Professional Documents
Culture Documents
Principles of Business Section 1-Nature of Business
Principles of Business Section 1-Nature of Business
NAME__________________________________________________________
GRADE_________________________________________________________
OBJECTIVES
iv. describe the relationship between financial institutions and regulatory bodies
ix. identify the purposes of basic financial records for sole traders
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BUSINESS FINANCE
9.1 VARIOUS FINANCIAL INSTITUTIONS
Provide loans of varied amounts – this can be used for various purposes such as buying a
car, furniture, a house etc.
Accepting savings and deposits from the customer – this will provide safe keeping of the
customer’s money.
Process payments made and received by customers – via face to face, internet banking
and telegraphic transfers.
They offer investment services and safekeeping of documents and other items in safety
deposit boxes
Night safe deposits– this is a deposit slot located on the outside of a bank, allowing
money to be deposited in the bank’s safe when the bank is closed. They can be accessed
with keys, pin numbers or some other security passes.
On-line banking – this is a method of banking that enables a customer to conduct a range
of financial transactions electronically using the internet.
Advisory service- such as advice on pension plans and long- term investment plans. This
advice will help the customer to make informed decisions concerning investments.
Credit card allows purchases to be made even if the customer does not have
enough money in their bank account. The credit will have to be paid over the
next few months often at a high interest rate.
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Trustee work – the trustee is legally bound to manage the property or assets for the
benefit of a third party or beneficiary, they have to make decisions in the best interest of
the beneficiary.
Deposit boxes- these are fireproof metal strong box es that are usually in the bank for
storing valuables.
Settlement service – this includes any service provided in connection to real estate as well
as other services such as; services offered by real estate agent or broker or by taking out a
loan application and processing.
Remittance service – refers to the sum of money sent by generally to someplace abroad
by any method e.g. wire transfer, online transfer, by mail or using a debit card or credit
card.
The role of regulatory bodies is to monitor, control and guide various industry sectors
in order to protect consumers.
The functions of regulatory bodies are; enforcing regulations and licenses of various
financial activities, depository, lending, collection and money transmission activities.
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9.3 RELATIONSHIP BETWEEN FINANCIAL INSTITUTIONS AND REGULATORY
BODIES
Commercial banks are banks that offer service to the general public and to
companies
Commercial banks are required to have the prescribed liquid assets such as cash
reserves, notes, coins etc as sometimes they have insufficient capital and may
require assistance from the government due to inadequate capital or a lack of
liquidity or both.
Under the Insurance Act of 2001 and Insurance Regulations 2001 the FSC
is responsible for the supervision of insurance companies in Jamaica.
(a) Budgeting
Budgeting means making a financial plan, it means planning what you pay out in
relation to what you earn.
Having a personal budget ensures that a person does not spend more than
his income over a period of time and help you to plan for the future.
A budget enables us to cut out unnecessary expenses, save or stop having
large debts.
(b) Savings
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Saving is that part of income that is not spent, if deposited it can earn
interest.
It allows an individual and a firm to buy goods in the future that is too
expensive now.
It allows a person to survive if they lose their job until they can they find
another job.
(c ) Investments
Forms of Savings
Forms of Investments
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Mutual fund companies collect a pool of funds from many investors (members of
the public) and use that money to buy other securities such as stocks, bonds and
other assets.
i. Trade credits – request your suppliers to give you a grace period within which to
pay for the goods they deliver to you.
ii. Commercial bank loans – banks provide short term loans and bank overdrafts.
iii. Promissory Notes - this is a signed document containing a written promise to pay
a stated sum of money to a person at a particular date.
iv. Instalment credit – is a means by which most durable products are bought. The
customer is allowed credit for a fixed sum to be repaid in instalments e.g. hire
purchase agreements.
v. Indigenous credit (private money lenders)- this refers to borrowing money from
an individual or group of investors, this loan is not a bank loan.
vii. Factoring- is a financing method is which a business owner sells its invoice at a
discount to a third party in order to meet its immediate cash needs.
viii. Venture capitalist - this is where wealthy investors invest their capital in a
company that is just starting and shows potential for growth. The returns to
venture capitalist depend upon the growth of the company.
ix. Crowd funding – is way of raising finance by asking a large number of persons
for a small amount for a project or a venture. Those seeking funds also use friends
and social media. E.g. Jamaican bobsled team used crowd funding to raise US
$129, 687.18 in January 2014 to offset their expenses for the Winter Olympics.
(ii) Mortgages- pledging an asset in order to get a loan from the bank
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(iii) Debentures- A denture is where a company borrows money on a medium or
long-term basis and promises to pay back the lender at a fixed rate of interest.
(v) Insurance- is a promise for financial compensation for a risk that may or may
not occur such as accidents, theft, fire.
(vi) Investment and unit trust- are institutions that are available for persons who
want to invest their money in a company. The dividends earned are distributed
among unit trust holders. E.g. Barita Investment and Jamaica Money Market.
Statement of financial position (Balance Sheet)- shows a list of assets and liabilities at the
end of the year.
Cash Flow Statement – shows where money has come from and what it has been spent on
during the financial year.