Commerce ‘O’ Level New Curriculum

Banking and Finance

➢ Small businesses obtain finance from owner's personal savings and borowing from friends
and relatives.
➢ Large businesses obtain their finance from internal and external sources.
➢ Internal sources include retained profits, sale of assets and rights issue (issuing shares to
existing shareholders).
➢ External sources of finance include bank overdraft, trade credit, leasing, debt factoring, hire
purchase, loan, debentures, shares (ordinary and preference shares).

Barter Trade
✓ Barter trade was the most common form of trade before the development of money.
✓ Barter trade- is the exchange of goods and services for goods and services e.g. maize for a
goat

Problems of Barter Trade

✓ Requires a double coincidence of wants e.g. a person who wants maize and has a goat will
have to find a person who wants a goat and has maize.
✓ As a result, people had to travel long distances before meeting with anyone with whom
they could make an exchange
✓ Goods and services are difficult to divide into their relevant units for example goats cannot
be divided into half-goats.
✓ Some goods are too heavy to carry over distances, for example maize

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✓ Some goods are impossible to move for example land and houses requiring both parties to
move to the location of the items and inspect and agree on them
✓ Goods and services can be difficult to evaluate for example how many goats do you give
in exchange for a cow?
✓ Perishables could be difficult to exchange as they could go bad quickly before the exchange
could happen.

Money and its characteristics

✓ Money was developed to overcome some of the problems of barter trade.
✓ There are many forms of money namely:
• Bank notes and coins • Cheques • Money orders • Bills of exchange • Postal Orders
✓ Legal tender
• Bank notes and coins are legal tender.
• These are issued by government and must be accepted by anyone on settlement of debt or in
payment of goods or services
• There are two types of coins;
• standard coins: these contain precious metal that match the face value of the coin.
• Token coins: are not worth the same as the metal they contain.
✓ Functions of Money
1. A medium of exchange- it can be exchanged for goods and services e.g. money for a car
2. A measure of value- the value of goods and services can be expressed in monetary terms
for example a $5 000 truck.
3. A standard of comparing value - for example a $20 goat and a $20 for 4 chickens.
4. A store of value- surplus goods can be sold and stored in the form of money and
perishables such as vegetables can be sold and their money kept for future use. Money can
also be deposited in a bank for future retrieval and use.
5. A standard of future/deferred payments- goods and services are valued and paid for
later for example during hire purchase and credit transactions.
6. As a unit of transactions i.e. accounting transactions are expressed and measured in
monetary terms.
✓ Characteristics of Money
• Money has to have the following features if it is to perform its stated functions:
1. Acceptable- money must be acceptable in making payments and people must accept it on
their own volition.
2. Divisible- money must be available in different denominations making it divisible into
smaller units thus enabling all manner of transactions including microtransactions.
3. Durable- it should be able to maintain in state for a long time and not wear easily.
4. Portable- money must be light enough for people to be able to carry it easily.
5. Recognisable- money should be identifiable and distinguishable one coin and note from
another.
6. Uniform/Homogenous- notes and coins of the same denomination must have the same
characteristics and appearance.
7. Scarcity- money should be in limited supply.

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8. Stable value- money should have a consistent value and withstand the effect of inflation.

Financial institutions
✓ these are entities that provide financial services to people and other businesses.
✓ Types of Financial institutions
1. Building societies 2. Discount Houses and Merchant Banks 3. Post Office Savings Bank
4. Commercial Banks 5. The Reserve Bank of Zimbabwe

Building Societies
✓ A building society ls a financial organization which pays interest on investments by its
members and lends capital for the purchase or improvement of houses
✓ The following building societies currently operate in Zimbabwe: CBZ Building Society,
ZB building society, CABS and FBC building society.
Functions
• Safe keep depositors' deposits through savings, deposits and fixed share accounts.
• Provide mortgage finance and other forms of building loans.
• The provide Automated Teller Machines (ATMs). • Give advice on investment portfolios.
• They provide purchase points e.g. in supermarkets. • They provide cash and switch cards
• They issue certified cheques upon request. • Operate stop orders for their clients.
• They give loans against paid up permanent shares (PUPS). • They facilitate RTGS transfers

Discount houses
✓ Is a financial institution that participates in the buying, selling and discounting of treasury
bills, bills of exchange and other financial products such as money markets, certain
government bonds and bankers’ acceptances.
✓ Examples include Tetrad Bank and National Discount House (NOH).
Functions
• They raise money for the government.
• They lend money to the government, commercial banks and private companies.
• They accept and discount Bills of Exchange.
• They provide banking services for example they accept deposits.
• They invest in securities e.g. Treasury Bills and Bills of Exchange.
• They operate several types of accounts like savings and deposit accounts.

Merchant Banks
✓ A wholesale bank dealing in commercial loans and investment (for other banks and companies.
✓ For example, Renaissance Merchant Bank, Tetrad Bank and MBCA.
Functions
• They specialise in accepting and discounting bills of exchange.
• They lend money on short term to large scale importers.
• They may raise long term capital by arranging the issue of new shares.

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• They act as underwriters when they purchase unsubscribed shares.

• They source and keep foreign currency for businesses. • They import and export goods.
• They confirm orders. • They arrange letters of credit.
• They offer banking services e.g. they accept deposits, financial advise.

POSB Bank
Functions
• It accepts deposits from individuals and companies.
• It operates savings accounts which earn tax free interest.
• It operates stop order facilities for clients.
• It lends money to large organisations for example, Discount Houses.
• It invests money into Treasury Bills and municipal stocks.
• It issues cheques upon request.
• It provides ATMs (Automated Teller Machines) and POS terminals.
• It allows the use of cards.
• It operates e-banking and mobile banking facilities.
• It provides money orders and postal orders.

Commercial Banks
✓ Is a bank that offers services to the general public and to companies.
✓ For example, Barclays, Standard Chartered, Stanbic and Banc ABC.
Services offered
• They accept deposits in the form of current, savings and fixed deposits accounts.
• They receive or make payments through cheques, direct debit and credit transfers.
• They provide finance through loans and overdrafts. • They offer credit and ATM cards.
• They provide foreign currency, travelers cheques or bank drafts. • They provide ATMs.
• They safeguard valuables such as title deeds and certificates.
• They give out financial advice. • They offer night safe facilities.
• They accept and discount Bills of exchange. • They provide Bancassurance.
• They provide tele-banking facilities. • They act as trustees and executors.
• They offer interest on account balances. • They offer point-of-sale in supermarkets.
• They issue letter of credit. • They act as underwriters.

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✓ Factors taken into account when assessing the loan application:

• The current economic climate e.g. the Government's coming Fiscal and Monetary Policies.
• Local trading conditions for example, any current embargoes/sanctions.
• Viability, liquidity and Profitability of the customers proposed project.
• The financial rating or creditworthiness of the customer.

Differences between a bank loan and a bank overdraft

Loan Bank overdraft
Is a formal way of borrowing Is an informal way of borrowing
Is available to anyone who meet the Is available to current account holders only
requirements
Collateral security is needed Collateral security is not needed.
No loan account is opened A loan account is opened
Interest is charged on the whole loan Interest is charged on the outstanding amount on a
amount daily basis
The rate of interest is fixed The rate of interest is variable
Regular payments via instalments Repayments are irregular
The interest rate is usually low The interest rate is usually high
Most suitable for long term projects Most suitable for short term working capital
The repayment period is fixed The repayment period is not fixed

Small Enterprise Development Corporation (SEDCO)

Is a government-owned institution which aims at promoting small to medium enterprises (SME's)
It provide training and financial support to SME's.
Services rendered by SEDCO include:
✓ Provide business loans to SME's
✓ It trains SMEs in business management.
✓ Provides infrastructure and cheap premises like factory shells and vendor marks.
✓ Encourages and assist in the formation of co-operatives and SMEs.

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Telebanking
✓ This is a service offered by banks that allow customers to make enquiries or give
instructions concerning their accounts over the phone.
✓ Instructions are usually given by customers who operate call accounts.
✓ When customers open call accounts, they sign indemnity forms.
✓ These indemnity agreements protect the bank from liabilities arising from
misrepresentations.
✓ Instructions to move funds from one account to another require verification and the proper
authorisations.
✓ Authentication and verification is done by calling back the customer using the number on
file.
✓ After successful authentication, the issued instructions are carried out.
✓ Customers may request for the following using a phone:
• Cheque books. • statements of their accounts • ATM cards. • Deposit books.
• Report stolen cards. • Change banking passwords.
• Banks have special departments for such instructions.
• A password is issued to customer to be used when making account changes for security
reasons.

ATM: Automated Teller Machines

✓ Are fitted on the outside walls of banks & shopping malls. • They are used to withdraw cash.
✓ They operate 24 hours a day. • It is a self-service facility.
✓ The customer follows on screen instructions.
✓ Upon request and verification, the ATM machine displays the following information:
• Maximum amount that can be withdrawn. • The account balance. • A mint-statement
✓ It saves on labour and space. • Customers use a PIN for security.
✓ It is a fast way of disseminating information to the customer. • They reduce paper work.
• This PIN can be changed by the customer on the ATM.
• Money can be transferred from one account to another.
• They reduce the need to carry cash around.
✓ Using an ATM, the customer is able to:
• Make payments for items like airtime and electricity. • Request for a cheque book.
• Make deposits. • Use a Zimswitch card.
• They are a source of revenue for the government which levies a tax.

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Means of Payments
➢ Payer: One who is making payment.
➢ Payee: One who is getting payment.
➢ Drawer: The one who signs the cheque.
➢ Drawee: The bank upon which the cheque is drawn.

Cheques
• There are two main types of cheques viz: 1. Bearer's cheques. 2. Order cheques

Bearer's cheques
✓ These have the words “Pay the Bearer on demand” written across their face.
✓ They are payable to anyone who present the cheques to the counter of the drawee.
✓ The cheque does not have the name of the bearer written on it.
✓ Bearer cheques are not safe as they can be cashed by anyone presenting them.
✓ The have expiry dates.

Order Cheques
✓ They have an instruction which reads, “Pay ... or Order” written across their face.
✓ The payee's name is expressly stated.
✓ The named person can obtain cash from the bank upon producing a valid ID.
✓ The named payee can transfer the cheque to someone else by endorsing it at the back.
✓ Order cheques may be open or crossed.

Open cheque
• Does not have parallel lines on the its face. • Can be cashed over the counter.
• Anyone in possession of it becomes the owner.
• It is not safe as it can essentially be cashed by anyone.
• The payee signs at the back of the cheque.
• Usually used to pay a payee who does not have an account

Blank Cheque
• May be an open or crossed cheque.
• Is signed by the draw without details on the cheque.
• Is issued to the drawer's trusted people so that the payee can fill in the details.
• It is not safe.

Crossed cheques
• A cheque may have a general or special crossing on its face.

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General crossing Special crossing

• The cheque has two parallel lines across its
face.
• It cannot be cashed over the counter
• The crossing cancels the order to pay on
demand
• It must be deposited into a bank account
• It is safe to use because it can be traced if
lost
• The payee must have a bank account.
• The cheque has two parallel lines across its face
• It has the name of the payee's bank and branch
written in between the lines.
• It has the words • Not transferable· written across
its face.
• This makes the cheque more secure against theft.
• The cheque must be deposited into a bank account
at the stated bank branch.
• It cannot be cashed over the counter.
• One does not need to use registered post when
sending it
• It is easy to trace if it is lost or stolen. The clearing
of cheques

The clearing of Cheques.

✓ There are three ways and circumstances in which a cheque may be cleared.
✓ If the payee and drawer use the same bank and branch:
1. The payee deposits the cheque into his/her account.
2. The payee is credited and,
3. The drawer is debited.
✓ If the payee and drawer use the same bank but different branches
At the payee's branch:
1. The payee deposits the cheque into their bank account.
2. The payee's account is credited with the cheque amount.
At the bank's headquarters
1. The cheques are sorted according to their branches
2. They are then sent to their corresponding bank branches.
At the drawer's branch
1. The drawer's account is debited.
✓ If the payee and drawer use different bank accounts
At the payee's bank and branch
1. The payee deposits the cheque into their account.
2. The payee is credited with the cheque amount.
3. The cheque is sent to the Bank Headquarters.
At the payee's bank Headquarters
1. The cheques are sorted according to their respective banks.

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2. They are then sent to a clearing house.

At the Clearing House
1. All banks have an account with the clearing house.
2. Representatives from the various bank settle their banks' obligations and physically
exchange the cheques.
3 They then take them to their banks' headquarters.
Drawer's Bank's Headquarters
1. The cheques are sorted according to their bank branches.
2. They are then sent out to their respective bank branches
At the drawer's bank branch.
1 The drawer's bank account is debited by the cheque amount

Dishonoured cheques and the reason for their being dishonoured

✓ A cheque is said to be dishonoured if the bank refuses to pay the amount of cheque.
✓ Thus, dishonoring of a cheque means the refusal by the bank to pay the amount of cheque to
the payee.
✓ It is a condition in which the bank does not pay the amount of the cheque to the payee.
✓ Cheques may be dishonoured for any of the following reasons:
• The stated amount in words is different from the amount in figures.
• The cheque is stale i.e. it is presented 6 months from the date it was issued.
• There are no funds in the drawer's account. • The cheque itself is torn, mutilated or dirty.
• The signature on the cheque does not match the specimen on the bank's files.
• There are unsigned alterations on the cheque. • The drawer is legally incompetent or dead.
• The cheque has incomplete details e.g. missing data.
• The account upon which it was written is closed.
• The drawer is declared insolvent, bankrupt or specified.
• The drawer has requested that the payment not be honoured. • The cheque is post-dated.
• If the court of law orders the bank to stop payment of the cheque.
• If the account number is not mentioned or if it is not clear or if it is not mentioned clearly.
• If the ordered or crossed cheques are transferred without proper endorsement and delivery.
• If the cheque is missing any other essential details or they are written unclearly.
✓ How to overcome the problem of dishonoured Cheques
1. Check cheques before accepting them.
2. Keep careful records of customers who have caused problems.
3. Ask for cash payment. 4. Take the person to court.
5. Insist on the use of a cheque guarantee card.
6. Do not accept cheques beyond the limit of the card.

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The Reserve Bank of Zimbabwe

• It is the banker's bank and owned by the Government of Zimbabwe. It is also known as the
Central Bank.
• A Central bank is a national bank that provides financial and banking services for its country’s
government and commercial banking system, as well as implementing the government's monetary
policy and issuing currency.

Functions
✓ It issues notes and coins through commercial banks.
✓ A banker’s banks i.e. it keeps minimum deposits for commercial.
✓ It acts as a banker to the government i.e. revenue is paid into it and payments are met out
of it.
✓ It carries out the government's monetary policy by controlling interest on debt and the value
of the Zimbabwean dollar.
✓ A lender of last resort to commercial banks and discount houses.
✓ It acts as a clearing house in settling interbank debts.
✓ It rations foreign currency and controls the issue of foreign currency.
✓ It acts as an advisor to the government on economic issues and ways of controlling
inflation.
✓ Sells Treasury bills on behalf of the government.
✓ Withdraws and replaces worn out notes and coins.
✓ A custodian of the nation's reserves of gold and foreign currency or foreign assets.
✓ Keeps state departments accounts. • Controls and regulates the supply of money.
✓ Manages the national debts. • Offers banking services to commercial banks.
✓ Controls the lending rate.

Methods of Payments in Home and International Trade

• Payments encountered in home trade are made via the following bank services:
Standing or stop order
✓ Is a method of payment used to pay fixed amounts to creditor at specified times during the
month or year e.g. Hire Purchase and DSTV subscription payments.
✓ An arrangement is made between the customer and the bank.
✓ The debtor and creditor must agree and complete the banker's stop order form.
✓ The system avoids the occurrence of bad debts and delayed payments.
✓ It reduces paper work.
✓ Saves on the cost of posting cash or sending and processing cheques.
✓ It is the debtor who initiates payment.
Credit Transfer
✓ Is a method of payment. • It is used to pay many accounts using one cheque.
✓ A multiple transfer form is filled. • The payee must have a banking account
✓ It is ideal for making several payments at the same time.
✓ Payment is made to any of the banks in that country. • Is the used to pay dividends or wages.

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.
Direct debit
✓ Is a method of payment initiated by the creditor.
✓ Direct debit authorisation form is filled to settle bills for example water bill, contract cell
phone bills, internet bills, etc.
✓ It is used to make payments of varying amounts. • Payments are prompt.
✓ It minimises bad debts. • The creditor does not need to send reminders to customers.

Bank Draft
✓ Issued by the bank in favour of payee on the advice of the payer.
✓ The payer approaches the bank with the request and payment in cash or through
cross cheques in favour of the bank.
✓ Payer has to pay bank charges in addition to the amount of payment.
✓ It is a secured means of payment.
✓ Usually suitable when buyer and seller are not known to each other, and seller wants
secure means of payment (of course bank is more reputable than a person).

Bank Giro
✓ It allows payment to be made at any branch of any bank to any branch of any bank in
the country.
✓ It is available to those who do not have a bank account as well as to those who do.
✓ A payer can deposit money by cash or through cross-cheque into a payee account by
filling a “bank giro credit slip”.
✓ It is used to pay wages and salaries.

E-banking/Online Payment
✓ Payment can be deposited into payee’s account through internet.
✓ Used for both local and especially more common in international transactions.
✓ Payer has to go to any branch of the bank where payee holds his account.
✓ Payer has to fill in ‘online deposit slip’ by mentioning payees account number
and branch name and code.
✓ Bank where payer deposits the money will remit it to payees bank branch.
✓ Remittance will be made in a few minutes.
✓ Remittance is sending of money without physical movement of money.

Payments by banks in foreign trade

✓ The following methods are used:
• Bank overdraft, • Bill of Exchange. • Letter of credit or documentary credits.
• Cable transfer e.g. Homelink.

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Other bank services

Internet Banking /Electronic Banking (e-banking)

✓ It is a term used for performing transactions, payments etc. over the Internet
through a bank.
✓ Customer has to open the banks website.
✓ PIN code is used for authentication.
✓ Facilities are same as Telebanking.

Mobile Banking
✓ It is a term used for performing transactions, payments etc. over the phone
through a bank.
✓ Customer has to open the bank’s virtual site.
✓ PIN code is used for authentication.
✓ Facilities available include, but not limited to requesting balances, transferring funds,
making payments, changing pin and so forth.

International financial institutions

World Bank
The International Bank for Reconstruction and Development (IBRD), commonly referred to as
the World Bank, is an international financial institution whose purposes include assisting the
development of its member nation’s territories, promoting and supplementing private foreign
investment and promoting long-range balance growth in international trade.
Functions include;
✓ To provide long-run capital to member countries for economic reconstruction and
development.
✓ To induce long-run capital investment for assuring Balance of Payments (B.o.P) equilibrium
and balanced development of international trade.
✓ To provide guarantee for loans granted to small and large units and other projects of member
countries.
✓ To ensure the implementation of development projects so as to bring about a smooth
transference from a war-time to peace economy.
✓ To promote capital investment in member countries by the following ways;
(a) To provide guarantee on private loans or capital investment.
(b) If private capital is not available even after providing guarantee, then IBRD provides
loans for productive activities on considerate conditions.

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African Development Bank

✓ The primary function of AfDB is making loans and equity investments for the socio-economic
advancement of the regional member countries (RMC).
✓ Second, the bank provides technical assistance for development projects and programs.
✓ Third, it promotes investment of public and private capital for development.
✓ Fourth, the bank assists in organizing the development policies of RMCs.
✓ The AfDB is also required to give special attention to national and multinational projects which
are needed to promote regional integration.
✓ It mobilizes financial resources from the Government or the foreign financial institutions
✓ With a view to lending the money for development of specific sectors of the economy
International Monetary Fund (IMF)
The IMF pursues the various facets of its mandate in a number of ways. These are summarized
below;
✓ Exchange Stability; The first important function of IMF is to maintain exchange stability and
thereby to discourage any fluctuations in the rate of exchange.
✓ Eliminating BOP Disequilibrium: The Fund is helping the member countries in eliminating
or minimizing the disequilibrium of balance of payments either by selling or lending foreign
currencies to the members.
✓ Determination of Par Value; IMF enforces the system of determination of par values of the
currencies of the members countries.
✓ Stabilize Economies: The IMF has an important function to advise the member countries on
various economic and monetary matters and thereby to help stabilize their economies.
✓ Credit Facilities: IMF is maintaining various borrowing and credit facilities so as to help the
member countries in correcting disequilibrium in their balance of payments.
✓ Technical Assistance: The IMF is also performing an useful function to provide technical
assistance to the member countries. Such technical assistance in given in two ways, i.e.,
firstly by granting the members countries the services of its specialists and experts and
secondly by sending the outside experts.
Infrastructure Development Bank (IDB)
✓ The IDBZ was formed on the 31st of August 2005, taking over the assets and liabilities of the
former Zimbabwe Development Bank (“ZDB”).
✓ It was primarily set up as a vehicle for the promotion of economic development and growth,
and improvement of the living standards of Zimbabweans through the development of
infrastructure, which includes but not limited to energy, transport, water and sanitation,
information communication technology (ICT) and housing.
✓ It is also meant to develop institutional capacity in undertakings and enterprises of all kinds in
Zimbabwe; and
✓ to support development projects and programmes in infrastructure sectors of the Zimbabwean
economy.

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