WAEC SSCE - Commerce - 2000 (Essay)

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(a) Five ways by which the Central Bank regulates the activities of commercial banks

1. Open market operations (OMO): The Central Bank buys or sells government securities in the open market to increase or reduce the amount of money in the hands of commercial banks, thereby controlling their ability to lend.
2. Bank (discount) rate policy: By raising or lowering the rate at which it lends to commercial banks, the Central Bank makes credit dearer or cheaper and so controls the volume of lending.
3. Cash reserve/liquidity ratio requirement: It compels commercial banks to keep a certain proportion of their deposits as reserves, which limits the amount they can lend out.
4. Special deposits (special directives): The Central Bank may require commercial banks to lodge additional deposits with it, reducing the funds available for lending.
5. Moral suasion and direct directives: It appeals to or directs banks to follow particular lending policies, such as favouring priority sectors like agriculture.

(Selective credit control and issuing guidelines/regulations are also acceptable.)

(b) Five factors a bank manager considers in granting loans to customers

1. Character (integrity) of the borrower: The manager considers the honesty and past record of the customer in repaying debts.
2. Capacity to repay: He assesses the customer's income and ability to repay the loan with interest.
3. Collateral security: He requires assets such as land, buildings or shares that can be sold to recover the loan if the customer defaults.
4. Purpose of the loan: The manager examines whether the loan will be used for a viable and lawful venture that can generate returns.
5. Capital of the borrower: He considers the customer's own contribution or net worth in the venture, as this shows commitment and reduces risk.

(The period of repayment and prevailing economic conditions are also acceptable.)

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(a) Six reasons why manufacturers pre-package their products

1. To protect the product: Packaging shields goods from damage, dirt, moisture and contamination during handling and transport.
2. To make handling and carriage easier: Pre-packaged goods in standard sizes are easier to load, stack, transport and store.
3. For easy identification and advertising: The package carries the brand name and colours, which help buyers recognise the product and act as silent advertising.
4. To provide information to the consumer: Labels give details such as ingredients, weight, price, directions for use and expiry date.
5. To ensure accurate measurement: Goods are pre-weighed or pre-measured into fixed quantities, saving time at the point of sale and reducing disputes.
6. To make the product attractive and boost sales: Attractive packaging appeals to customers and encourages them to buy.

(Preserving perishable goods and preventing pilfering are also acceptable.)

(b) Four disadvantages of pre-packaging

1. It increases the cost of the product: The cost of packaging materials and labour is added to the price the consumer pays.
2. The buyer cannot inspect the contents: Sealed packages prevent customers from examining the actual goods before buying.
3. It creates environmental (waste) problems: Discarded packaging materials litter the environment and cause pollution.
4. It can be used to deceive customers: A large or attractive package may contain a small quantity, misleading the buyer as to the true content.

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(a) Five reasons why tariffs are imposed on imports

1. To raise revenue for the government: Import duties are an important source of income used to finance public services.
2. To protect infant/local industries: By making imported goods more expensive, tariffs enable young home industries to compete and grow.
3. To discourage the importation of harmful or undesirable goods: High tariffs reduce the inflow of goods considered dangerous or luxurious.
4. To improve the balance of payments: By reducing imports, tariffs help to correct an unfavourable balance of payments and conserve foreign exchange.
5. To prevent dumping: Tariffs discourage foreign firms from flooding the country with cheap goods that would ruin local producers.

(Retaliation against another country's trade barriers is also acceptable.)

(b) Five functions performed by the customs authority

1. Collection of import and export duties: It assesses and collects duties on goods entering and leaving the country.
2. Prevention of smuggling: It patrols borders, ports and airports to stop the illegal movement of goods.
3. Inspection and examination of goods: It checks imports and exports to ensure they agree with the documents and are not prohibited.
4. Compilation of trade statistics: It keeps records of goods imported and exported, which are used to compute the country's trade figures.
5. Enforcement of trade regulations: It ensures that quotas, bans and other government trade laws are obeyed.

(Protecting society by preventing the entry of prohibited or dangerous items such as drugs is also acceptable.)

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(a) Five features of itinerant trading

Itinerant traders are small-scale retailers who move about from place to place with their goods instead of trading from a fixed shop. Their features include:

1. Mobility: The trader moves from place to place, taking goods to where customers are found.
2. Small capital: The business is started and run with very little money.
3. No fixed premises: The trader operates without a permanent shop, so no rent or rates are paid.
4. Small stock of goods: Only a limited quantity and variety of goods is carried at a time.
5. Direct dealing with consumers: The trader sells directly to the final consumer, usually for cash.

(Sale of mainly convenience/everyday goods and one-man operation are also acceptable.)

(b) Five features of a supermarket

1. Self-service: Customers pick goods from open shelves themselves and pay at the checkout, so few sales assistants are needed.
2. Wide variety of goods: It sells a large range of items, mainly groceries and household goods, all under one roof.
3. Fixed prices and price labelling: Goods are pre-priced and sold at fixed prices, so there is no bargaining.
4. Large-scale operation: It requires large capital, operates from large premises and buys in bulk.
5. Payment at a central checkout point: All purchases are paid for at a single cash point before leaving the store.

(Sale of pre-packaged goods and cash-only sales are also acceptable.)

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Five factors that adversely affect the growth of commerce in West Africa

1. Inadequate capital: Most businesses in West Africa are small and lack sufficient funds to expand, while credit facilities from banks are limited and interest rates are often high. This restricts the growth of trade and industry.
2. Poor transport and communication infrastructure: Bad roads, inadequate railways and unreliable telecommunication facilities make the movement of goods and information slow and costly, hindering the smooth flow of commerce.
3. Low level of technology: The sub-region relies heavily on outdated methods and imported machinery. Poor technology lowers the quantity and quality of goods produced for trade.
4. Political instability: Frequent changes of government, civil unrest and insecurity discourage both local and foreign investors and disrupt business activities.
5. Low purchasing power (poverty) and small markets: Widespread poverty and low incomes mean that demand for goods and services is small, so businesses cannot easily grow.

(Other valid factors include unstable government policies and multiple taxation, shortage of skilled manpower, unreliable power/electricity supply, and dependence on imported goods with weak local production.)

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(a) Four insurance policies available to a ship owner

1. Hull insurance: Covers the ship itself against loss or damage from perils of the sea such as sinking, collision, grounding and storm.
2. Freight insurance: Protects the ship owner against loss of freight (carriage charges) where cargo is lost or the voyage is not completed.
3. Protection and Indemnity (P&I) / liability insurance: Covers the ship owner's legal liability to third parties for injury, death, or damage caused by the ship, and for pollution.
4. Cargo insurance: Covers loss of or damage to the goods carried on the ship while in transit, protecting the interest of the owner of the goods.

Other acceptable policy: crew (personal accident) insurance covering injury or death of the crew.

(b) Indemnity and non-indemnity insurance

Indemnity insurance restores the insured to the exact financial position he was in before the loss, without allowing him to make a profit. The compensation is measured by the actual loss suffered. Examples: fire insurance and marine (cargo) insurance.

Non-indemnity insurance pays an agreed fixed sum on the happening of the insured event, because the subject matter (human life) cannot be valued in money terms. Examples: life assurance and personal accident insurance.

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(i) Marketing concept

The marketing concept is a business philosophy which holds that the key to achieving the goals of an organisation is to identify the needs and wants of the target customers and satisfy them more effectively and efficiently than competitors do. It puts customer satisfaction at the centre of all business activities, so that the firm produces what it can sell rather than trying to sell what it can produce.

(ii) Marketing mix

The marketing mix is the combination of the controllable elements that a firm blends together to satisfy its target market and achieve its objectives. It is commonly known as the 4 Ps: Product (the goods or services offered), Price (the amount charged), Place (the channels and location through which goods reach the buyer) and Promotion (advertising and other efforts to inform and persuade customers).

(iii) Market segmentation

Market segmentation is the process of dividing a large, varied market into smaller groups of buyers who have similar needs, tastes or characteristics, so that the firm can serve each group more effectively. Markets may be segmented on the basis of age, sex, income, occupation, taste or geographical location.

(iv) Product differentiation

Product differentiation is the effort by a producer to make his product appear different from and more attractive than similar products of competitors. This is done through features such as branding, special packaging, quality, design or colour, so that customers can distinguish it and develop a preference for it.

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(a) Difference between industry and commerce

Industry is concerned with the actual production of goods and provision of direct services, that is, the extraction of raw materials, their processing and manufacture into finished goods, and construction. Commerce is concerned with the distribution and exchange of goods and services and all the activities that aid this distribution. In short, industry produces the goods while commerce makes them available to consumers where and when they are needed.

(b) Five types of commercial occupations and three types of industrial occupations

Commercial occupations

1. Trade: The buying and selling of goods, including home trade (retail and wholesale) and foreign trade (import and export).
2. Banking: Provides finance, accepts deposits, grants loans and aids the settlement of debts.
3. Insurance: Provides protection against risks and losses to business and property.
4. Transport (transportation): Moves goods and people from one place to another, creating place utility.
5. Advertising and communication: Informs and persuades customers about goods and services and links buyers with sellers.

(Warehousing is also acceptable as a commercial occupation.)

Industrial occupations

1. Extractive industry: Draws raw materials from nature, for example mining, fishing, farming and lumbering.
2. Manufacturing (constructive/genetic) industry: Converts raw materials into finished or semi-finished goods, for example making textiles, cement and vehicles.
3. Construction industry: Assembles materials to build roads, bridges, dams and houses.

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(a) Five aims for establishing ECOWAS (Economic Community of West African States)

1. To promote free trade among member states: ECOWAS aims to remove trade barriers such as tariffs and quotas so that goods can move freely within the sub-region.
2. To promote economic cooperation and integration: It seeks to unite the economies of member states for faster development.
3. To ensure free movement of persons, goods and capital: Citizens of member states can move, live and do business across borders without unnecessary restrictions.
4. To raise the standard of living of member states' citizens: Through joint development projects and trade, it aims to improve incomes and welfare.
5. To promote joint development of infrastructure and cooperation in areas such as transport, communication, industry and agriculture: Member states pool resources to develop common facilities.

(Maintaining peace, stability and security in the sub-region is also acceptable.)

(b) Five aims for establishing the IMF (International Monetary Fund)

1. To promote international monetary cooperation: The IMF provides a forum for member countries to consult on monetary matters.
2. To promote exchange-rate stability: It works to maintain orderly exchange arrangements and avoid competitive devaluation of currencies.
3. To grant loans to member countries with balance-of-payments problems: It provides financial assistance to help members correct deficits without resorting to harmful measures.
4. To promote the expansion and balanced growth of international trade: By stabilising currencies, it encourages the growth of world trade.
5. To provide technical and financial advice to member countries: It advises members on sound economic and monetary policies.

(Assisting in the establishment of a multilateral system of payments is also acceptable.)

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(a) Seven problems sole proprietors are likely to face on forming a partnership

1. Sharing of profit: Profit which the sole proprietor formerly enjoyed alone must now be shared among the partners.
2. Loss of sole/absolute control: Each former owner can no longer take decisions alone; decisions must be taken jointly, which can be frustrating.
3. Disagreements and quarrels: Differences in opinion, temperament and business ideas among partners may lead to conflicts that disrupt the business.
4. Unlimited liability: The partners are jointly and severally liable for the debts of the firm, so one partner's private property may be used to settle the firm's debts.
5. Liability for the acts of other partners: Since each partner is an agent of the firm, one partner can bind the others by his actions, and all suffer for the mistakes or dishonesty of one.
6. Delay in decision-making: Because major decisions require consultation and agreement, action may be slow, causing the firm to miss opportunities.
7. Difficulty in withdrawing capital and instability: A partner cannot easily withdraw his capital, and the death, insanity or bankruptcy of one partner can bring the whole firm to an end.

(Continuity problems and difficulty in transferring one's share are also acceptable.)

(b) Three conditions suitable for the formation of a partnership business

1. When more capital is required: A partnership is suitable where the business needs more funds than one person can provide.
2. Where different skills are needed: It suits situations where the venture requires the combined expertise of several people, such as a firm of lawyers, doctors or accountants.
3. Where mutual trust exists among the persons: Partnership is suitable when the intending partners know, trust and are willing to cooperate with one another in good faith.

(A desire to spread risk and share responsibility is also acceptable.)