POB

• Subsistence economy


  One in which people simply produce enough to survive on an individual, family or group basis
• Subsistence economies were used in early societies before money was invented
• As soon as these early societies started to look outwards to obtain food and possessions that they didn't produce themselves, they needed to trade
• Barter


  Helpful for trading, but it only goes so far, because in order to barter you need to have something that others want
• Monetary systems developed to combat many of the problems associated with bartering
• Market or money economies

  Developed as a way of making purchases from others, using money
• Cowrie shells


  One of the earliest forms of money
• Characteristics of cowrie shells that made them acceptable as money

  • Scarcity
  • Acceptability
  • Portability
  • Durability
  • Divisibility
• Functions of money


  As a medium of exchange, unit of account, and store of value
• Cowrie shells were used as money
• Barter


  The exchange of goods or services for other goods or services without the use of money
• Double coincidence of wants


  Two people who each have something the other wants
• Barter development


  1. Business activity only became possible when a means of exchanging goods and services was developed

  2. Development of money enabled the development of a trading economy, and therefore the development of business
• Business activity is concerned principally with producing and selling goods and services to consumers
• Before money, people would barter, exchanging goods directly (e.g. chickens for wheat)
• Barter requires a double coincidence of wants - two people who each have something the other wants
• Items used instead of directly exchanging goods

  • Shells
  • Beads
  • Precious metals
  • Animal teeth
• Bartering still happens today, particularly on websites that allow people to swap goods or services
• Advantages of bartering


  • Facilitates trade without money
  • Disposal of surplus
  • Availability of goods
• Disadvantages of bartering


  • Trade is not possible if there is no double coincidence of wants
  • There is often no equitable way of dividing the value of the exchange
  • There are often difficulties in storing the bartered goods
• Instrument of exchange


  Anything that enables a transaction to take place. It allows money (or goods) to move from the buyer to the seller.
• Barter


  Trading items. Advantages: Easy to use, any item can be traded. Disadvantages: Relies on double coincidence of wants, and some items cannot be divided.
• Bill of exchange


  An unconditional order from one person/organisation (the drawer) to another (the drawee) agreeing to make a payment in the future. Advantages: Payment is guaranteed on a specific date. Disadvantages: Often does not give instant funds.
• Electronic transfer


  Any transfer of funds or payment that is made electronically. Advantages: Can be done safely, quickly, without the need for detailed paper records, and large numbers of transactions can be carried out simultaneously. Disadvantages: Online fraud is becoming increasingly common, it can be easy to make mistakes when entering details online, and electronic systems sometimes crash.
• Tele-banking


  Making banking transactions using a computer network
• 1. commerce


  Trading goods using online communications
• Cheque


  A printed form (printed by a bank and sent to customers in a cheque book) where the person wanting to make a payment (the drawer) fills out the cheque to instruct their bank to pay a specific payee/person/business. Advantages: Cheques are guaranteed as a means of payment, they can be stopped (depending on the funds in the drawee's account), and are safe because coins and notes do not have to be carried around or stored. Disadvantages: Cheques are becoming less widespread today as they are being replaced by online payment systems.
• Drawer


  A person making out a bill of exchange, such as a cheque, ordering the payment of funds.
• Drawee


  Usually the bank responsible for following the drawer's instruction to transfer funds to the payee.
• Payee


  A person entitled to payment by the drawee as a result of instructions made by the drawer.
• Money order


  Can be paid for at a bank, post office or telegraph office. The establishment then sends it to the payee. Advantages: Enables the transfer of money by those who do not have bank accounts. Good for transfer of funds overseas. Disadvantages: A slow process when compared with electronic means of transferring funds.
• Debit card


  A means of payment where the details of the card are 'read' by a card machine, and funds are transferred directly and immediately from the user's account to the person/account they are paying. Advantages: Ease of use for making payments, and the transaction is recorded electronically. Debit cards also enable users to withdraw cash from an ATM. Disadvantages: Money comes out almost instantly, so if the money is not in the account, it will become overdrawn and liable for fines.
• Coins and bank notes

  Round metal or paper items that are used as legal tender. Advantages: Easy to use, and widely used. Disadvantages: Forgery is common, and governments have to constantly find ways to prevent fake coins and notes from circulating.
• Credit card


  A card used to make payments on credit - the user is effectively borrowing money (from a finance house which is usually owned by a bank) to make a payment. Advantages: Users can borrow money before they actually have the money themselves. Disadvantages: Users can end up paying high rates of interest if they do not pay charges in full.
• Bank draft


  A cheque made out by a bank on behalf of a customer, to allow the customer to make a substantial payment, for example when buying a house or a car. Advantages: As it is the bank making out the draft, the person receiving it as payment (the seller) feels reassured that the payment will be made. Disadvantages: Drafts could be lost or stolen. They can also be expensive to set up if used frequently.
• Automated teller machine (ATM)


  A machine that dispenses cash. Users put their bank card or credit card into a slot, input a personal identification number (PIN), select a given sum and wait to receive notes. ATMs can also be used to withdraw and deposit funds, transfer money and view account balances.
• Telegraphic money transfer


  A fast way of transferring money, usually from an account in one country to an account in another country (sometimes referred to as a wire transfer).
• Treasury bill


  A short-term debt obligation backed by the government with a maturity of less than one year.
• Bank transfer


  A transfer of funds from one bank account to another.
• 1. money, mobile money and mobile wallets


  Payment systems that allow users to make financial transactions using a mobile device such as a mobile phone.