WAEC SSCE - Commerce - 2006 (Essay)

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(a) Seven functions of a commercial bank

1. Acceptance of deposits: it receives and keeps customers' money safely in current, savings and fixed deposit accounts.
2. Granting of loans and overdrafts: it lends money to customers and allows overdrafts to meet their needs.
3. Means of payment: it provides cheques, standing orders and other instruments for settling debts without cash.
4. Agent for payments: it pays and collects money on behalf of customers, such as standing orders and dividends.
5. Safe keeping of valuables: it keeps important documents and valuables for customers in its strong-rooms and safe-deposit boxes.
6. Foreign exchange services: it buys and sells foreign currencies and helps in financing foreign trade.
7. Provision of financial advice and references: it advises customers on investment and gives status enquiries/references on their behalf.

(b) Three types of accounts operated in a commercial bank

1. Current account: a running account from which money can be withdrawn at any time by cheque; it usually earns no interest and may attract bank charges.
2. Savings account: an account that encourages small savers; it earns interest and withdrawals are limited, often needing a passbook or card.
3. Fixed deposit account: money is deposited for a fixed period and cannot be withdrawn before it matures; it earns a higher rate of interest.

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(a) Differences

(i) Shareholders and debenture holders

(ii) Ordinary shares and preference shares

(b) Four reasons for winding up a public limited company

1. When the company is insolvent and unable to pay its debts.
2. When the objectives for which it was formed have been achieved or become unlawful.
3. By order of the court following fraud or serious mismanagement.
4. When the members pass a special resolution to wind it up voluntarily, or the number of members falls below the legal minimum.

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(a) What is foreign trade?

Foreign (external) trade is the buying and selling of goods and services between one country and another. It includes import trade, export trade and entrepot (re-export) trade.

(b) Four ways foreign trade differs from home trade

(c) Five reasons why countries restrict foreign trade

1. To protect infant (young) home industries from foreign competition.
2. To reduce a deficit in the balance of payments.
3. To raise government revenue through import and export duties.
4. To prevent the importation of dangerous or harmful goods.
5. To conserve scarce foreign exchange and prevent dumping of foreign goods.

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(a) One use of each document

• (i) Letter of enquiry: It is written by a prospective buyer to a seller to request information about goods, such as prices, quality, terms of trade and availability, before placing an order.
• (ii) Invoice: It informs the buyer of the full details and total amount owed for goods sold on credit, showing quantity, description, unit price, trade discount and the net amount payable.
• (iii) Advice note: It is sent by the seller to notify the buyer that the ordered goods have been despatched and are on their way, so that the buyer can prepare to receive them.
• (iv) Credit note: It is sent by the seller to reduce the amount owed by the buyer, usually issued when goods are returned, when an overcharge has been made on the invoice, or for returned empties.
• (v) Statement of account: It is a periodic (usually monthly) summary sent by the seller showing the opening balance, invoices, credit notes, payments and the closing balance owed, serving as a request for payment.
• (vi) Debit note: It is sent by the seller to increase the amount owed by the buyer, usually issued to correct an undercharge on the invoice or to charge for goods omitted from the original invoice.

(b) Automatic vending

Advantages

• It provides service twenty-four hours a day, allowing customers to buy even when shops are closed.
• It saves labour cost because no shop assistant or salesman is required to attend to customers.

Disadvantages

• The machine can develop faults or jam, causing loss of money or failure to deliver goods to the customer.
• It is limited to small, standardised, low-value items and cannot handle bargaining, credit sales or personal service.

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(a) Define marketing mix

Marketing mix is the combination of the controllable elements (product, price, place and promotion) that a firm blends together to satisfy the needs of its target customers and to achieve its marketing objectives.

(b) Marketing concept

The marketing concept is the business philosophy which holds that the firm should first find out the needs and wants of customers and then produce goods and services to satisfy those needs at a profit. It puts the customer, rather than the product, at the centre of all business decisions.

(c) The four elements of marketing mix (the 4 Ps)

1. Product: the good or service offered for sale, including its quality, design, brand, packaging and after-sales service, made to satisfy customer needs.
2. Price: the amount of money charged for the product; it must be set to attract customers and yet earn profit, using methods such as discounts and credit terms.
3. Place (distribution): the channels and methods used to make the product available to customers at the right place and time, including wholesalers, retailers and transport.
4. Promotion: the activities used to inform and persuade customers to buy the product, such as advertising, sales promotion, personal selling and publicity.

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(a) What is non-indemnity insurance?

Non-indemnity insurance is a type of insurance in which the insurer pays a fixed sum of money agreed in advance on the happening of the insured event, without trying to measure the actual loss suffered. It applies where the loss cannot be valued in money terms, such as loss of life or limb. Life assurance and personal accident insurance are examples.

(b) Three types of life assurance policies

1. Whole life policy: premiums are paid throughout the life of the insured, and the sum assured is paid to the named beneficiaries only when the insured dies.
2. Endowment policy: premiums are paid for a fixed number of years, and the sum assured is paid to the insured at the end of that period, or to the beneficiaries earlier if he dies before it matures.
3. Term (temporary) policy: covers the insured for a fixed period only; the sum assured is paid only if the insured dies within that period, and nothing is paid if he survives it.

(c) Surrender value

Surrender value is the amount of money the insurance company pays back to a policyholder who decides to cancel (surrender) a life policy before it matures. It is usually less than the total premiums paid.

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(a) What is turnover?

Turnover is the total value of the net sales (goods sold to customers) made by a business over a given trading period. It is the sales figure after deducting returns inwards, and it is used to measure the volume of business done.

(b) Mrs. Lulu's trading items

(i) Gross profit percentage on each item

Gross profit = Selling price - Cost price. The gross profit percentage is expressed on cost price (mark-up):

\[ \text{GP \%} = \frac{\text{Gross profit}}{\text{Cost price}} \times 100 \]

(ii) Net profit on each item

Net profit = Gross profit - Selling expenses.

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(a) Who is a common carrier?

A common carrier is a person or firm that undertakes, as a business and for a fee, to carry the goods (or passengers) of any member of the public from one place to another, without the right to refuse so long as space is available, the charge is paid and the goods are lawful. Examples are railway companies and public transport operators.

(b) Three functions of each communication agent

(i) Post Office

1. Collection, sorting and delivery of letters and parcels.
2. Provision of money-transfer services such as postal and money orders.
3. Sale of postage stamps and provision of private mail boxes/bags.

(ii) Telecommunication

1. Transmission of telephone calls between people over long distances.
2. Sending of messages by fax, telex and the internet.
3. Provision of data and internet services for business communication.

(iii) Courier companies

1. Fast, door-to-door delivery of documents and parcels.
2. Tracking of items in transit to assure senders of safe delivery.
3. Handling of urgent and valuable consignments both within and outside the country.

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(a) Types of retailers

(i) Four types of small scale retailers

1. Hawkers and peddlers.
2. Petty traders (kiosk/roadside sellers).
3. Market stall holders.
4. Single (unit) shop keepers.

(ii) Four types of large scale retailers

1. Department stores.
2. Chain (multiple) stores.
3. Supermarkets.
4. Mail order houses (and cooperative/hypermarket stores).

(b) Four reasons why small scale retailers survive

1. Nearness to customers: they are located within residential areas and reach customers the big stores cannot.
2. Sale of goods in small units: they break bulk and sell in small quantities that suit low-income customers.
3. Granting of credit and personal service: they know their customers personally, give credit and render friendly, personal attention.
4. Longer/flexible hours and convenience: they open at odd hours and sell everyday necessities close to home, saving customers time and travel.

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(a) Five functions of a chamber of commerce

1. It protects and promotes the common interests of its member traders and businesses.
2. It advises the government on trade and commercial matters and makes representations on behalf of members.
3. It gathers and provides trade information and statistics to members.
4. It settles trade disputes among members through arbitration.
5. It promotes trade by organising trade fairs, exhibitions and business contacts, and issues certificates of origin.

(b) Five functions of a trade association

1. It regulates the conduct and practices of firms within a particular trade or industry.
2. It fixes standard prices and quality for the products of its members.
3. It represents members' interests in dealings with government and other bodies.
4. It provides information, research and training for members in the industry.
5. It settles disputes among members and negotiates on their behalf with trade unions and suppliers.