1.

LETTERS
The business letter is the principal means used by an organisation to keep in touch with
its customers. Often it is the only means and customers form their impression of the
organisation from the tone and quality of the letters it sends out. Letters should be clear,
accurate brief and pleasantly displayed. The style of writing influences the customer’s
impression of the company as a whole.

Letters are used for external communication – that is, for messages going outside the
organisation. However, they are occasionally used for official messages from the
organisation to an employee, such as an announcement of a promotion or raise in salary.

PARTS OF A BUSINESS LETTER

Business letters have the following parts:
1. Senders address – address of the person writing or sending the letter. It is
positioned at the top of a letter or right hand corners. Some businesses have pri-
printed pages with the senders address. This is the letterhead which states the
company name, address, telephone and logo.
2. Date – the date on which the letter was written. Typed in order of day, month and
full year.
3. Reference – many organisations today have a reference number for filing
purposes. This number is positioned above the receivers address. Our reference
shows initials of who prepared the letter and the file reference of the letter. Your
reference is a response to the letter from the addressee. .
4. Inside address – name and address of the person to whom the letter is being
written. It is written to the left of the paper after the reference date.
5. Salutation – this is the writer’s greeting. It is determined by the relationship that
exists between the two correspondents, i.e. writer and addressee. Common
salutations used are Dear Sir/Madam, Dear Miss Pretty, Dear Mrs. Dean and Dear
Mr. John.
6. Subject heading – states briefly what the letter is about and acts as a guideline
when the letter is opened. It is placed after the salutation and is usually in capital
letters, bold and underlined.

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 7. Body of the letter – the body includes the introduction, which helps orient the
reader; the central section, which fulfils the major purpose of the letter; the
conclusion, which should direct the reader to future possible action.
8. Complimentary close – closing remarks of the letter. It is determined by the
salutation used.
SALUTATION COMPLIMENTARY CLOSE
Dear Sir/Madam Yours faithfully
Dear Mr. John Yours sincerely
9. Designation (Signature) – name of person writing and the title of the person.
10. Enclosure – letters prepared with extra documents such as cheques and title deeds
are enclosed. The abbreviation used is Enc. (s)
11. Carbon copy - written letters may require to be read by several people. The
abbreviation ‘cc’ is used and the name of the person expected to read that letter is
indicated as well.

LETTER STYLES
Letters can be typed in three different styles; fully blocked, semi-blocked or indented.

Fully blocked style – this style is simple since all the parts of the letter starts from the
left-hand side of the page.
1. Ngwana Enterprises
P.O.Box 303
Francistown

2. 21 May, 2010
3. Your Ref.: RSC/MB
Our Ref.: MB/RS

4. To Suppliers Officer
Department Of Road Transport and Safety
Private Bag 142
Francistown

5. Dear Madam

6. SUPPLY OF FIRST AID KIT ITEMS

7. Thank you for your letter dated 21 May, 2010, requesting our services to supply your department with
first aid items.

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 Our supplies officer after assessing your requirements placed orders for the stated items which were
estimated to amount to P 1 500.

Enclosed is a copy of the estimate.

8. Yours faithfully

9. Mpho Dintwa
Supplies Coordination Manager

10. Encl.

11. cc. MVA Fund

Indented style – the main distinguishing features of an indented letter style are;
 The senders address and date are typed on the right hand side.
 Indentation of the first line in the paragraphs five spaces inside.
 Complimentary close and signature are typed starting from the center point or
middle of paper.

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4
Semi blocked style – the main distinguishing features of a semi blocked letter style are;
 The senders address and date are typed on the right hand margin.
 Subject heading is centered.
 The complimentary close and signature are typed starting from the center point of
the page.

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Acceptable salutations in business letters
The type of salutation is determined by the relationship which exist between the two
correspondents i.e. the writer and the addressee. The most acceptable salutations in
business letters are Dear Sir/ Madam.

Complementary close in business letter

This is the closing remark and it should always be determined by the salutation used. An
acceptable complementary close for business letter is Yours faithfully.

MEMORANDUM/ MEMOS

A memorandum is an informal message sent through the internal post of an organisation.

It is commonly used to convey information or instructions. Memos act as reminders and
prevent misinformation. Memos are frequently used for the following
 To communicate instructions or information to different people, for example the
announcement of a workshop or course.
 To put on record the information, policies or decisions reached at a meeting or
conference.
 To keep people informed of events in the company.
 To request information, assistance or input from co-workers.

PARTS OF A MEMORANDUM
Memos have the following parts:
►Heading – MEMORANDUM;
►To; ►from;
►Reference; ►date;
►Message; ►subheading

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DISTINGUISHING A MEMO AND LETTER

As a memorandum is internal, the style is not as formal as that of a business letter. The
style should be simple, straightforward, clear, readable and brief. Memos are different
from business letters in various ways.

1) Parts - there is no salutation or complimentary close in a memo but a letter has them.

2) Purpose - with business letters their purpose is to give or request information whilst
memos convey information or instructions.

STYLES OF MEMORANDUMS
There are two styles of memos’ fully blocked and indented memos.

Fully blocked – all the lines are typed from the left-hand margin.
MEMORANDUM
To: Suppliers Officer
From: M.B. Sithole, Road Safety Department
Date: 21 May 2010

Subject: Supply of first aid kit items

You are advised to supply first aid kit items for exhibition at the annual road safety campaign as mentioned
in our meeting on 15 May 2010 tomorrow morning. Report to me when you get back.

Indented memos – the date and reference number are typed on the right hand margin.
The word ‘MEMORANDUM’ is centered and the subject is also centered. The first line
in each paragraph is indented five spaces inside.

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 MEMORANDUM
To: Suppliers Officer Date: 21 May 2010
From: M.B. Sithole, Road Safety Department REF.: RSC/MB

Supply of first aid kit items

You are advised to supply first aid kit items for exhibition at the annual road safety campaign as
mentioned in our meeting on 15 May 2010 tomorrow morning. Report to me when you get back.

SAVINGRAM

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MONEY

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1. Definition
Money is anything used to make payments. It can either be cash, cheques and debit cards
or any other forms of payment.

2. Qualities of money
Money must have the following qualities:

Money must be durable: the medium used to make money should last for a long time. It
should not be easily damaged or destroyed. Coins are durable as they last longer and are
not easily destroyed. Notes on the other hand, are made from special paper which lasts
longer than ordinary paper.

Money must be portable: the material used to make money should be easy to carry
around to avoid employing someone to carry it for you.

Money must be divisible: the unit used as money should be capable of being divided
into smaller amounts. In Botswana we have money divided into a number of coins and
notes: 5t, 10t, 25t, 50t. P1, P2, P5, P10, P20, P50, P100, P200. Such divisions make it
possible for us to make payments in different amounts easily.

Money must be easily recognized: the material should be easily recognized and
therefore readily accepted. One unit of money should be clearly differentiated from the
other e.g. P10 is greenish in colour whilst P100 is bluewish in colour.

Money must be uniform in quality: the quality of the material should be the same for
each piece of money. E.g. all 50 thebe coins should be of the same quality; in the same
way P20 or P200 notes should be the same in quality.

3. Functions of money
Money has a number of functions which are:
 Money is a medium of exchange: money enables people to exchange one
commodity or service for another without any difficulty. In this way, money acts
as an intermediary by allowing us to exchange one commodity for another.

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  Money is a measure of value: money helps us to put value on goods and
services. With this function we are able to compare the value of different things
e.g. comparing a pack of Mealie meal sold at Choppies or at Shoprite.
 Money is a store of value: money allows us to save part of our present income
for future use. E.g. we can keep our money at the bank.
 Money is a means of keeping accounts: money enables goods to be sold today
and payment to be done at a later date (in future). This can also be referred to as
“deferred payment”. Debts are recoded so that we are able to collect them later.

4. Forms of money
 The commonly used forms of money in Botswana are notes and coins. These are
the legal tender of the country.
 Money is also kept on deposit at the bank. This money is kept at the bank or other
financial institutions for cheques to be drawn on. A cheque is a means of
transferring money from one bank account into another.

5. BANKS
1. What is a bank?
A bank is an organisation that accepts money and other valuables for safekeeping, and
lends money in order to earn interest.

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2. Types of banks
 The Central bank: the central bank in any county is owned by government and is
responsible for keeping the accounts of the state and other banks. An example that
can be given in Botswana is Bank of Botswana and its main customers are the
government of Botswana and the commercial banks.
 Commercial banks: these are financial institutions set up to make profit for its
owners by accepting deposits and lending the deposits to borrowers at interest.
The bank accepts deposits from the public and pays a rate of interest lower than
the rate of interest its borrowers are charged. The difference between the two rates
in the bank’s profit.
The deposits accepted by a bank re kept in different types of accounts such as current
accounts on which cheques can be drawn, savings accounts and fixed deposit
accounts. Apart from accepting deposits from individuals and businesses and making
loans to them, such banks also transfer funds on behalf of their customers. E.g. of
commercial banks are Barclays bank, Standard Chartered bank, First National bank,
Stanbic bank, Bank Gaborone, Bank of Baroda, Banc ABC.
 Development banks: These banks are set up to provide long term capital for the
development of agriculture and industry. A development bank obtains most of its
funding from the government who sets it up. E.g. The National Development
Bank provides the start-up capital to develop enterprises.
 Savings banks: these are financial institutions set up to assist small savers to save
their surplus money. In Botswana we have Botswana Savings Bank which
provides ordinary savings accounts, special savings accounts and a save-as-you-
earn scheme with differing interest rates. BSB also operates the Ipelegeng loan
scheme which is a personal loan scheme offered to save-as-you-earn and special
savings account holders.

3. Functions of the Central bank

The central bank issues currency
The Bank of Botswana issues the currency of the country in the form of notes and coins.
Apart from issuing the notes and coins, the central bank also maintains the quality of the

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currency – thus it withdraws all worn out notes and coins from circulation and replaces
them.
The central bank is a banker to commercial banks
A central bank is a banker to the commercial banks and other financial institutions. It also
plays an important role of clearing of cheques. Everyday cheques are drawn by customers
of a bank on their accounts. These cheques are exchanged by other banks or bank
officials twice each week. At the end of the exchange, banks which owe others write
cheques on their accounts at the central bank to pay. The central bank then makes
payments on behalf of commercial banks.

The central bank is a banker to the government

The central bank acts as a banker and monetary advisor to the government. It receives all
the moneys paid to the government and make payments on behalf of the government at
home and abroad. All the taxes collected go to the central bank. It advises the
government on different aspects of financial policy. It also advises the government and
public corporations on the timing, as well as terms and conditions of borrowing.
The central bank controls foreign currency
A central bank controls the foreign currency reserves of the country. The bank manages
the foreign reserves of a country by investing in liquid assets in different major currencies
such as US dollars, pounds sterling, Deutsche marks and Japanese yen. It makes sure that
receipts of foreign exchange can meet the payments.

The central bank supervises commercial banks

A central bank is responsible for licensing, regulating and supervising the other
commercial institutions. The purpose of this is to make sure that only genuine people set
up businesses as banks.

The central bank is the lender of last resort

The bank lends money to commercial banks which are short of cash. If the commercial
bank wants cash to meet a short-term demand by customers, the central bank can lend
money to the bank at interest.

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The central bank controls monetary and exchange policy
The central bank is expected to maintain monetary stability of the country. It does this in
the various ways:
 Exchange: Bank of Botswana determines the external value of the pula. This is the
rate at which the pula exchanges with other major currencies. E.g. currently P1 =
R1.29.
 Administration of exchange control: exchange control is the means by which a
country protects its foreign exchange. Bank of Botswana is responsible for controlling
the foreign exchange on behalf of the government. It regulates the amount of foreign
exchange issued to commercial banks for sale.
 Interest rates: the central bank tries to regulate the interest rate. It does this by raising
↑ or lowering ↓ the interest charges on commercial banks on loans. When it raises its
interest rate, commercial banks also raise the interest rates to their customers. When
the central bank reduces its interest rate, the commercial banks also reduce theirs.
 Control of money supply and credit: the bank controls the supply of money and bank
credit. When banks create more credit, the bank deposit increases. For example, if
Bank A receives P1000 in cash as deposit from a customer, it is required by law to
keep 10% (=P100) and lend P900. If the P900 is lent it is possible that the borrower
will write cheques to make payments, so much of the P900 will remain in the bank.

4. Functions of the Commercial bank

 Commercial banks accept deposits on behalf of their clients in the form of current
accounts, savings accounts or fixed deposit accounts.
 Commercial banks deal in foreign exchange. They arrange for their customers to
by and sell foreign exchange and hence being regarded as sole agents in foreign
exchange dealings.
 Commercial banks grant loans to their clients. They lend money to clients in the
form of a loan or overdraft. A loan is a formal way of lending whilst an overdraft
is an informal method of bank lending. Both of these methods of lending are
charged interest which is credited on their loans.

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  Commercial banks give monetary and investment advice to their clients. They
advice their customers on how to invest their money and where to invest their
money as they are more knowledgeable about the financial and capital markets.
 Commercial banks keep valuable property such as jewellery and documents on
behalf of their clients.
 Commercial banks help customers to make and receive payments. If one has a
current account the commercial bank can assist by crediting creditors with written
cheques by clients and turning them into cash. The bank also deposits the cheque
amount into the creditors account. Banks also make payments on behalf of clients
when given instructions to do so. This method of payment is called standing order
and direct debit. In the same way the bank can receive payment on behalf of
clients either by means of a cheque or by standing order.

5. Types of accounts
A customer of a bank can use either of the following accounts to keep their money:

CURRENT ACCOUNT
A current account is the type of account from which the account holder can withdraw
money at any time. The current account holder is given a cheque book that he/she can
write cheques to make payment. This type of account does not earn interest but the
account holder has to pay the bank a small amount periodically for operating the account.
The charge is called the ‘cost of transactions’ or ‘ledger fee’. The client receives regular
statements from the bank showing funds coming in and going out of an account. This
type of account is suitable for a business which makes several payments daily.

SAVINGS ACCOUNT
A savings accounts for individuals who have surplus money and not only wants to keep it
safely but also wants to be able to withdraw some for use when it becomes necessary.
This type of account earns interest. Some savings account requires the client to give
notice to the bank when they want to withdraw some money. The account holders in
some banks are given pass books in which to record all deposits and withdrawals. This
type of account is not suitable for business people as they constantly use their money.

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FIXED DEPOSIT ACCOUNT
In this type of account money is deposited for a fixed period of time. The money can be
deposited for six months; one year etc. the account holder is given a fixed deposit
certificate as a proof of the account one has with the bank. The account holder has to give
seven days’ notice to the bank in case he or she wants to make any withdrawals from the
account.
This type of account earns interest which is often higher than the interest on savings
accounts. On the other hand the account holder does not make regular deposits into the
account as in the case of current and savings accounts.
Savings and fixed deposit account holders cannot write cheques to make payment. This is
only done from a current account.

WHY DO WE KEEP MONEY IN THE BANK?

 Money kept in the bank is not likely to be stolen or destroyed. If you keep money in
bank it is very safe and you can get it when you need it.
 Money kept in savings or deposit accounts earns more money in the form of
interest. Moreover the bank can advise you if there is any investment opportunity.
 Banks makes payment on behalf of customers. The account holder pays creditors by
writing cheques on money deposited in the bank in current account.
 Money saved in the bank is very important for formation of capital.

CHEQUE

Electronic Banking (Using an ATM)

Electronic banking is a mechanized system which allows an account holder to deposit

and withdraw cash from his or her account at any time of the day. it also provide the

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account holder with up to date information on the account, he can order a cheque book,
request for a mini statement of his or her account. Each bank has its own system which is
connected to its main computer.
Using an ATM

When the customer wishes to use the automatic teller machine he/she will do the
following
 Insert an ATM card which contains the personal account details
 Enter (key in) his/her personal identification number (PIN)
 Follow the instructions given by the machine
 Key in one of the instructions regarding his or her transaction

Advantages of electronic baking

 The ATM saves you time from writing a cheque or going into the bank to queue
for a long period of time.
 It costs very little to use the ATM. Most ATM transactions cost less than
transactions carried out in the bank by staff for bank customers.
 Customers do not have too carry large sums of money about. ATM cards which
are also debit cards can be used to pay for purchases without carrying cash. You
also do not have to keep large sums of money in the house because you can
withdraw money from the ATM when need arises.
 Electronic banking cards can be used at any time. Since the machines are stored in
the outside of the wall of the bank, you can go to withdraw money at any time.
Day or night.

Disadvantages
 Your card could be lost and there is a chance that whoever finds may use it.
 Customers must remember their PIN in order to gain access to their account.
 Sometimes an ATM is out of order. You then have to move from bank to bank.

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PROCEDURES FOR OPENING BANK ACCOUNTS
To open a bank account you will need to complete a form providing the bank with the
following information
 Your full name and address
 Specimen signature
 Reference
 Description of your occupation
 Sum of money

If the bank is satisfied with the information provided on the form, the account is opened
for you.

INTERNAL COMMUNICATION

Communication is the passing of information/messages between or among people.

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Internal communication is the passing of information/messages between or among staff
within an organisation.

PURPOSE OF TELECOMMUNICATION
Telecommunication occurs when people in organisations communicate by using the
telephone. This makes communication to be much easier, fast and convenient for those in
different places.

COMMUNICATION CHANNELS IN ORGANISATIONS

Most organisations have a hierarchy which people occupy at different levels. This
influences communication channels within an organisation. For example,
supervisors/managers are on a different level to their workers/subordinates. The various
hierarchy levels in organisations are as follows;

Manager/Supervisor

↕V
Worker/ Subordinate ↔ Worker/ Subordinate

H
Vertical communication – communication that occurs between people on different
levels.
Upward vertical communication – this channel occurs if the sender is a worker
addressing the manager.
Downward vertical communication – when the manager replies the subordinate, the
channel is downward.
Horizontal communication – when staff on the same level communicates with each other
e.g. a worker communicates with a co-worker.

MAIN METHODS OF COMMUNICATION

People communicate either using oral communication or through written communication.

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ORAL COMMUNICATION
Information can be communicated orally in the following ways;
 Face to face – people talk to each other.
 Telecommunication – use if the telephone to communicate.
 Interview – a form of verbal communication done face to face.
 Radio – also a form of verbal communication where information is communicated
through a media.
 Radio call service – people might call in to share ideas, query and listen to
important messages being communicated through the radio.
 Meetings – involves a group of staff/people spreading information, share ideas,
reaching decisions or resolving a particular problem.

PLANNING EFFECTIVE COMMUNICATION

Communication is effective when the idea or message, as it was initiated and intended
by the sender, corresponds closely with the message as it is perceived and responded
by the receiver.

Receiving information
The following can help you to listen effectively;
- Be natural and relax.
- Listen attentively – avoid disturbance form those around you, listen and get the
main points from what the speaker is saying.
- Do not interrupt the speaker – show interest in the speaker and allow him or her
to speak uninterrupted.
- Take note of important information: you should not forget what has been said,
write down important information such as telephone numbers, names, address,
reference numbers and appointment dates.

Conveying information
Sending information is as important as receiving information. Below are guidelines to
help one communicate effectively;

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 - Organize your thoughts: think before you speak or write, what comes of your
mouth will have an effect on the listener.
- Present your message logically and clearly – begin by saying what you expect
the listener to know, and then build on with new information.
- Use simple sentences and avoid jargon – you communicate with the aim for the
listener to understand not to show off.
- Be polite and considerate.
- Say what you mean and mean what you say – do not expect the listener to
interpret what you mean. It is your responsibility to make the listener understand
what you are saying.

WRITTEN COMMUNICATION
Written communication involves passing information from one person to another through
writing. The following media are often used in offices.
 Letters and memos: letters are printed or typed messages usually enclosed in
envelopes. Memos are short notes passed within the organisation.
 Notices : when an announcement it to be communicated to everybody it is written
and put n the notice board or a place where everybody can read it.
 Savingrams: it is sometimes known as a newsletter if it is only written
occasionally. A savingram can be used for general information on the operations
of the business. In Botswana, they re used to pass information between
government departments instead of letters.
 Minutes: minutes are written to record proceedings and resolutions of a meeting.
They are a summary written by the secretary from notes taken during the meeting.
Copies are usually sent to the members shortly after the meeting. They are kept to
preserve a brief, accurate and clear record of the business discussed.
 Traveling itinerary: this is a plan of a journey. It includes details of how you will
travel, when you will travel, whet mode of transport will be used, and any other
useful travel information.

MACHINES USED IN COMMUNICATION

Below is an illustration of the common machines used in communication and their usage.

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 METHOD OF
COMMUNICATION
Oral communication
Oral communication
Oral communication
Oral communication
Oral communication
Written communication
Written communication
MACHINE USED HOW THE MACHINE WORKS
Telephone Speaker and listener talk to each other on
the telephone
Radio Messages are broadcast by the radio station
e.g. RB1/2
Answering machine In the absence of the person intended to
receive the telephone call the answering
machine records the message.
Intercom Information is sent through the speakers
within an organisation.
Radio call services The business hires the radios to
communicate within the organisation.
Fax (facsimile) Exact copy of the original is transmitted
from one fax machi9ne to another via a
telephone line.
Telex machines Messages are typed on one telex machine
and received by another machine.

SECURITY AND CONFIDENTIALITY OF INFORMATION

NB: it is important for subordinates in an organisation to safeguard the information they
receive and also regard information as an asset which must be protected. This information
must not be shared with competitors who might end up using their concepts or ideas.

MONEY
1. Definition
Money is anything used to make payments. It can either be cash, cheques and debit cards
or any other forms of payment.

2. Qualities of money
Money must have the following qualities:
Money must be durable: the medium used to make money should last for a long time. It
should not be easily damaged or destroyed. Coins are durable as they last longer and are
not easily destroyed. Notes on the other hand, are made from special paper which lasts
longer than ordinary paper.

Money must be portable: the material used to make money should be easy to carry
around to avoid employing someone to carry it for you.

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Money must be divisible: the unit used as money should be capable of being divided
into smaller amounts. In Botswana we have money divided into a number of coins and
notes: 5t, 10t, 25t, 50t. P1, P2, P5, P10, P20, P50, P100, P200. Such divisions make it
possible for us to make payments in different amounts easily.

Money must be easily recognized: the material should be easily recognized and
therefore readily accepted. One unit of money should be clearly differentiated from the
other e.g. P10 is greenish in colour whilst P100 is bluewish in colour.

Money must be uniform in quality: the quality of the material should be the same for
each piece of money. E.g. all 50 thebe coins should be of the same quality; in the same
way P20 or P200 notes should be the same in quality.

3. Functions of money
Money has a number of functions which are:
 Money is a medium of exchange: money enables people to exchange one
commodity or service for another without any difficulty. In this way, money acts
as an intermediary by allowing us to exchange one commodity for another.
 Money is a measure of value: money helps us to put value on goods and
services. With this function we are able to compare the value of different things
e.g. comparing a pack of Mealie meal sold at Choppies or at Shoprite.
 Money is a store of value: money allows us to save part of our present income
for future use. E.g. we can keep our money at the bank.
 Money is a means of keeping accounts: money enables goods to be sold today
and payment to be done at a later date (in future). This can also be referred to as
“deferred payment”. Debts are recoded so that we are able to collect them later.

4. Forms of money
 The commonly used forms of money in Botswana are notes and coins. These are
the legal tender of the country.

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  Money is also kept on deposit at the bank. This money is kept at the bank or other
financial institutions for cheques to be drawn on. A cheque is a means of
transferring money from one bank account into another.

5. BANKS
1. What is a bank?
A bank is an organisation that accepts money and other valuables for safekeeping, and
lends money in order to earn interest.

2. Types of banks
 The Central bank: the central bank in any county is owned by government and is
responsible for keeping the accounts of the state and other banks. An example that
can be given in Botswana is Bank of Botswana and its main customers are the
government of Botswana and the commercial banks.
 Commercial banks: these are financial institutions set up to make profit for its
owners by accepting deposits and lending the deposits to borrowers at interest.

25
 The bank accepts deposits from the public and pays a rate of interest lower than
the rate of interest its borrowers are charged. The difference between the two rates
in the bank’s profit.
The deposits accepted by a bank re kept in different types of accounts such as current
accounts on which cheques can be drawn, savings accounts and fixed deposit
accounts. Apart from accepting deposits from individuals and businesses and making
loans to them, such banks also transfer funds on behalf of their customers. E.g. of
commercial banks are Barclays bank, Standard Chartered bank, First National bank,
Stanbic bank, Bank Gaborone, Bank of Baroda, Banc ABC.
 Development banks: These banks are set up to provide long term capital for the
development of agriculture and industry. A development bank obtains most of its
funding from the government who sets it up. E.g. The National Development
Bank provides the start-up capital to develop enterprises.
 Savings banks: these are financial institutions set up to assist small savers to save
their surplus money. In Botswana we have Botswana Savings Bank which
provides ordinary savings accounts, special savings accounts and a save-as-you-
earn scheme with differing interest rates. BSB also operates the Ipelegeng loan
scheme which is a personal loan scheme offered to save-as-you-earn and special
savings account holders.

3. Functions of the Central bank

The central bank issues currency
The Bank of Botswana issues the currency of the country in the form of notes and coins.
Apart from issuing the notes and coins, the central bank also maintains the quality of the
currency – thus it withdraws all worn out notes and coins from circulation and replaces
them.
The central bank is a banker to commercial banks
A central bank is a banker to the commercial banks and other financial institutions. It also
plays an important role of clearing of cheques. Everyday cheques are drawn by customers
of a bank on their accounts. These cheques are exchanged by other banks or bank
officials twice each week. At the end of the exchange, banks which owe others write

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cheques on their accounts at the central bank to pay. The central bank then makes
payments on behalf of commercial banks.

The central bank is a banker to the government

The central bank acts as a banker and monetary advisor to the government. It receives all
the moneys paid to the government and make payments on behalf of the government at
home and abroad. All the taxes collected go to the central bank. It advises the
government on different aspects of financial policy. It also advises the government and
public corporations on the timing, as well as terms and conditions of borrowing.
The central bank controls foreign currency
A central bank controls the foreign currency reserves of the country. The bank manages
the foreign reserves of a country by investing in liquid assets in different major currencies
such as US dollars, pounds sterling, Deutsche marks and Japanese yen. It makes sure that
receipts of foreign exchange can meet the payments.
The central bank supervises commercial banks
A central bank is responsible for licensing, regulating and supervising the other
commercial institutions. The purpose of this is to make sure that only genuine people set
up businesses as banks.
The central bank is the lender of last resort
The bank lends money to commercial banks which are short of cash. If the commercial
bank wants cash to meet a short-term demand by customers, the central bank can lend
money to the bank at interest.
The central bank controls monetary and exchange policy
The central bank is expected to maintain monetary stability of the country. It does this in
the various ways:
 Exchange: Bank of Botswana determines the external value of the pula. This is the
rate at which the pula exchanges with other major currencies. E.g. currently P1 =
R1.29.
 Administration of exchange control: exchange control is the means by which a
country protects its foreign exchange. Bank of Botswana is responsible for controlling

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 the foreign exchange on behalf of the government. It regulates the amount of foreign
exchange issued to commercial banks for sale.
 Interest rates: the central bank tries to regulate the interest rate. It does this by raising
↑ or lowering ↓ the interest charges on commercial banks on loans. When it raises its
interest rate, commercial banks also raise the interest rates to their customers. When
the central bank reduces its interest rate, the commercial banks also reduce theirs.
 Control of money supply and credit: the bank controls the supply of money and bank
credit. When banks create more credit, the bank deposit increases. For example, if
Bank A receives P1000 in cash as deposit from a customer, it is required by law to
keep 10% (=P100) and lend P900. If the P900 is lent it is possible that the borrower
will write cheques to make payments, so much of the P900 will remain in the bank.

4. Functions of the Commercial bank

 Commercial banks accept deposits on behalf of their clients in the form of current
accounts, savings accounts or fixed deposit accounts.
 Commercial banks deal in foreign exchange. They arrange for their customers to
by and sell foreign exchange and hence being regarded as sole agents in foreign
exchange dealings.
 Commercial banks grant loans to their clients. They lend money to clients in the
form of a loan or overdraft. A loan is a formal way of lending whilst an overdraft
is an informal method of bank lending. Both of these methods of lending are
charged interest which is credited on their loans.
 Commercial banks give monetary and investment advice to their clients. They
advice their customers on how to invest their money and where to invest their
money as they are more knowledgeable about the financial and capital markets.
 Commercial banks keep valuable property such as jewellery and documents on
behalf of their clients.
 Commercial banks help customers to make and receive payments. If one has a
current account the commercial bank can assist by crediting creditors with written
cheques by clients and turning them into cash. The bank also deposits the cheque
amount into the creditors account. Banks also make payments on behalf of clients

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 when given instructions to do so. This method of payment is called standing order
and direct debit. In the same way the bank can receive payment on behalf of
clients either by means of a cheque or by standing order.

5. Types of accounts
A customer of a bank can use either of the following accounts to keep their money:

CURRENT ACCOUNT
A current account is the type of account from which the account holder can withdraw
money at any time. The current account holder is given a cheque book that he/she can
write cheques to make payment. This type of account does not earn interest but the
account holder has to pay the bank a small amount periodically for operating the account.
The charge is called the ‘cost of transactions’ or ‘ledger fee’. The client receives regular
statements from the bank showing funds coming in and going out of an account. This
type of account is suitable for a business which makes several payments daily.

SAVINGS ACCOUNT
A savings accounts for individuals who have surplus money and not only wants to keep it
safely but also wants to be able to withdraw some for use when it becomes necessary.
This type of account earns interest. Some savings account requires the client to give
notice to the bank when they want to withdraw some money. The account holders in
some banks are given pass books in which to record all deposits and withdrawals. This
type of account is not suitable for business people as they constantly use their money.

FIXED DEPOSIT ACCOUNT

In this type of account money is deposited for a fixed period of time. The money can be
deposited for six months; one year etc. the account holder is given a fixed deposit
certificate as a proof of the account one has with the bank. The account holder has to give
seven days’ notice to the bank in case he or she wants to make any withdrawals from the
account.

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This type of account earns interest which is often higher than the interest on savings
accounts. On the other hand the account holder does not make regular deposits into the
account as in the case of current and savings accounts.
Savings and fixed deposit account holders cannot write cheques to make payment. This is
only done from a current account.

6. Why do we keep money in the bank?

 Money kept in the bank is not likely to be stolen or destroyed. If you keep money in
bank it is very safe and you can get it when you need it.
 Money kept in savings or deposit accounts earns more money in the form of
interest. Moreover the bank can advise you if there is any investment opportunity.
 Banks makes payment on behalf of customers. The account holder pays creditors by
writing cheques on money deposited in the bank in current account.
 Money saved in the bank is very important for formation of capital.

Electronic Banking (Using an ATM)

Electronic banking is a mechanized system which allows an account holder to deposit

and withdraw cash from his or her account at any time of the day. it also provide the
account holder with up to date information on the account, he can order a cheque book,
request for a mini statement of his or her account. Each bank has its own system which is
connected to its main computer.
Using an ATM

When the customer wishes to use the automatic teller machine he/she will do the
following
 Insert an ATM card which contains the personal account details
 Enter (key in) his/her personal identification number (PIN)
 Follow the instructions given by the machine
 Key in one of the instructions regarding his or her transaction

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Advantages of electronic baking
 The ATM saves you time from writing a cheque or going into the bank to queue
for a long period of time.
 It costs very little to use the ATM. Most ATM transactions cost less than
transactions carried out in the bank by staff for bank customers.
 Customers do not have too carry large sums of money about. ATM cards which
are also debit cards can be used to pay for purchases without carrying cash. You
also do not have to keep large sums of money in the house because you can
withdraw money from the ATM when need arises.
 Electronic banking cards can be used at any time. Since the machines are stored in
the outside of the wall of the bank, you can go to withdraw money at any time.
Day or night.

Disadvantages
 Your card could be lost and there is a chance that whoever finds may use it.
 Customers must remember their PIN in order to gain access to their account.
 Sometimes an ATM is out of order. You then have to move from bank to bank.

Procedures for opening bank accounts

To open a bank account you will need to complete a form providing the bank with the
following information
 Your full name and address
 Specimen signature
 Reference
 Description of your occupation
 Sum of money

If the bank is satisfied with the information provided on the form, the account is opened
for you.

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