards? They
A. Only sell to local markets
B. Buy from farmers through co-operative societies
C. Only sell to foreign markets
D. Buy goods direct from small scale farmers

58. A debenture where some property is pledged against is called

A. Irredeemable debenture C. Redeemable debenture
B. Naked debenture D. Mortgage debenture

59. Which one of the following statements is correct about co-operatives?

A. Members share profits equally
B. Decision making is according to the number of shares held
C. Profits are shared according to participation
D. The number of membership is limited to fifty.

60. The most common form of business in East Africa is

A. Sole proprietorship C. Joint Stock companies
B. Partnership D. Co-operatives

61. A partner who contributes capital, shares profits and losses but does not take part in
the day to day running of the business is
A. Limited B. Quasi C. General D. Dormant

62. The following are advantages of a sole proprietorship business except

A. Enjoyment of limited liability C. Enjoyment of all the profits
B. High level of flexibility D. Quick decision making

63. The payment of dividends in a producer cooperative society depends on each

member’s
A. Capital contribution C. Number of shares
B. Amount of sales D. Honesty and loyalty
64. Which one of the following documents allows a public company to appeal for shares
from the public?
A. Certificate of Incorporation C. Memorandum of Association
B. Articles of association D. Certificate of Origin

65. A document that empowers the public limited company to commence business is
called
A. Certificate of incorporation C. Certificate of trading
B. Memorandum of association D. Articles of association

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66. An accumulative preference shareholder had missed dividends over the last three
years due to lack of profits. If he holds fifty shares of shs 10,000 each at a rate of 6%,
how much dividends will he get this year?
A. shs. 18,000 B. shs. 25,000 C. shs. 30,000 D. shs.
90,000
67. The articles of association
A. states the liability of members of a company
B. states the share capital of a company
C. outlines the objectives for forming a company
D. states the rights and powers of shareholders in a company.

68. The main reason why partners register their names with the registrar of business
names is to
A. stop future quarrels among themselves
B. make names of real business owners known
C. get permission to proceed with the business
D. hide the names of the real business owners.

69. Which of the following may not cause winding up of a limited company?
A. Petition form the creditors
B. Company assets fail to cover debts
C. Voluntary winding up by shareholders
D. One of the shareholders decides to sell his shares

70. The total face value of shares that have been provided by the company are referred
to as
A. Paid up share capital C. Called up share capital
B. Issued share capital D. Nominal share capital

71. Which of the following services is not a function of a marketing board?

A. Buying produce C. Storing produce
B. Stabilising prices D. Processing produce into finished goods

72. Nominal capital is

A. the amount that the shareholders have been asked to pay
B. the amount that has actually been received from shareholders
C. the maximum amount a company may raise by selling shares
D. the total face value of the shares that have been issued
73. …. Handles only one type of agricultural produce.
A. Central tender board C. Advisory Board of trade
B. Produce Marketing Board D. Commodity Marketing Board

74. A Statutory Marketing Board is normally

A. Set by the producers to market their crops
B. Set up to control the activities of other marketing boards

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 C. Set up and controlled by the government under an Act of Parliament
D. Established and controlled by the registrar of the co-operative societies

75. ……is the most important document prepared by the owners when forming a limited
liability company.
A. Certificate of Incorporation C. Articles of Association
B. Memorandum of Association D. Certificate of trading

76. When a company is “limited by shares”, It means

A. the shares that a company may sell are limited in number
B. the company itself enjoys limited liability but the shareholders do not.
C. Each shareholder has guaranteed to pay a certain sum to the company in
insolvent.
D. the liability of shareholders is limited to the capital they bought in.

77. Which one of the following organizations is responsible for consumer protection?
A. Uganda Revenue Authority (URA) C. Uganda Investment Authority
C. Uganda Human Rights Association D. Uganda Bureau of Standards

78. The government may set up a business enterprise to

A. Earn more profits
B. Enlighten the public on how to conduct business
C. Provide essential services
D. Sell shares to members of the public.

79. A tax levied on goods produced within a country is called

A. Specific tax C. Excise duty
B. Advalorem tax D. Customs duty

80. Which one of the following is true of indirect taxes? They are charged on
A. Personal incomes C. Excess goods produced
B. Expenditure D. Illegal goods and services

81. The main purpose of setting up corporation is to

A. Maximise profits C. Provide essential goods and services
B. Sell shares to the public D. Advise the public on how to conduct business

82. A tax which is charged on imported goods according to the commodity price is
called
A. Advalorem tax C. Specific tax
B. Direct tax D. Quantitative tax
83. Why is consumer protection essential in advertising?
A. Checks the dangers of misleading advertisements
B. Creates demand for goods
C. Helps in reducing prices

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84. Value Added Tax (VAT) is
A, A tax levied on goods from other countries
B. A tax paid by consumers at the time of purchase of a commodity
C. A direct tax paid on the Value Added to the product
D. An indirect tax paid on the value added to the product

85. Which of the following is not an establishment within the public sector?
A. Parastatal bodies C. Public Corporation
B. Local Authorities D. Public Limited Company

86. Assurance refers to cover against

A. Events that may or may not happen C. Damage by fire
C. Events that are bound to happen D. Non – Insurable risk

87. Which one of the following insurance policies is compulsory for all vehicles?
A. Comprehensive C. Fidelity guarantee
B. Accident policy D. Third party

88. Joyce insured her new car for ss. 12,000,000. By the time on accident occurred, it
was valued at shs. 9,000,000 and the scrap was valued at shs. 120,000. If Joyce
hoped to retain the scrap, how much would she obtain from the insurance
company?
A. shs. 7,800,000 B. shs. 9,000,000 C. shs. 1,000,000 D. shs. 10,800,000

89. The insurance policy which covers goods in ships or in ports is called
A. Voyage policy C. Marine hull policy
B. Floating policy D. Marine cargo policy

90. The principle of insurance violated when the insured overvalues his/her property is
A. Utmost good faith C. Subrogation
B. Insurable interest D. Proximate

91. Money borrowed from a bank for which interest is only paid on the excess amount
is called
A. Fiduciary Issue C. Loan
B. Bank overdraft D. Bonus

92. Which of the following may a drawer use to pay rent to a landlord on monthly basis
for a year?
A. Credit transfer C. Bank draft
b. Money order D. Standing order

93. The advantage of credit card is that it

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 A. Can be used anywhere C. Guarantees payment over the set amount
B. Economises the use of cash D. Enables the holder to buy goods cheaply

94. Double coincidence of wants occurs when each of the parties involved in barter
trade has
A. Exactly what the other one has C. Twice as much as the other
B. Exactly what the other one wants D. Similar wants as the other

95. The interest charged by central bank on any short loan is called
A. Bank overdraft C. Bank draft
B. Interest rate D. Bank rate

96. Why is a cheque crossed? So that

A. It may not be endorsed
B. Payment is done through the payee’ account
C. It can be cashed across the counter
D. It can bounce easily

97. The account in a bank where withdrawal is only by cheque is

A. Fixed deposit account C. Savings account
B. Current account D. Joint account

98. Legal tender is a term used to mean

A. Currency C. A country’s bank notes
B. Money D. A country’s earnings from her exports

99. What do you call a banking policy used by a person who pays many people at a
time?
A. Payroll B. Bank loan C. An overdraft D. Credit transfer

100. A cheque is drawn in favour of Winnie. How is Winnie described?

A. A payee B. A drawee C. A drawer D. An endorsee

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 STRUCTURED QUESTIONS

1 (a) What is meant by stock exchange?

(b) Explain the importance of stock exchange to a country.
(c) Describe the role of the following in stock exchange:
(i) Brokers
(ii) Jobbers

2 Outline the procedures of purchase of shares in the stock exchange market

3. Describe the following as used in stock exchange

(i) Stags
(ii) Per Value shares
(iii) Blue chips

4 (a) Explain the functions of the stock exchange

(b) Describe the limitations of stock exchange

5 (a) What is a financial market?

(b) Identify the types of financial markets
(c) Describe the functions of a financial market.
(d) Outline the sources of finances of financial markets

6 (a) Distinguish between the following:

(i) Consumer goods and producer goods
(ii) Primary production and secondary production

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 (b) Explain any four factors of production indicating a reward for each.

7 (a) What is the difference between demand and supply?

(b) Explain the factors that influence the demand of a commodity.

8 (a) Distinguish between terms of exchange and specialization.

(b) How are the two terms mentioned in (a) above inter-related?
(c) Give the disadvantages of specialization.

9 Some farmers prefer concentrating on one or two crops other than dealing in many
crops. What are the advantages and disadvantages of this practice?

10 (a) Mention and explain what you would include under Trade and Aids.
(b) Give the reasons why the study of commerce is of importance.

11 (a) What is retail trade?

(b) State the differences between multiple shops and departmental shops.
(c) Explain why most traders prefer small scale retailing to large scale retailing.

12 (a) What are the functions of a wholesaler?

(b) Under what circumstances may the service of a wholesaler not be required?

13 (a) What factors should be considered before setting up a retail business?

(b) Explain the functions of a retailer in home trade.

14 (a) Differentiate between peddlers and hawkers.

(b) Give reasons why the number of hawkers is on an increase in Uganda.

15 (a) Define the term branding.

(b) Outline the functions of branded goods.
(c) How does branding assist retail trade?

16 (a) State the contents of an invoice.

(b) What steps should be taken by the buyer when an invoice is received from
the seller?

17 (a) Give the difference between a cash transaction and a credit transaction.
(b) What document can be used o find out whether a trader is credit worth or
not?
(c) Explain the sources available of obtaining a confidential report on a buyer’s
credit
worthiness in your country.

18 The Purchasing Manager Mr. DDT Kombe of Magoda Fency Store P.O. Box 4761
Mbale wishes to order from Tonga Enterprises Ltd P.O. Box 1003 Kampala the
following items.

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 - 20g 8cm Baati sauce pans
- 15g 13kgm L.P. gas cylinders and
- 40g of size 6 Masanda sleepers.

a) What document will be prepared before making the order?

b) What is the main use of the document?
c) What is the name of the document made in the response of the document in (a)
above?
d) Prepare an order from the information given above. Use today’s date and order
No. 9011.
e) In which ways can the errors in the invoices be corrected?

19 State clearly the meaning of the following

a) Dumping
b) Proforma invoice

20 (a) What is meant by the terms “Balance of trade” and “Balance of payment”?
(b) What advantages does Uganda enjoy by trading with other countries?
(c) Why might it be disadvantageous for Uganda to be too dependent on
international
trade?

21. (a) Differentiate between the following terms as used in International trade.
i. Bilateral trade and Multilateral trade
ii. Balance of trade and terms of trade
iii. Open indent and closed indent
(b) Describe the factors that limit international trade.
END

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