HISTORY AND DEVELOPMENT OF MONEY AND BAN
TOPIC ONE
HISTORICAL DEVELOPMENT OF MONEY AND
BANKING
THE ORIGIN OF MONEY
AT THE EARLY STAGES OF DEVELOPMENT OF MONEY,
GOLD AND SILVER WERE USED AS MONEY ALMOST
THROUGHOUT THE WORLD:
DURING
THOSE
TIMES,
INTERNATIONAL
TRANSACTIONS DID NOT PRESENT ANY PROBLEM
BECAUSE THE CURRENCY (GOLD) WAS UNIFORM.
THE GOLDSMITHS, BECAUSE OF THEIR TRADE, HAD
EXCELLENT STRONG ROOMS, SO THEY BECAME AN
OBVIOUS CHOICE TO BE USED AS A PUBLIC SAFE
DEPOSIT FOR MERCHANTS’ VALUABLES
AS AN ACKNOWLEDGEMENT FOR DEPOSITS THE GOLDSMITHS ISSUED
RECEIPTS AND SOON FOUND THEIR RECEIPTS WERE BEING PASSED
FROM ONE TRADER TO ANOTHER IN THE SETTLEMENT OF DEBTS.
THIS SAVED A TRADER WITH A DEBT TO PAY FROM HAVING TO GO TO
HIS GOLDSMITH PRESENT THE RECEIPT, DRAW OUT THE COINS
REQUIRED AND THEN HAND THEM OVER TO HIS CREDITOR, WHO
WOULD IMMEDIATELY DEPOSIT THEM WITH HIS OWN GOLDSMITH.
IT WAS MUCH SIMPLER JUST TO TRANSFER THE RECEIPT:
TO HELP IN THIS, THE GOLDSMITHS BEGAN TO ISSUE RECEIPTS IN
CONVENIENT DENOMINATIONS AND TO MAKE THEM PAYABLE TO
BEARER SO THAT TITLE TO THE RECEIPT WOULD PASS BY DELIVERY”
PRESENT-DAY BANK NOTES ARE PAYABLE TO BEARER.
IN THE SAME WAY AND WHOEVER IS IN POSSESSION OF A NOTE,
PROVIDED HE CAME BY IT HONESTLY, HAS THE LEGAL TITLE ON BY
DELIVERING THE NOTE TO ANOTHER PERSON.
THE GOLDSMITHS BEGAN TO CONCENTRATE ON THE BANKING SIDE OF THEIR
BUSINESS AND SOON FOUND THAT, AT ANY ONE TIME, ONLY A SMALL PROPORTION OF
THE COINS THEY WERE HOLDING FOR SAFE- KEEPING WOULD BE REQUIRED TO
MEET DEMANDS FOR REPAYMENT OF THEIR RECEIPTS.
THEY BEGUN TO LEND THE SURPLUS MONEY AND TO CHARGE INTEREST FOR DOING
SO,
OTHER
SERVICES
WERE
DEVELOPED
SUCH
AS
DEPOSIT
ACCOUNTS,
DISCOUNTING (OR CASHING) BILLS OF EXCHANGE BEFORE THE DAY FOR PAYMENT
AND DEALING IN BULLION AND FOREIGN CURRENCIES.
BY 1677 THERE WERE FORTY FOUR GOLDSMITHS BANKERS OPERATING IN LONDON.
WITH THE DEVELOPMENT OF BANKS AND THAT MONEY, EACH COUNTRY HAD
ITS OWN CURRENCY.
TO
FACILITATE
INTERNATIONAL
PAYMENTS,
STANDARD
HAD
TO
BE
ESTABLISHED FOR COMPARISON OF THE DIFFERENT NATIONAL CURRENCIES.
THE SOLUTION WAS TO MAKE ALL CURRENCIES CONVERTIBLE INTO GOLD,
HENCE, THE CONCEPT OF GOLD STANDARD.
ACCORDING TO THE GOLD STANDARD ALL NATIONAL CURRENCIES WERE
CONVERTIBLE INTO GOLD BY EACH COUNTRY’S CENTRAL BANK.
IMPORTERS HAVE TO CONVERT NATIONAL CURRENCY INTO FOREIGN CURRENCY AND
EXPORTER MUST CONVERT FOREIGN CURRENCY INTO DOMESTIC CURRENCY. HENCE
THERE IS A MARKET FOR FOREIGN CURRENCY
IMPORTERS ARE THE DEMANDERS OF FOREIGN CURRENCY BECAUSE THEY NEED IT TO PAY FOR
THEIR PURCHASES ABROAD:
EXPORTERS ARE THE SUPPLIERS OF FOREIGN EXCHANGE BECAUSE THEY TRANSFORM THEIR
FOREIGN EXCHANGE EARNINGS INTO DOMESTIC CURRENCY. NOW WITH THE GOLD STANDARD
ALL MONIES WERE THE SAME IN THE SENSE THAT THEIR RELATIVE PRICES (THE EXCHANGE RATE
BETWEEN THEM) WERE GIVEN BY THE FIXED PRICE OF EACH OF THEM IN TERMS OF GOLD.
The business of Banking
THE BUSINESS OF BANKING IS MAINLY
ABOUT BORROWING FROM THE PUBLIC
AND LENDING TO THE PUBLIC
BORROWING FROM THE PUBLIC IS DONE
THROUGH DEPOSIT MOBILIZATION
DEPOSITS ARE MOBILISED THROUGH
OPENNING AND MAINTAINING VARIOUS
TYPES OF BANK ACCOUNTS IN THE BANK
FOR
EXAMPLE
ACCOUNT
AND
SAVINGS
OTHER
ACCOUNT,CURRENT
TYPES
OF
DEPOSIT
ACCOUNTS.
THE MOBILISED DEPOSITS ARE PARTLY EXTENDED
TO CUSTOMERS
INFORM OF LOANS,SUCH LIKE
OVERDRAFTS, SHORT TERM LOANS,MEDIUM TERM
LOANS AND LONG TERM LOANS
THE OTHER PART OF THE MOBILISED
DEPOSITS IS PUT IN OTHER INVESTMENT
OPPORTUNITIES
IT IS IMPORTANT TO NOTE THAT MORE
THAN 60% OF THE BANKS PROFIT IS
GENERATED FROM LOANS EXTENDED TO
VARIOUS CUSTOMERS
IT IS THROUGH THIS AMOUNT THAT DAY
TO DAY OPERATIONS ARE
FINANCED/COVERED .
FUNCTIONS OF THE BANKS
THE PRIMARY FUNCTIONS OF ANY BANK
INCLUDE;
(i) DEPOSIT MOBILIZATION
(ii) LENDING TO THE PUBLIC AND
(iii) ALLOWING WITHDRAW FROM
CUSTOMERS ACCOUNTS
AGENCY FUNCTIONS
THE BANKS HAVE OTHER FUNCTIONS
WHICH ARE CONSIDERED AS AGENCY
FUNCTIONS OR ACTIVITIES;THEY
INCLUDE THE FOLLOWING;
a)
COLLECTION AND PAYMENT OF
CHEQUES,BILLS OF EXCHANGE AND
PROMISORY NOTES
b) TRANSFER OF FUNDS
c) STANDING ORDERS EXECUTION
(d) DEALING IN FOREIGN EXCHANGE
(e) SAFE DEPOSIT SERVICES
The Meaning of Money
MONEY IS A CLAIM TO GOODS AND SERVICES.
MONEY CAN BE EXCHANGED FOR THE GOODS AND
SERVICES WE NEED. IN ITSELF, CONTEMPORARY
MONEY IS PRACTICALLY WORTHLESS:
THE STARVING MAN CANNOT EAT IT NOR THE
THIRSTY MAN DRINKS IT, BUT EACH MAY USE IT TO
BUY FOOD OR DRINK. MONEY IS AS MONEY DOES
Definition:
MONEY IS SOMETHING WHICH IS READILY
ACCEPTABLE AS A MEDIUM OF EXCHANGE.
BEFORE MONEY CAME INTO USE AS MEDIUM
OF EXCHANGE, EXCHANGE TOOK PLACE BY
MEANS OF BARTER, THAT IS GOODS WERE
EXCHANGED FOR GOODS
The economic importance of money
MODERN ECONOMIES ARE BASED ON THE PRINCIPLE OF SPECIALIZATION AND DIVISION OF
LABOUR.
THE TYPICAL INDIVIDUAL DEPENDS UPON THE PRODUCTION OF GOODS AND SERVICES BY
OTHER PEOPLE.
WITHOUT THIS SPECIALIZATION LIVING STANDARDS WOULD BE EXTREMELY LOW, AS
INDIVIDUALS WOULD BE UNABLE TO DEVELOP SPECIFIC SKILLS, INSTEAD HAVING TO
SPREAD THEIR EFFORTS OVER THE PRODUCTION OF BASIC ITEMS, SUCH AS FOOD, SHELTER
AND CLOTHING REQUIRED FOR SURVIVAL. ALSO, THE SIGNIFICANT ECONOMIES OF SCALE,
SO VITAL TO THE EFFICIENCY OF MODERN PRODUCTION PROCESSES, WOULD BE LOST.
IN GENERAL, SPECIALIZATION WILL ONLY BE UNDERTAKEN IF THERE IS SOME PROSPECT
FOR TRADE TO TAKE PLACE
Historical Development of Money
MONEY CONSISTS OF ALL THOSE THINGS THAT ARE
GENERALLY ACCEPTABLE AS A MEDIUM OF EXCHANGE.
AN ALTERNATIVE DEFINITION OF MONEY IS THAT IT IS
ANYTHING THAT IS GENERALLY ACCEPTED AS PAYMENT
FOR GOODS AND SERVICES OR MONEY IS ANYTHING
THAT IS GENERALLY ACCEPTED BY THE SOCIETY TO ACT
AS A MEDIUM OF EXCHANGE.
Barter System
IN THE COURSE OF HISTORY MANY DIFFERENT COMMODITIES HAVE
BEEN USED AS MEANS OF EXCHANGE.
IN THAT PERIOD THERE WAS NO COMMON MEDIUM OF EXCHANGE.
GOODS WERE EXCHANGED FOR GOODS.
THE SYSTEM IN WHICH GOODS ARE USED TO BUY OTHER GOODS IS
CALLED BARTER SYSTEM.
THIS SYSTEM OCCURS WHERE GOODS OR SERVICES ARE TRADED
DIRECTLY FOR OTHER GOODS OR SERVICES.
Barter System Continue…
THE SUCCESSFUL OPERATION OF THIS FORM OF TRADE REQUIRES A
DOUBLE COINCIDENCE OF WANTS.
THE POTENTIAL PROBLEMS INVOLVED IN COMPLETING A TRANSACTION
MAY BE GREAT, ESPECIALLY AS MANY GOODS ARE VARIABLE IN
QUALITY, NOT EASILY DIVISIBLE, AND POSSIBLY PERISHABLE.
THUS BARTER TRADE IS EXTREMELY INEFFICIENT, INVOLVES HIGH
TRANSACTIONS
COSTS, AND
CONSEQUENTLY UNDERMINES THE
WILLINGNESS OF PEOPLE TO SPECIALIZE.
Disadvantage of Barter System
THE PROBLEM OF DOUBLE COINCIDENCE OF WANTS:
THIS MEANS THAT UNDER BARTER SYSTEM THERE SHOULD BE A POSSIBILITY OF FINDING SOMEONE WHO IS
WILLING TO BUY WHAT YOU ARE SELLING AND AT THE SAME TIME TO SELL TO YOU WHAT YOU WANT TO BUY.
THIS PROCESS WAS VERY DIFFICULT AND A LOT OF TIME WAS WASTED DURING THE EXCHANGE PROCESS.
THE PROBLEM OF PORTABILITY:
THE VALUE/WEIGHT RATIO OF THE COMMODITY WAS TOO BULKY THAT INDIVIDUAL CANNOT CARRY
REASONABLY HIGH SUM OF MONEY AT A LONG DISTANCE.
THE PROBLEM OF DIVISIBILITY:
TO ACT AS MONEY OTHER COMMODITY WAS NOT EASILY DIVISIBLE INTO UNITS LIKE GRAINS OR SALT.
THE PROBLEM OF DURABILITY:
THE COMMODITY WAS NOT SUFFICIENTLY ROBUST TO CIRCULATE EASILY.
Characteristics/Quality of Good Money.
ANY COMMODITY CAN PERFORM THE ROLE OF MONEY PROVIDED THAT IT
POSSES CERTAIN KEY QUALITIES SUCH AS THE FOLLOWING.
ACCEPTABILITY-
BY DEFINITION A SUBSTANCE MUST BE GENERALLY ACCEPTABLE IF IT IS TO BE
REGARDED AS MONEY. THE EXTENT OF THIS ACCEPTABILITY AND THE
WILLINGNESS
OF
PEOPLE
TO
ACCEPT
SOME
FORMS
OF
MONEY
IN
PREFERENCE TO OTHERS, ARE IMPORTANT INDICATORS OF QUALITY OF GOOD
MONEY
Characteristics/Quality of Good Money.
PORTABILITY-
MONEY SHOULD BE EASY TO TRANSPORT OR TO CARRY
REASONABLY. ALSO IT SHOULD BE PHYSICALLY CONVENIENT FOR
THE USER.
DIVISIBILITY-
MONEY SHOULD BE DIVISIBLE INTO VERY SMALL UNITS, IN ORDER
THAT TRANSACTIONS OF ALL VALUES MAY BE UNDERTAKEN
Characteristics/Quality of Good Money.
DURABILITY-
MONEY SHOULD STAY LONG IN TERMS OF VALUE, THAT IS, PEOPLE WILL ONLY ACCEPT MONEY IN EXCHANGE FOR
THEIR OWN PRODUCTS IF THEY BELIEVE THAT THE MONEY WILL MAINTAIN ITS KEY PHYSICAL CHARACTERISTICS AT
LEAST UNTIL AFTER A TIME AT WHICH THEY HAVE PLANNED TO SPEND THE MONEY.
THE LESS DURABLE IS THE MONEY, THE GREATER IS THE COST TO THE SOCIETY IN MAINTAINING THE MONEY
STOCK
HOMOGENEITY-
THE MONEY STOCK SHOULD BE OF THE SAME PHYSICAL FORM.
MONEY SHOULD BE PERFECTLY INTERCHANGEABLE.
IF THIS IS NOT SO, IS LIKELY THAT CONFIDENCE IN THE MONETARY SYSTEM WILL BE UNDERMINED, AND THE
BENEFITS ARISING FROM USING MONEY WILL BE REDUCED
Characteristics/Quality of Good Money.
RECOGNIZABILITY- MONEY SHOULD BE EASILY RECOGNIZED BY THE PEOPLE; OTHER THINGS
BEING EQUAL THE BETTER WILL BE ITS QUALITY AS MONEY. ALSO MONEY SHOULD NOT BE EASILY
FORGEABLE.
SCARCITY- THE VALUE OF MONEY, LIKE ECONOMIC VALUE OF ANY ASSET IS A SUPPLY AND DEMAND
PHENOMENON. THIS GIVES APPEARANCE OF VALUE EVEN IF THE COMMODITY HAS NO INTRINSIC
VALUE. MONEY DERIVES ITS VALUE FROM ITS SCARCITY.
STABILITY OF VALUE- MONEY, DESPITE THE INFLUENCES OF INFLATION AND DEFLATION REMAINS
FAIRLY STABLE IN VALUE. MONEY IS NOT SUBJECT TO THE NATURAL FORCES OF WEATHER AS
MUCH EARLY COMMODITY MONIES WERE.
HARD TO COUNTERFEIT-GOOD MONEY MUST BE DIFFICULT TO COPY BY UNAUTHORIZED
MONEYMAKERS.
The Functions of Money
THERE ARE FOUR BASIC FUNCTIONS OF MONEY NAMELY:MEDIUM OF EXCHANGE
MONEY’S PRIME FUNCTION IS TO ACT AS A MEDIUM OF EXCHANGE. THE EXISTENCE
OF MONEY ENABLES ALL GOODS AND SERVICES TO BE EXCHANGED AGAINST IT.
WITHOUT MONEY THE MODERN ECONOMIC SOCIETY WHICH IS BASED ON
SPECIALIZATION AND DIVISION OF LABOUR COULD NEVER HAVE DEVELOPED.
LIQUID STORE OF VALUE
MONEY HAS THE ADVANTAGE THAT IT CAN BE STORED TODAY WITHOUT
COMMITMENT AS TO HOW IT WILL BE ALLOCATED IN FUTURE.
THIS ENABLES SAVINGS AND CAPITAL INVESTMENT TO BE UNDERTAKEN BY
DIFFERENT GROUPS OF PEOPLE. WEALTH MAY BE HELD IN THE FORM OF MONEY
(FINANCIAL ASSETS) OTHER THAN NON-FINANCIAL ASSETS
The Functions of Money
UNIT OF ACCOUNT OR MEASURE OF VALUE
MONEY SIMPLIFIES THE PROCESS OF CALCULATING THE
RATE OF EXCHANGE BETWEEN COMMODITIES.
THAT IS IN ALL FORMS OF TRADE IT IS USEFUL TO BE ABLE TO
COMPARE DIRECTLY THE VALUE OF ONE TYPE OF COMMODITY
OR SERVICES AGAINST ANOTHER.
THEREFORE MONEY CAN BE USED FOR SUCH A COMPARISON.
MONEY BEING A UNIT OF ACCOUNT ENABLES ASSETS TO BE
VALUED IN ORDER TO FACILITATE PROFIT AND LOSS
ACCOUNTING, STOCKTAKING, BUDGETING AND FORECASTING.
The Functions of Money
STANDARD OF DEFERRED PAYMENTS
MONEY ENABLES LOANS AND CREDIT TO
BE ARRANGED SINCE BOTH BORROWERS
AND LENDERS CAN BE SURE OF THE
PRICES AND SUMS DUE HOWEVER LONG
THE TIME PERIOD INVOLVED
CHEQUES
INTRODUCTION:
THE USE OF CHEQUES AS A MEANS OF PAYMENT IS PROBABLY BECOMING MORE
POPULAR IN TANZANIA AS PEOPLE, ESPECIALLY INDIGENOUS AFRICANS GET
ACCESS TO BANKING SERVICES.
FOR INSTANCE THERE ARE SOME WHO WANT TO EXPAND THEIR BUSINESSES
THUS APPROACH THE BANKS FOR LOANS WHICH ULTIMATELY WILL HAVE TO USE
CURRENT ACCOUNTS AND HENCE THE USE OF CHEQUES.
ALSO SOME OTHER GROUPS SUCH AS CBOS, RETIRED OFFICERS WHO RECEIVE
THEIR PENSIONS THROUGH BANK MIGHT NEED TO CHEQUES ETC.
CHEQUES
AS ONE MAY SEE THE CHEQUES BECOME MORE POPULAR IT IS IMPORTANT TO MAKE SURE THAT THE
USE OF CHEQUE AND THE FACTORS AFFECTING ITS VALIDITY ARE WELL KNOWN BY AT LEAST EVERY
A CHEQUE IS A COMMON FORM OF NEGOTIABLE INSTRUMENT USED THROUGH OUT THE WORLD.
IT OPERATES AS MANDATE OR ORDER OF THE DRAWER, AUTHORIZING OR DIRECTING THE DRAWEE TO
MAKE PAYMENT TO THE HOLDER OF IT. USUALLY THE DRAWER IS A BANKER.
A CHEQUE IS A FORM OF A CONTRACTUAL DOCUMENT, AND THE CONTRACT IN IT FALLS UNDER THE
EXCEPTION TO THE PRIVITY RULE AS IT IS A NEGOTIABLE INSTRUMENT. THE LAW RELATING TO CHEQUES
ACT, 1969, NO. 3/69.
CHEQUES CONT….
WHEN WRITING OUT A CHEQUE, CARE SHOULD ALWAYS BE
EXERCISED TO ENSURE THAT ALL DETAILS ARE COMPLETED:-DATE
-NAME OF PAYEE
-AMOUNT IN WORDS AND IN FIGURES AND
-DRAWER’S SIGNATURE
CHEQUES MUST BE WRITTEN IN INK AND NO ROOM SHOULD
BE LEFT FOR FRAUDULENT ADDITION
CHEQUES CONT….
WHEN AN OPEN CHEQUE BOOK IS IN USE, CHEQUE SHOULD BE CROSSED, PREFERABLY
NOT NEGOTIABLE, WHENEVER THEY ARE TO BE SENT THROUGH THE POST.
IF THERE IS ANY ALTERATIONS THE DRAWERS MUST SIGN AGAINST SUCH ALTERNATION.
FOR THE CHEQUES TO BE USED EFFECTIVELY SUFFICIENT FUNDS SHOULD BE
AVAILABLE IN THE DRAW
A CHEQUE IS A COMMON FORM OF NEGOTIABLE INSTRUMENT USED THROUGH OUT THE
WORLD.
CHEQUES CONT….
IT OPERATES AS MANDATE OR ORDER OF THE DRAWER,
AUTHORIZING OR DIRECTING THE DRAWEE TO MAKE
PAYMENT TO THE HOLDER OF IT. USUALLY THE DRAWER IS A
BANKER.
BANKERS ACCOUNT TO MEET CHEQUES WHEN THEY ARE
PRESENTED FOR PAYMENT AND CHEQUES DRAWN SHOULD
BE TECHNICALLY CORRECT.
ADVANTAGES OF USING
CHEQUE PAYMENT METHOD
CHEQUES ARE WIDELY USED BECAUSE THEY ARE EASIER FOR TRADERS TO TRANSPORT
THAN CASH.
CHEQUES ARE STILL WIDELY ACCEPTED FOR CERTAIN TYPES OF TRANSACTIONS EG.
WHERE GOODS ARE TO BE DELIVERED AFTER PAYMENT HAS BEEN MADE AND THE
CHEQUE CLEARED.
CHEQUES ARE PREFERRED BY BUSINESS USER FOR REASONS OF CONVENIENCE AND
BECAUSE CHEQUES ALLOW BUSINESSES TO ENJOY A FLOAT WHILE A CHEQUE IS BEING
CLEARED AND BEFORE IT IS APPLIED TO A BANK ACCOUNT.
A CHEQUE ALSO PROVIDES EVIDENCE OF RECEIPT AND EVIDENCE ON NON PAYMENT
SHOULD IT BE RETURNED UNPAID.
DEFINITION OF A CHEQUE
A CHEQUE IS AN UNCONDITIONAL ORDER IN WRITING
DRAWN ON A BANKER,SIGNED BY THE DRAWER
REQUIRING THE BANKER TO PAY ON DEMAND,A SUM
CERTAIN IN MONEY TO ORDER OF SPECIFIED PERSON
OR TO BEARER AND WHICH DOES NOT ORDER ANY
OTHER ACT IN ADDITION TO PAYMENT
ANALYSIS OF THE DEFINITION
UNCONDITIONAL ORDER
THE ORDER TO PAY COMING IN A FORM OF
A CHEQUE MUST NOT BE ATTACHED WITH
CONDITIONS AS FAR AS THE BANKER IS
CONCERNED.
THE ORDER MUST BE IN WRITING
THE ORDER MUST BE WRITTEN IN INK
ANALYSIS OF THE DEFINITION
THE ORDER MUST BE SIGNED BY THE
DRAWER OR HIS AUTHORISED AGENT
THE SIGNING BY THE DRAWER OR HIS/HER
AUTHORISED AGENT IS WHAT BRINGS
VALIDITY TO A CHEQUE
THE ORDER TO PAY MUST BE ADDRESSED
BY ONE PERSON TO ANOTHER.
THE CHEQUE MUST BE DRAWN BY ONE
PERSON AND ADDRESSED TO A BANKER.
ANALYSIS OF THE DEFINITION
THE SUM WRITTEN IN THE CHEQUE MUST BE CERTAIN
THE AMOUNT WRITTEN IN THE CHEQUE SHOULD BE CLEARLY STATED BOTH IN
WORDS AND FIGURES
THE ORDER MUST BE PAYABLE ON DEMAND
IN ORDER FOR THE INSTRUMENT TO BE CALLED A CHEQUE,IT MUST BE DRAWN
PAYABLE ON DEMAND
PAYEE MUST BE A SPECIFIED PERSON
IF THE CHEQUE IS NOT PAYABLE TO BEARER,THE NAME OF PAYEE
MUST BE INDICATED THEREON WITH REASONABLE CERTAINTY.
PARTIES TO A CHEQUE
DRAWER
THE PERSON WHO GIVES THE ORDER TO PAY THE CHEQUE
DRAWEE
PERSON TO WHOM THE ORDER IS ADDRESSED.
IT IS THE BANK WHERE THE DRAWER MAINTAINS THE ACCOUNT
PAYEE
PERSON NAMED BY THE DRAWER TO RECEIVE THE VALUE OF THE
INSTRUMENT
ENDORSER
PERSON WHO MAKES AN ENDORSEMENT AT THE BACK OF THE
CHEQUE.
TYPES OF A CHEQUE
WHEN ONE TALKS OF DIFFERENT TYPES OF CHEQUES, ONE REFERS TO THE NATURE
OF THE CONTENTS OF CHEQUES AND NOT TO FORMS. IN THIS RESPECT, WE MAY
DISTINGUISH BETWEEN VARIOUS TYPES OF CHEQUES SUCH AS;
A BEARER CHEQUE:
THIS IS ONE WHICH CAN BE NEGOTIATED BY A MERE DELIVERY.
WHEN THE HOLDER OF A BEARER CHEQUE TRANSFERS IT WITHOUT ENDORSEMENT
IN EXCHANGE OF GOODS, HE IS NOT LIABLE ON IT IF IT IS DISHONOURED.
THE TRANSFEREE TAKES THE CHEQUE WITH THE RISK OF IT BEING DISHONOURED.
THIS CHEQUE IS ALSO KNOWN AS AN OPEN CHEQUE OR UNCROSSED CHEQUE.
AN ORDER CHEQUE
THIS IS NEGOTIATED BY ENDORSEMENT AND DELIVERY.
WHERE THE HOLDER OF A CHEQUE PAYABLE TO HIS
ORDER
TRANSFERS
IT
FOR
VALUE
WITHOUT
INDORSING IT, THE TRANSFER GIVES THE TRANSFEREE
SUCH TITLE AS THE TRANSFEROR HAD IN THE CHEQUE
AND THE TRANSFEREE IN ADDITION ACQUIRE THE
RIGHT TO HAVE THE ENDORSEMENT
A CROSSED CHEQUE
THIS IS ONE WHICH CANNOT BE ENCASHED ACROSS THE
COUNTER.
IT HAS TO BE PAID (DEPOSITED) INTO THE BANK ACCOUNT OF
HE HOLDER.
ANTE-DATED CHEQUE
ANTE-DATED CHEQUE IS ONE THAT HAS A DATE ON IT
EARLIER THAN THE DATE IT WAS ISSUED. SUCH A
CHEQUES IS NOT INVALID AS ANY DATE APPEARING
ON A CHEQUE IS PRESUMED TO BE A CORRECT DATE.
POST-DATED CHEQUE.
THIS IS A CHEQUE WHICH POSTPONES THE CHEQUE UNTIL
THAT DATE IT ARRIVES.
A POST-DATED CHEQUE IS THEREFORE FREELY NEGOTIABLE.
A BANKER WHO PAYS A POST-DATED CHEQUE DISOBEYS THE
ORDER BY THE CUSTOMER AND ACCORDINGLY SUFFERS THE
LOSS, IF ANY, OCCASIONED BY SUCH DISOBEDIENCE.
POST-DATED CHEQUE CONT…
THE BANKER MAY ALSO BE HELD LIABLE FOR INJURING HIS
CUSTOMERS’ CREDIBILITY.
THE BANKER MAY BE AT LOSS IF PAYMENT IS MADE IN A POST
DATED CHEQUE IF THE CUSTOMER DIES OR A GARNISHEE
ORDER IS ISSUED BEFORE THE DATE SHOWN ON THE CHEQUE.
USUALLY IF THE BANKER PAYS A POST-DATED CHEQUE IT DOES
NOT DEPT IT UNTIL THE DATE DUE.
OVER DUE CHEQUE
AN OVER DUE CHEQUE IS ONE THAT APPEARS
ON
THE
FACE
OF
IT
TO
HAVE
BEEN
IN
CIRCULATION FOR AN UNREASONABLE LENGTH
OF TIME IS REASONABLE OR UNREASONABLE.
IN THIS RESPECT, EVERY CASE HAS TO BE
DECIDED ON ITS OWN MERITS.
A STALE CHEQUE
A STALE CHEQUE IS ONE WHICH HAS BEEN IN CIRCULATION FOR MORE
THAN SIX MONTHS.
WHEN THE PAYING BANKER RETURNS THE STALE CHEQUE, HE PREFERS
TO CONFIRM WITH THEN DRAWER WHETHER IT IS STILL VALID OR NOT.
THIS MEANS THAT IF THE DRAWER AUTHORIZES PAYMENT OF IT, THEN
THE BANKER MAY TREAT AS A VALID.
CHEQUE CROSSINGS
A CROSSING MAY BE DEFINED AS AN INSTRUCTION TO THE BANK BY THE
CUSTOMER TO PAY THE CHEQUE ONLY INTO A BANK ACCOUNT, NOT ACROSS THE
COUNTER.
THERE ARE TWO TYPES OF CROSSINGS ON CHEQUES. THESE ARE GENERAL
CROSSINGS AND SPECIAL CROSSINGS.
CROSSING
FACILITATES
IN
TRACING
THE
RECIPIENT
OF
PAYMENT
IF
SUBSEQUENTLY DEFECTED.
IT ASSURES SAFETY IN CIRCULATION AND PREVENTS PAYMENT TO A WRONGFUL
HOLDER
GENERAL CROSSINGS:
GENERAL CROSSING PERMITS PAYMENT OF A CHEQUE INTO ANY BANK ACCOUNT.
THE PAYING BANKER MUST PAY THE VALUE OF THE CHEQUE TO THE OTHER BANK
WHERE THE CUSTOMER HAS THE ACCOUNT.
THE CUSTOMER’S BANKER HAS AN OBLIGATION TO MAKE COLLECTION OF THE
PROCEEDS OF THE CHEQUE FROM THE PAYING BANKER.
THE BASIS OF THIS CROSSING IS THAT IT PROTECTS THE HOLDER BECAUSE IF
THE CHEQUE IS STOLEN, IT CANNOT BE ENCASHED ACROSS THE COUNTER.
IT MEANS IT ASSURES PAYMENT TO THE GENUINE RECEIVER.
GENERAL
CROSSINGS
CONSIST
OF
TWO
PARALLEL TRANSVERSE LINES TO WHICH MAY
BE ADDED THE WORD SUCH AS “& CO” “NOT
NEGOTIABLE”, AND “A/C PAYEE”.
SPECIAL CROSSING
A
SPECIAL
CROSSING
INCLUDES
THE
NAME
OF
A
PARTICULAR BANK ON THE FACE OF THE CHEQUE AND
HENCE THE CHEQUE IS CROSSED SPECIALLY TO THE NAMED
BANK.
SPECIAL CROSSING MAY BE ILLUSTRATED BY SUCH WORDS
“X BANK LTD”; “X BANK LTD, A/C PAYEE” OR X BANK LTD; A/C
PAYEE, NOT NEGOTIABLE.
NOT NEGOTIABLE
THE WORD NOT NEGOTIABLE DENIES A CHEQUE OF ITS STATUS OF BEING A NEGOTIABLE
INSTRUMENT.
THE WORDS PERSE DO NOT ADD ANY RESPONSIBILITY ON THE PART OF THE PAYING
BANKER.
WHAT THEY PRACTICALLY MEAN IS THAT THE TRANSFEREE OF A CHEQUE MARKED NOT
NEGOTIABLE SHALL NOT BE CAPABLE OF ACQUIRING A BETTER TITLE TO IT THAN THAT IS
TRANSFEROR HAD.
THE PAYING BANKER IS NOT OBLIGED TO INQUIRE ABOUT THE TITLE OF THE HOLDER.
AGAIN, THE HOLDER OF SUCH A CHEQUE IS NOT, AND CANNOT CLAIM TO BE, A HOLDER IN
DUE COURSE. THIS IS BECAUSE IT IS NOT FREE FROM EQUITIES
NOT TRANSFERABLE
THESE WORDS HAVE AN IMPLICATION THAT A CHEQUE HAS BEEN RESTRICTIVELY INDORSED.
IT CANNOT BE TRANSFERRED AT ALL IN SUCH MANNER AS TO CONSTITUTE THE
TRANSFEREE /THE HOLDER OF IT.
NOT TRANSFERABLE CHEQUES INCLUDE ARE:(A)CHEQUES PAYABLE TO A NAMED PERSON (PAYEE) AND FOLLOWED BY THE WORD “ONLY”.
(B) CHEQUES PAYABLE TO A NAMED PAYEE AND MARKED “NOT TRANSFER
(C)UNCROSSED CHEQUES PAYABLE TO A NAMED PAYEE
ACCOUNT- PAYEE CROSSINGS
THIS IS COMMON WITH GENERAL CROSSING.
THE CROSSING IMPLIES THAT THE BANKER WHO COLLECTS THE
PROCEEDS OF THE CHEQUE SO CROSSED IS REQUIRED TO
CREDIT THE PAYEE’S ACCOUNT;
HE WILL BE GUILTY OF NEGLIGENCE AND LIABLE TO THE TRUE
OWNER TO THE EXTENT OF THE AMOUNT OF THE CHEQUE.
THE WORD ALONE DOES PROHIBIT NEITHER TRANSFERABILITY
NOR NEGOTIABILITY OF A CHEQUE
EFFECTS OF CROSSING A CHEQUE
THE CHEQUE IS NOT PAYABLE OVER THE
COUNTER
THE PROCEEDS ARE COLLECTED FROM
THE DRAWEE BANK
SPECIAL
CROSSING SHOULD ONLY BE
COLLECTED BY THE PAYEE’S BANK
ADVANTAGES OF CROSSING A CHEQUE
IT BECOMES DIFFICULT TO COMMIT
FRAUDS ON PAYMENT
IT PROVIDES MORE TIME FOR FRAUDS TO
BE DETECTED BEFORE PAYMENT IS
EFFECTED.
IT ALLOWS THE DRAWER TO PLACE A
STOP PAYMENT ORDER IF NEEDED
PAYMENT OF CHEQUES
THIS IS A SERVICE DONE BY BANKS TO EFFECT
PAYMENTS TO THEIR CUSTOMERS WHEREBY THE PAYING
BANK IS THE ONE WHICH MAINTAINS THE DRAWER’S
ACCOUNT.
DEBITING
THE
DRAWER’S
ACCOUNT
EFFECTS
THE
PAYMENT.
HOWEVER,BEFORE ANY CHEQUE IS PAID IT HAS TO BE
SCRUTINISED FOR A NUMBER OF ASPECTS
FUNDS
ARE
THE
FUNDS
IN
THE
ACCOUNT
SUFFICIENT TO MEET THE AMOUNT OF
THE CHEQUE?
ARE THERE ANY UNCLEARED EFFECTS?
IS THE PAYMENT OF THE CHEQUE WITHIN
THE OVERDRAFT LIMIT GRANTED IF ANY?
TECHNICAL ASPECTS
THE CHEQUE SHOULD NEITHER BE
POSTED NOR STALE
THE CHEQUE LEAF SHOULD COME FROM
A CHEQUE BOOK ISSUED TO HIM/HER.
IN ADDITION TO THAT IT IS IMPORTANT
TO OBSERVE THE SEQUENCE OF THE
CHEQUE NUMBERS
TECHNICAL ASPECTS
THE PAYEE MUST BE IDENTIFIED BEYOND
ANY REASONABLE DOUBT BY THE BANK
THE AMOUNT IN WORDS AND IN FIGURES
SHOULD AGREE
THE DRAWER’S SIGNATURE SHOULD BE
SAME AS THE ONE HELD BY THE BANK AS
A SPECIMEN
IF THE CHEQUE IS CROSSED IT CANNOT
BE PAID OVER THE COUNTER
TECHNICAL ASPECTS
ANY ALTERATION THAT APPEARS ON THE
CHEQUE MUST BE ACCOMPANIED BY THE
FULL SIGNATURE OF THE DRAWER
ANY MULTILATION ON THE CHEQUE
MUST BE AUTHENTICATED BY THE BANK
IF THE CHEQUE IS TO BE PAID TO
SOMEONE OTHER THAN THE PAYEE IT
MUST HAVE AN APPROPRIATE
ENDORSEMENT
LEGAL ASPECTS
A CHEQUE SHOULD NOT BE PAID IF ANY OF
THE FOLLOWING IS INVOLVED
IF A NOTICE HAS BEEN SERVED TO THE
BANK ABOUT THE DEATH,INSANITY,OR
BANKRUPTCY OF THE DRAWER
IF THERE IS A STOP PAYMENT ORDER FOR
THE RESPECTIVE CHEQUE BY THE DRAWER
PRESENCY OF GARNISHEE ORDER FROM A
COURT OF LAW
NON PAPER MONEY/PLASTIC MONEY
PAYMENTS THROUGH PLASTIC CARDS (MONEY)
-PLASTIC CARDS:
THESE INCLUDE CREDIT CARDS, DEBIT CARDS, CHEQUE GUARANTEE
CARDS, TRAVEL AND ENTERTAINMENT CARDS, SHOP CARDS AND SMART
CARD OR CHIP CARDS:
TECHNICALLY, PLASTIC CARDS DO NOT ACT THEMSELVES AS A
PAYMENT MECHANISM. THEY HELP TO IDENTIFY THE CUSTOMERS AND
ASSIST IN CREATING EITHER A PAPER OR ELECTRONIC PAYMENT
CREDIT CARD
THIS ENABLES THE HOLDER TO OBTAIN INSTANT CREDIT. THEY ARE VERY WIDESPREAD IN
DEVELOPED COUNTRIES.
THE TWO BEST KNOWN ARE BARCLAY’S CARD, WHICH IS RUN BY BARCLAY BANK, BUT IS
AVAILABLE TO PEOPLE HOLDING ACCOUNTS AT OTHER BANKS AS WELL.
THEY
GAVE THE HOLDER AUTHORITY TO
BUY GOODS, AT SHOPS/SUPERMARKET
DESIGNATED BY THE ISSUING ORGANIZATION FOR AMOUNTS UP TO AN AGREED MAXIMUM.
THE SELLING SHOP THEN PRESENTS THE BILL TO THE ORGANIZATION THAT ISSUED THE
CREDIT CARD AND IS PAID
PROMPTLY: THE ISSUING ORGANIZATION THEN BILLS THE CARD
HOLDER AND EITHER ASKS FOR PROMPT CASH OR IN INSTALLMENTS IN WHICH CASE
INTEREST IS CHARGED OR UNPAID MONTHLY BALANCES
DEBIT CARD
THESE ARE ISSUED DIRECTLY BY BANKS AND
ALLOW CUSTOMERS TO WITHDRAW MONEY FROM
THEIR ACCOUNTS.
THEY CAN ALSO BE USED TO OBTAIN CASH AND
OTHER INFORMATION WHEN USED THROUGH
AUTOMATED LETTER MACHINES (ATMS)
CHEQUE GUARANTEE CARDS
THESE CARDS WERE INTRODUCED BECAUSE OF RETAILERS’
RELUCTANCE TO ACCEPT PERSONAL CHEQUES.
TYPICALLY,
WHEN
PAYING
BY
CHEQUES
FURTHER
IDENTIFICATION OF THE PAYER IS PROVIDED BY PRESENTATION
OF THE CHEQUE GUARANTEE CARD AND DETAILS FROM THE
CARD WILL BE WRITTEN ON THE CHEQUE IN ORDER TO
GUARANTEE PAYMENT MOST OF THESE TYPES OF CARDS
ALSO ACT AS DEBIT CARDS
TRAVEL AND ENTERTAINMENT CARDS(CHARGE
CARDS)
THESE PROVIDE PAYMENT FACILITIES AND ALLOW REPAYMENT TO BE
DEFERRED UNTIL THE END OF THE MONTH, BUT THEY DO NOT PROVIDE
INTEREST FREE CREDIT.
UNLIKE CREDIT CARDS, ALL BILLS HAVE TO BE REPAID AT THE END OF
THE MONTH AND NO ROLL OVER IS ALLOWED.
NORMALLY, UNPAID BALANCES ARE CHARGED AT A HIGHER INTEREST
RATE THAN FOR CREDIT CARDS, SO AS TO DISCOURAGE LATE PAYMENT.
THE MOST WIDELY USED CHARGE CARDS INCLUDE AMERICAN EXPRESS
AND DINNER CLUB
SMART, MEMORY OR CHIP CARDS
THESE ARE CARDS WHICH INCORPORATE A MICROPROCESSOR OR A
MEMORY CHIP.
THE
MICROPROCESSOR
CARD
CAN ADD,
DELETE AND
OTHERWISE
MANIPULATE INFORMATION ON THE CARD AND CAN UNDERTAKE A VARIETY
OF FUNCTIONS AND STORE A RANGE OF INFORMATION.
MEMORY CHIP CARDS (EG PRE-PAID PHONE CARDS) CAN UNDERTAKE A PRE-
DETERMINED OPERATION.
THE MAIN CHARACTERISTIC OF THE MICROPROCESSOR TECHNOLOGY IS TO
PROVIDE EXTRA SECURITY FEATURE FOR CARD PAYMENT
MONEY GRAM
IS A GLOBAL LEADER IN WORLDWIDE MONEY TRANSFER SERVICES, WORKING CLOSELY WITH
SPECIALLY CHOSEN AGENTS IN 190,000 LOCATIONS ACROSS 190 COUNTRIES AND TERRITORIES?
IT PROVIDE A SECURE WAY TO SEND AND RECEIVE MONEY TO AND FROM YOUR LOVED ONES
WORLDWIDE AND IT MAKES SURE THAT YOUR MONEY GETS TO WHERE IT IS NEEDED QUICKLY.
WHY MONEY GRAM ?
IT IS QUICK- YOUR MONEY IS WHERE IT’S NEEDE IN JUST TEN MINUTES
IT IS CONVENIENT- WITH 190,000 MONEY TRANSFER AGENTS AROUND THE WORLD, YOU’RE NEVER FAR
AWAY FROM MONEY GRAM
IT IS AVAILABLE TO EVERYONE- YOU DON’T NEED A BANK ACCOUNT OR CREDIT CARDS
IT IS EASY- JUST VISIT A MONEY GRAM AGENT AND COMPLETE ONE SIMPLE FORM
TISS-TASMANIAN INDUSTRY SUPPORT SCHEME 2009
THANKS FOR LISTENING
HISTORICAL DEVELOPMENT OF MONEY AND
BANKING
THE ORIGIN OF MONEY
AT THE EARLY STAGES OF DEVELOPMENT OF MONEY,
GOLD AND SILVER WERE USED AS MONEY ALMOST
THROUGHOUT THE WORLD:
DURING
THOSE
TIMES,
INTERNATIONAL
TRANSACTIONS DID NOT PRESENT ANY PROBLEM
BECAUSE THE CURRENCY (GOLD) WAS UNIFORM.
THE GOLDSMITHS, BECAUSE OF THEIR TRADE, HAD
EXCELLENT STRONG ROOMS, SO THEY BECAME AN
OBVIOUS CHOICE TO BE USED AS A PUBLIC SAFE
DEPOSIT FOR MERCHANTS’ VALUABLES
AS AN ACKNOWLEDGEMENT FOR DEPOSITS THE GOLDSMITHS ISSUED
RECEIPTS AND SOON FOUND THEIR RECEIPTS WERE BEING PASSED
FROM ONE TRADER TO ANOTHER IN THE SETTLEMENT OF DEBTS.
THIS SAVED A TRADER WITH A DEBT TO PAY FROM HAVING TO GO TO
HIS GOLDSMITH PRESENT THE RECEIPT, DRAW OUT THE COINS
REQUIRED AND THEN HAND THEM OVER TO HIS CREDITOR, WHO
WOULD IMMEDIATELY DEPOSIT THEM WITH HIS OWN GOLDSMITH.
IT WAS MUCH SIMPLER JUST TO TRANSFER THE RECEIPT:
TO HELP IN THIS, THE GOLDSMITHS BEGAN TO ISSUE RECEIPTS IN
CONVENIENT DENOMINATIONS AND TO MAKE THEM PAYABLE TO
BEARER SO THAT TITLE TO THE RECEIPT WOULD PASS BY DELIVERY”
PRESENT-DAY BANK NOTES ARE PAYABLE TO BEARER.
IN THE SAME WAY AND WHOEVER IS IN POSSESSION OF A NOTE,
PROVIDED HE CAME BY IT HONESTLY, HAS THE LEGAL TITLE ON BY
DELIVERING THE NOTE TO ANOTHER PERSON.
THE GOLDSMITHS BEGAN TO CONCENTRATE ON THE BANKING SIDE OF THEIR
BUSINESS AND SOON FOUND THAT, AT ANY ONE TIME, ONLY A SMALL PROPORTION OF
THE COINS THEY WERE HOLDING FOR SAFE- KEEPING WOULD BE REQUIRED TO
MEET DEMANDS FOR REPAYMENT OF THEIR RECEIPTS.
THEY BEGUN TO LEND THE SURPLUS MONEY AND TO CHARGE INTEREST FOR DOING
SO,
OTHER
SERVICES
WERE
DEVELOPED
SUCH
AS
DEPOSIT
ACCOUNTS,
DISCOUNTING (OR CASHING) BILLS OF EXCHANGE BEFORE THE DAY FOR PAYMENT
AND DEALING IN BULLION AND FOREIGN CURRENCIES.
BY 1677 THERE WERE FORTY FOUR GOLDSMITHS BANKERS OPERATING IN LONDON.
WITH THE DEVELOPMENT OF BANKS AND THAT MONEY, EACH COUNTRY HAD
ITS OWN CURRENCY.
TO
FACILITATE
INTERNATIONAL
PAYMENTS,
STANDARD
HAD
TO
BE
ESTABLISHED FOR COMPARISON OF THE DIFFERENT NATIONAL CURRENCIES.
THE SOLUTION WAS TO MAKE ALL CURRENCIES CONVERTIBLE INTO GOLD,
HENCE, THE CONCEPT OF GOLD STANDARD.
ACCORDING TO THE GOLD STANDARD ALL NATIONAL CURRENCIES WERE
CONVERTIBLE INTO GOLD BY EACH COUNTRY’S CENTRAL BANK.
IMPORTERS HAVE TO CONVERT NATIONAL CURRENCY INTO FOREIGN CURRENCY AND
EXPORTER MUST CONVERT FOREIGN CURRENCY INTO DOMESTIC CURRENCY. HENCE
THERE IS A MARKET FOR FOREIGN CURRENCY
IMPORTERS ARE THE DEMANDERS OF FOREIGN CURRENCY BECAUSE THEY NEED IT TO PAY FOR
THEIR PURCHASES ABROAD:
EXPORTERS ARE THE SUPPLIERS OF FOREIGN EXCHANGE BECAUSE THEY TRANSFORM THEIR
FOREIGN EXCHANGE EARNINGS INTO DOMESTIC CURRENCY. NOW WITH THE GOLD STANDARD
ALL MONIES WERE THE SAME IN THE SENSE THAT THEIR RELATIVE PRICES (THE EXCHANGE RATE
BETWEEN THEM) WERE GIVEN BY THE FIXED PRICE OF EACH OF THEM IN TERMS OF GOLD.
The business of Banking
THE BUSINESS OF BANKING IS MAINLY
ABOUT BORROWING FROM THE PUBLIC
AND LENDING TO THE PUBLIC
BORROWING FROM THE PUBLIC IS DONE
THROUGH DEPOSIT MOBILIZATION
DEPOSITS ARE MOBILISED THROUGH
OPENNING AND MAINTAINING VARIOUS
TYPES OF BANK ACCOUNTS IN THE BANK
FOR
EXAMPLE
ACCOUNT
AND
SAVINGS
OTHER
ACCOUNT,CURRENT
TYPES
OF
DEPOSIT
ACCOUNTS.
THE MOBILISED DEPOSITS ARE PARTLY EXTENDED
TO CUSTOMERS
INFORM OF LOANS,SUCH LIKE
OVERDRAFTS, SHORT TERM LOANS,MEDIUM TERM
LOANS AND LONG TERM LOANS
THE OTHER PART OF THE MOBILISED
DEPOSITS IS PUT IN OTHER INVESTMENT
OPPORTUNITIES
IT IS IMPORTANT TO NOTE THAT MORE
THAN 60% OF THE BANKS PROFIT IS
GENERATED FROM LOANS EXTENDED TO
VARIOUS CUSTOMERS
IT IS THROUGH THIS AMOUNT THAT DAY
TO DAY OPERATIONS ARE
FINANCED/COVERED .
FUNCTIONS OF THE BANKS
THE PRIMARY FUNCTIONS OF ANY BANK
INCLUDE;
(i) DEPOSIT MOBILIZATION
(ii) LENDING TO THE PUBLIC AND
(iii) ALLOWING WITHDRAW FROM
CUSTOMERS ACCOUNTS
AGENCY FUNCTIONS
THE BANKS HAVE OTHER FUNCTIONS
WHICH ARE CONSIDERED AS AGENCY
FUNCTIONS OR ACTIVITIES;THEY
INCLUDE THE FOLLOWING;
a)
COLLECTION AND PAYMENT OF
CHEQUES,BILLS OF EXCHANGE AND
PROMISORY NOTES
b) TRANSFER OF FUNDS
c) STANDING ORDERS EXECUTION
(d) DEALING IN FOREIGN EXCHANGE
(e) SAFE DEPOSIT SERVICES
The Meaning of Money
MONEY IS A CLAIM TO GOODS AND SERVICES.
MONEY CAN BE EXCHANGED FOR THE GOODS AND
SERVICES WE NEED. IN ITSELF, CONTEMPORARY
MONEY IS PRACTICALLY WORTHLESS:
THE STARVING MAN CANNOT EAT IT NOR THE
THIRSTY MAN DRINKS IT, BUT EACH MAY USE IT TO
BUY FOOD OR DRINK. MONEY IS AS MONEY DOES
Definition:
MONEY IS SOMETHING WHICH IS READILY
ACCEPTABLE AS A MEDIUM OF EXCHANGE.
BEFORE MONEY CAME INTO USE AS MEDIUM
OF EXCHANGE, EXCHANGE TOOK PLACE BY
MEANS OF BARTER, THAT IS GOODS WERE
EXCHANGED FOR GOODS
The economic importance of money
MODERN ECONOMIES ARE BASED ON THE PRINCIPLE OF SPECIALIZATION AND DIVISION OF
LABOUR.
THE TYPICAL INDIVIDUAL DEPENDS UPON THE PRODUCTION OF GOODS AND SERVICES BY
OTHER PEOPLE.
WITHOUT THIS SPECIALIZATION LIVING STANDARDS WOULD BE EXTREMELY LOW, AS
INDIVIDUALS WOULD BE UNABLE TO DEVELOP SPECIFIC SKILLS, INSTEAD HAVING TO
SPREAD THEIR EFFORTS OVER THE PRODUCTION OF BASIC ITEMS, SUCH AS FOOD, SHELTER
AND CLOTHING REQUIRED FOR SURVIVAL. ALSO, THE SIGNIFICANT ECONOMIES OF SCALE,
SO VITAL TO THE EFFICIENCY OF MODERN PRODUCTION PROCESSES, WOULD BE LOST.
IN GENERAL, SPECIALIZATION WILL ONLY BE UNDERTAKEN IF THERE IS SOME PROSPECT
FOR TRADE TO TAKE PLACE
Historical Development of Money
MONEY CONSISTS OF ALL THOSE THINGS THAT ARE
GENERALLY ACCEPTABLE AS A MEDIUM OF EXCHANGE.
AN ALTERNATIVE DEFINITION OF MONEY IS THAT IT IS
ANYTHING THAT IS GENERALLY ACCEPTED AS PAYMENT
FOR GOODS AND SERVICES OR MONEY IS ANYTHING
THAT IS GENERALLY ACCEPTED BY THE SOCIETY TO ACT
AS A MEDIUM OF EXCHANGE.
Barter System
IN THE COURSE OF HISTORY MANY DIFFERENT COMMODITIES HAVE
BEEN USED AS MEANS OF EXCHANGE.
IN THAT PERIOD THERE WAS NO COMMON MEDIUM OF EXCHANGE.
GOODS WERE EXCHANGED FOR GOODS.
THE SYSTEM IN WHICH GOODS ARE USED TO BUY OTHER GOODS IS
CALLED BARTER SYSTEM.
THIS SYSTEM OCCURS WHERE GOODS OR SERVICES ARE TRADED
DIRECTLY FOR OTHER GOODS OR SERVICES.
Barter System Continue…
THE SUCCESSFUL OPERATION OF THIS FORM OF TRADE REQUIRES A
DOUBLE COINCIDENCE OF WANTS.
THE POTENTIAL PROBLEMS INVOLVED IN COMPLETING A TRANSACTION
MAY BE GREAT, ESPECIALLY AS MANY GOODS ARE VARIABLE IN
QUALITY, NOT EASILY DIVISIBLE, AND POSSIBLY PERISHABLE.
THUS BARTER TRADE IS EXTREMELY INEFFICIENT, INVOLVES HIGH
TRANSACTIONS
COSTS, AND
CONSEQUENTLY UNDERMINES THE
WILLINGNESS OF PEOPLE TO SPECIALIZE.
Disadvantage of Barter System
THE PROBLEM OF DOUBLE COINCIDENCE OF WANTS:
THIS MEANS THAT UNDER BARTER SYSTEM THERE SHOULD BE A POSSIBILITY OF FINDING SOMEONE WHO IS
WILLING TO BUY WHAT YOU ARE SELLING AND AT THE SAME TIME TO SELL TO YOU WHAT YOU WANT TO BUY.
THIS PROCESS WAS VERY DIFFICULT AND A LOT OF TIME WAS WASTED DURING THE EXCHANGE PROCESS.
THE PROBLEM OF PORTABILITY:
THE VALUE/WEIGHT RATIO OF THE COMMODITY WAS TOO BULKY THAT INDIVIDUAL CANNOT CARRY
REASONABLY HIGH SUM OF MONEY AT A LONG DISTANCE.
THE PROBLEM OF DIVISIBILITY:
TO ACT AS MONEY OTHER COMMODITY WAS NOT EASILY DIVISIBLE INTO UNITS LIKE GRAINS OR SALT.
THE PROBLEM OF DURABILITY:
THE COMMODITY WAS NOT SUFFICIENTLY ROBUST TO CIRCULATE EASILY.
Characteristics/Quality of Good Money.
ANY COMMODITY CAN PERFORM THE ROLE OF MONEY PROVIDED THAT IT
POSSES CERTAIN KEY QUALITIES SUCH AS THE FOLLOWING.
ACCEPTABILITY-
BY DEFINITION A SUBSTANCE MUST BE GENERALLY ACCEPTABLE IF IT IS TO BE
REGARDED AS MONEY. THE EXTENT OF THIS ACCEPTABILITY AND THE
WILLINGNESS
OF
PEOPLE
TO
ACCEPT
SOME
FORMS
OF
MONEY
IN
PREFERENCE TO OTHERS, ARE IMPORTANT INDICATORS OF QUALITY OF GOOD
MONEY
Characteristics/Quality of Good Money.
PORTABILITY-
MONEY SHOULD BE EASY TO TRANSPORT OR TO CARRY
REASONABLY. ALSO IT SHOULD BE PHYSICALLY CONVENIENT FOR
THE USER.
DIVISIBILITY-
MONEY SHOULD BE DIVISIBLE INTO VERY SMALL UNITS, IN ORDER
THAT TRANSACTIONS OF ALL VALUES MAY BE UNDERTAKEN
Characteristics/Quality of Good Money.
DURABILITY-
MONEY SHOULD STAY LONG IN TERMS OF VALUE, THAT IS, PEOPLE WILL ONLY ACCEPT MONEY IN EXCHANGE FOR
THEIR OWN PRODUCTS IF THEY BELIEVE THAT THE MONEY WILL MAINTAIN ITS KEY PHYSICAL CHARACTERISTICS AT
LEAST UNTIL AFTER A TIME AT WHICH THEY HAVE PLANNED TO SPEND THE MONEY.
THE LESS DURABLE IS THE MONEY, THE GREATER IS THE COST TO THE SOCIETY IN MAINTAINING THE MONEY
STOCK
HOMOGENEITY-
THE MONEY STOCK SHOULD BE OF THE SAME PHYSICAL FORM.
MONEY SHOULD BE PERFECTLY INTERCHANGEABLE.
IF THIS IS NOT SO, IS LIKELY THAT CONFIDENCE IN THE MONETARY SYSTEM WILL BE UNDERMINED, AND THE
BENEFITS ARISING FROM USING MONEY WILL BE REDUCED
Characteristics/Quality of Good Money.
RECOGNIZABILITY- MONEY SHOULD BE EASILY RECOGNIZED BY THE PEOPLE; OTHER THINGS
BEING EQUAL THE BETTER WILL BE ITS QUALITY AS MONEY. ALSO MONEY SHOULD NOT BE EASILY
FORGEABLE.
SCARCITY- THE VALUE OF MONEY, LIKE ECONOMIC VALUE OF ANY ASSET IS A SUPPLY AND DEMAND
PHENOMENON. THIS GIVES APPEARANCE OF VALUE EVEN IF THE COMMODITY HAS NO INTRINSIC
VALUE. MONEY DERIVES ITS VALUE FROM ITS SCARCITY.
STABILITY OF VALUE- MONEY, DESPITE THE INFLUENCES OF INFLATION AND DEFLATION REMAINS
FAIRLY STABLE IN VALUE. MONEY IS NOT SUBJECT TO THE NATURAL FORCES OF WEATHER AS
MUCH EARLY COMMODITY MONIES WERE.
HARD TO COUNTERFEIT-GOOD MONEY MUST BE DIFFICULT TO COPY BY UNAUTHORIZED
MONEYMAKERS.
The Functions of Money
THERE ARE FOUR BASIC FUNCTIONS OF MONEY NAMELY:MEDIUM OF EXCHANGE
MONEY’S PRIME FUNCTION IS TO ACT AS A MEDIUM OF EXCHANGE. THE EXISTENCE
OF MONEY ENABLES ALL GOODS AND SERVICES TO BE EXCHANGED AGAINST IT.
WITHOUT MONEY THE MODERN ECONOMIC SOCIETY WHICH IS BASED ON
SPECIALIZATION AND DIVISION OF LABOUR COULD NEVER HAVE DEVELOPED.
LIQUID STORE OF VALUE
MONEY HAS THE ADVANTAGE THAT IT CAN BE STORED TODAY WITHOUT
COMMITMENT AS TO HOW IT WILL BE ALLOCATED IN FUTURE.
THIS ENABLES SAVINGS AND CAPITAL INVESTMENT TO BE UNDERTAKEN BY
DIFFERENT GROUPS OF PEOPLE. WEALTH MAY BE HELD IN THE FORM OF MONEY
(FINANCIAL ASSETS) OTHER THAN NON-FINANCIAL ASSETS
The Functions of Money
UNIT OF ACCOUNT OR MEASURE OF VALUE
MONEY SIMPLIFIES THE PROCESS OF CALCULATING THE
RATE OF EXCHANGE BETWEEN COMMODITIES.
THAT IS IN ALL FORMS OF TRADE IT IS USEFUL TO BE ABLE TO
COMPARE DIRECTLY THE VALUE OF ONE TYPE OF COMMODITY
OR SERVICES AGAINST ANOTHER.
THEREFORE MONEY CAN BE USED FOR SUCH A COMPARISON.
MONEY BEING A UNIT OF ACCOUNT ENABLES ASSETS TO BE
VALUED IN ORDER TO FACILITATE PROFIT AND LOSS
ACCOUNTING, STOCKTAKING, BUDGETING AND FORECASTING.
The Functions of Money
STANDARD OF DEFERRED PAYMENTS
MONEY ENABLES LOANS AND CREDIT TO
BE ARRANGED SINCE BOTH BORROWERS
AND LENDERS CAN BE SURE OF THE
PRICES AND SUMS DUE HOWEVER LONG
THE TIME PERIOD INVOLVED
CHEQUES
INTRODUCTION:
THE USE OF CHEQUES AS A MEANS OF PAYMENT IS PROBABLY BECOMING MORE
POPULAR IN TANZANIA AS PEOPLE, ESPECIALLY INDIGENOUS AFRICANS GET
ACCESS TO BANKING SERVICES.
FOR INSTANCE THERE ARE SOME WHO WANT TO EXPAND THEIR BUSINESSES
THUS APPROACH THE BANKS FOR LOANS WHICH ULTIMATELY WILL HAVE TO USE
CURRENT ACCOUNTS AND HENCE THE USE OF CHEQUES.
ALSO SOME OTHER GROUPS SUCH AS CBOS, RETIRED OFFICERS WHO RECEIVE
THEIR PENSIONS THROUGH BANK MIGHT NEED TO CHEQUES ETC.
CHEQUES
AS ONE MAY SEE THE CHEQUES BECOME MORE POPULAR IT IS IMPORTANT TO MAKE SURE THAT THE
USE OF CHEQUE AND THE FACTORS AFFECTING ITS VALIDITY ARE WELL KNOWN BY AT LEAST EVERY
A CHEQUE IS A COMMON FORM OF NEGOTIABLE INSTRUMENT USED THROUGH OUT THE WORLD.
IT OPERATES AS MANDATE OR ORDER OF THE DRAWER, AUTHORIZING OR DIRECTING THE DRAWEE TO
MAKE PAYMENT TO THE HOLDER OF IT. USUALLY THE DRAWER IS A BANKER.
A CHEQUE IS A FORM OF A CONTRACTUAL DOCUMENT, AND THE CONTRACT IN IT FALLS UNDER THE
EXCEPTION TO THE PRIVITY RULE AS IT IS A NEGOTIABLE INSTRUMENT. THE LAW RELATING TO CHEQUES
ACT, 1969, NO. 3/69.
CHEQUES CONT….
WHEN WRITING OUT A CHEQUE, CARE SHOULD ALWAYS BE
EXERCISED TO ENSURE THAT ALL DETAILS ARE COMPLETED:-DATE
-NAME OF PAYEE
-AMOUNT IN WORDS AND IN FIGURES AND
-DRAWER’S SIGNATURE
CHEQUES MUST BE WRITTEN IN INK AND NO ROOM SHOULD
BE LEFT FOR FRAUDULENT ADDITION
CHEQUES CONT….
WHEN AN OPEN CHEQUE BOOK IS IN USE, CHEQUE SHOULD BE CROSSED, PREFERABLY
NOT NEGOTIABLE, WHENEVER THEY ARE TO BE SENT THROUGH THE POST.
IF THERE IS ANY ALTERATIONS THE DRAWERS MUST SIGN AGAINST SUCH ALTERNATION.
FOR THE CHEQUES TO BE USED EFFECTIVELY SUFFICIENT FUNDS SHOULD BE
AVAILABLE IN THE DRAW
A CHEQUE IS A COMMON FORM OF NEGOTIABLE INSTRUMENT USED THROUGH OUT THE
WORLD.
CHEQUES CONT….
IT OPERATES AS MANDATE OR ORDER OF THE DRAWER,
AUTHORIZING OR DIRECTING THE DRAWEE TO MAKE
PAYMENT TO THE HOLDER OF IT. USUALLY THE DRAWER IS A
BANKER.
BANKERS ACCOUNT TO MEET CHEQUES WHEN THEY ARE
PRESENTED FOR PAYMENT AND CHEQUES DRAWN SHOULD
BE TECHNICALLY CORRECT.
ADVANTAGES OF USING
CHEQUE PAYMENT METHOD
CHEQUES ARE WIDELY USED BECAUSE THEY ARE EASIER FOR TRADERS TO TRANSPORT
THAN CASH.
CHEQUES ARE STILL WIDELY ACCEPTED FOR CERTAIN TYPES OF TRANSACTIONS EG.
WHERE GOODS ARE TO BE DELIVERED AFTER PAYMENT HAS BEEN MADE AND THE
CHEQUE CLEARED.
CHEQUES ARE PREFERRED BY BUSINESS USER FOR REASONS OF CONVENIENCE AND
BECAUSE CHEQUES ALLOW BUSINESSES TO ENJOY A FLOAT WHILE A CHEQUE IS BEING
CLEARED AND BEFORE IT IS APPLIED TO A BANK ACCOUNT.
A CHEQUE ALSO PROVIDES EVIDENCE OF RECEIPT AND EVIDENCE ON NON PAYMENT
SHOULD IT BE RETURNED UNPAID.
DEFINITION OF A CHEQUE
A CHEQUE IS AN UNCONDITIONAL ORDER IN WRITING
DRAWN ON A BANKER,SIGNED BY THE DRAWER
REQUIRING THE BANKER TO PAY ON DEMAND,A SUM
CERTAIN IN MONEY TO ORDER OF SPECIFIED PERSON
OR TO BEARER AND WHICH DOES NOT ORDER ANY
OTHER ACT IN ADDITION TO PAYMENT
ANALYSIS OF THE DEFINITION
UNCONDITIONAL ORDER
THE ORDER TO PAY COMING IN A FORM OF
A CHEQUE MUST NOT BE ATTACHED WITH
CONDITIONS AS FAR AS THE BANKER IS
CONCERNED.
THE ORDER MUST BE IN WRITING
THE ORDER MUST BE WRITTEN IN INK
ANALYSIS OF THE DEFINITION
THE ORDER MUST BE SIGNED BY THE
DRAWER OR HIS AUTHORISED AGENT
THE SIGNING BY THE DRAWER OR HIS/HER
AUTHORISED AGENT IS WHAT BRINGS
VALIDITY TO A CHEQUE
THE ORDER TO PAY MUST BE ADDRESSED
BY ONE PERSON TO ANOTHER.
THE CHEQUE MUST BE DRAWN BY ONE
PERSON AND ADDRESSED TO A BANKER.
ANALYSIS OF THE DEFINITION
THE SUM WRITTEN IN THE CHEQUE MUST BE CERTAIN
THE AMOUNT WRITTEN IN THE CHEQUE SHOULD BE CLEARLY STATED BOTH IN
WORDS AND FIGURES
THE ORDER MUST BE PAYABLE ON DEMAND
IN ORDER FOR THE INSTRUMENT TO BE CALLED A CHEQUE,IT MUST BE DRAWN
PAYABLE ON DEMAND
PAYEE MUST BE A SPECIFIED PERSON
IF THE CHEQUE IS NOT PAYABLE TO BEARER,THE NAME OF PAYEE
MUST BE INDICATED THEREON WITH REASONABLE CERTAINTY.
PARTIES TO A CHEQUE
DRAWER
THE PERSON WHO GIVES THE ORDER TO PAY THE CHEQUE
DRAWEE
PERSON TO WHOM THE ORDER IS ADDRESSED.
IT IS THE BANK WHERE THE DRAWER MAINTAINS THE ACCOUNT
PAYEE
PERSON NAMED BY THE DRAWER TO RECEIVE THE VALUE OF THE
INSTRUMENT
ENDORSER
PERSON WHO MAKES AN ENDORSEMENT AT THE BACK OF THE
CHEQUE.
TYPES OF A CHEQUE
WHEN ONE TALKS OF DIFFERENT TYPES OF CHEQUES, ONE REFERS TO THE NATURE
OF THE CONTENTS OF CHEQUES AND NOT TO FORMS. IN THIS RESPECT, WE MAY
DISTINGUISH BETWEEN VARIOUS TYPES OF CHEQUES SUCH AS;
A BEARER CHEQUE:
THIS IS ONE WHICH CAN BE NEGOTIATED BY A MERE DELIVERY.
WHEN THE HOLDER OF A BEARER CHEQUE TRANSFERS IT WITHOUT ENDORSEMENT
IN EXCHANGE OF GOODS, HE IS NOT LIABLE ON IT IF IT IS DISHONOURED.
THE TRANSFEREE TAKES THE CHEQUE WITH THE RISK OF IT BEING DISHONOURED.
THIS CHEQUE IS ALSO KNOWN AS AN OPEN CHEQUE OR UNCROSSED CHEQUE.
AN ORDER CHEQUE
THIS IS NEGOTIATED BY ENDORSEMENT AND DELIVERY.
WHERE THE HOLDER OF A CHEQUE PAYABLE TO HIS
ORDER
TRANSFERS
IT
FOR
VALUE
WITHOUT
INDORSING IT, THE TRANSFER GIVES THE TRANSFEREE
SUCH TITLE AS THE TRANSFEROR HAD IN THE CHEQUE
AND THE TRANSFEREE IN ADDITION ACQUIRE THE
RIGHT TO HAVE THE ENDORSEMENT
A CROSSED CHEQUE
THIS IS ONE WHICH CANNOT BE ENCASHED ACROSS THE
COUNTER.
IT HAS TO BE PAID (DEPOSITED) INTO THE BANK ACCOUNT OF
HE HOLDER.
ANTE-DATED CHEQUE
ANTE-DATED CHEQUE IS ONE THAT HAS A DATE ON IT
EARLIER THAN THE DATE IT WAS ISSUED. SUCH A
CHEQUES IS NOT INVALID AS ANY DATE APPEARING
ON A CHEQUE IS PRESUMED TO BE A CORRECT DATE.
POST-DATED CHEQUE.
THIS IS A CHEQUE WHICH POSTPONES THE CHEQUE UNTIL
THAT DATE IT ARRIVES.
A POST-DATED CHEQUE IS THEREFORE FREELY NEGOTIABLE.
A BANKER WHO PAYS A POST-DATED CHEQUE DISOBEYS THE
ORDER BY THE CUSTOMER AND ACCORDINGLY SUFFERS THE
LOSS, IF ANY, OCCASIONED BY SUCH DISOBEDIENCE.
POST-DATED CHEQUE CONT…
THE BANKER MAY ALSO BE HELD LIABLE FOR INJURING HIS
CUSTOMERS’ CREDIBILITY.
THE BANKER MAY BE AT LOSS IF PAYMENT IS MADE IN A POST
DATED CHEQUE IF THE CUSTOMER DIES OR A GARNISHEE
ORDER IS ISSUED BEFORE THE DATE SHOWN ON THE CHEQUE.
USUALLY IF THE BANKER PAYS A POST-DATED CHEQUE IT DOES
NOT DEPT IT UNTIL THE DATE DUE.
OVER DUE CHEQUE
AN OVER DUE CHEQUE IS ONE THAT APPEARS
ON
THE
FACE
OF
IT
TO
HAVE
BEEN
IN
CIRCULATION FOR AN UNREASONABLE LENGTH
OF TIME IS REASONABLE OR UNREASONABLE.
IN THIS RESPECT, EVERY CASE HAS TO BE
DECIDED ON ITS OWN MERITS.
A STALE CHEQUE
A STALE CHEQUE IS ONE WHICH HAS BEEN IN CIRCULATION FOR MORE
THAN SIX MONTHS.
WHEN THE PAYING BANKER RETURNS THE STALE CHEQUE, HE PREFERS
TO CONFIRM WITH THEN DRAWER WHETHER IT IS STILL VALID OR NOT.
THIS MEANS THAT IF THE DRAWER AUTHORIZES PAYMENT OF IT, THEN
THE BANKER MAY TREAT AS A VALID.
CHEQUE CROSSINGS
A CROSSING MAY BE DEFINED AS AN INSTRUCTION TO THE BANK BY THE
CUSTOMER TO PAY THE CHEQUE ONLY INTO A BANK ACCOUNT, NOT ACROSS THE
COUNTER.
THERE ARE TWO TYPES OF CROSSINGS ON CHEQUES. THESE ARE GENERAL
CROSSINGS AND SPECIAL CROSSINGS.
CROSSING
FACILITATES
IN
TRACING
THE
RECIPIENT
OF
PAYMENT
IF
SUBSEQUENTLY DEFECTED.
IT ASSURES SAFETY IN CIRCULATION AND PREVENTS PAYMENT TO A WRONGFUL
HOLDER
GENERAL CROSSINGS:
GENERAL CROSSING PERMITS PAYMENT OF A CHEQUE INTO ANY BANK ACCOUNT.
THE PAYING BANKER MUST PAY THE VALUE OF THE CHEQUE TO THE OTHER BANK
WHERE THE CUSTOMER HAS THE ACCOUNT.
THE CUSTOMER’S BANKER HAS AN OBLIGATION TO MAKE COLLECTION OF THE
PROCEEDS OF THE CHEQUE FROM THE PAYING BANKER.
THE BASIS OF THIS CROSSING IS THAT IT PROTECTS THE HOLDER BECAUSE IF
THE CHEQUE IS STOLEN, IT CANNOT BE ENCASHED ACROSS THE COUNTER.
IT MEANS IT ASSURES PAYMENT TO THE GENUINE RECEIVER.
GENERAL
CROSSINGS
CONSIST
OF
TWO
PARALLEL TRANSVERSE LINES TO WHICH MAY
BE ADDED THE WORD SUCH AS “& CO” “NOT
NEGOTIABLE”, AND “A/C PAYEE”.
SPECIAL CROSSING
A
SPECIAL
CROSSING
INCLUDES
THE
NAME
OF
A
PARTICULAR BANK ON THE FACE OF THE CHEQUE AND
HENCE THE CHEQUE IS CROSSED SPECIALLY TO THE NAMED
BANK.
SPECIAL CROSSING MAY BE ILLUSTRATED BY SUCH WORDS
“X BANK LTD”; “X BANK LTD, A/C PAYEE” OR X BANK LTD; A/C
PAYEE, NOT NEGOTIABLE.
NOT NEGOTIABLE
THE WORD NOT NEGOTIABLE DENIES A CHEQUE OF ITS STATUS OF BEING A NEGOTIABLE
INSTRUMENT.
THE WORDS PERSE DO NOT ADD ANY RESPONSIBILITY ON THE PART OF THE PAYING
BANKER.
WHAT THEY PRACTICALLY MEAN IS THAT THE TRANSFEREE OF A CHEQUE MARKED NOT
NEGOTIABLE SHALL NOT BE CAPABLE OF ACQUIRING A BETTER TITLE TO IT THAN THAT IS
TRANSFEROR HAD.
THE PAYING BANKER IS NOT OBLIGED TO INQUIRE ABOUT THE TITLE OF THE HOLDER.
AGAIN, THE HOLDER OF SUCH A CHEQUE IS NOT, AND CANNOT CLAIM TO BE, A HOLDER IN
DUE COURSE. THIS IS BECAUSE IT IS NOT FREE FROM EQUITIES
NOT TRANSFERABLE
THESE WORDS HAVE AN IMPLICATION THAT A CHEQUE HAS BEEN RESTRICTIVELY INDORSED.
IT CANNOT BE TRANSFERRED AT ALL IN SUCH MANNER AS TO CONSTITUTE THE
TRANSFEREE /THE HOLDER OF IT.
NOT TRANSFERABLE CHEQUES INCLUDE ARE:(A)CHEQUES PAYABLE TO A NAMED PERSON (PAYEE) AND FOLLOWED BY THE WORD “ONLY”.
(B) CHEQUES PAYABLE TO A NAMED PAYEE AND MARKED “NOT TRANSFER
(C)UNCROSSED CHEQUES PAYABLE TO A NAMED PAYEE
ACCOUNT- PAYEE CROSSINGS
THIS IS COMMON WITH GENERAL CROSSING.
THE CROSSING IMPLIES THAT THE BANKER WHO COLLECTS THE
PROCEEDS OF THE CHEQUE SO CROSSED IS REQUIRED TO
CREDIT THE PAYEE’S ACCOUNT;
HE WILL BE GUILTY OF NEGLIGENCE AND LIABLE TO THE TRUE
OWNER TO THE EXTENT OF THE AMOUNT OF THE CHEQUE.
THE WORD ALONE DOES PROHIBIT NEITHER TRANSFERABILITY
NOR NEGOTIABILITY OF A CHEQUE
EFFECTS OF CROSSING A CHEQUE
THE CHEQUE IS NOT PAYABLE OVER THE
COUNTER
THE PROCEEDS ARE COLLECTED FROM
THE DRAWEE BANK
SPECIAL
CROSSING SHOULD ONLY BE
COLLECTED BY THE PAYEE’S BANK
ADVANTAGES OF CROSSING A CHEQUE
IT BECOMES DIFFICULT TO COMMIT
FRAUDS ON PAYMENT
IT PROVIDES MORE TIME FOR FRAUDS TO
BE DETECTED BEFORE PAYMENT IS
EFFECTED.
IT ALLOWS THE DRAWER TO PLACE A
STOP PAYMENT ORDER IF NEEDED
PAYMENT OF CHEQUES
THIS IS A SERVICE DONE BY BANKS TO EFFECT
PAYMENTS TO THEIR CUSTOMERS WHEREBY THE PAYING
BANK IS THE ONE WHICH MAINTAINS THE DRAWER’S
ACCOUNT.
DEBITING
THE
DRAWER’S
ACCOUNT
EFFECTS
THE
PAYMENT.
HOWEVER,BEFORE ANY CHEQUE IS PAID IT HAS TO BE
SCRUTINISED FOR A NUMBER OF ASPECTS
FUNDS
ARE
THE
FUNDS
IN
THE
ACCOUNT
SUFFICIENT TO MEET THE AMOUNT OF
THE CHEQUE?
ARE THERE ANY UNCLEARED EFFECTS?
IS THE PAYMENT OF THE CHEQUE WITHIN
THE OVERDRAFT LIMIT GRANTED IF ANY?
TECHNICAL ASPECTS
THE CHEQUE SHOULD NEITHER BE
POSTED NOR STALE
THE CHEQUE LEAF SHOULD COME FROM
A CHEQUE BOOK ISSUED TO HIM/HER.
IN ADDITION TO THAT IT IS IMPORTANT
TO OBSERVE THE SEQUENCE OF THE
CHEQUE NUMBERS
TECHNICAL ASPECTS
THE PAYEE MUST BE IDENTIFIED BEYOND
ANY REASONABLE DOUBT BY THE BANK
THE AMOUNT IN WORDS AND IN FIGURES
SHOULD AGREE
THE DRAWER’S SIGNATURE SHOULD BE
SAME AS THE ONE HELD BY THE BANK AS
A SPECIMEN
IF THE CHEQUE IS CROSSED IT CANNOT
BE PAID OVER THE COUNTER
TECHNICAL ASPECTS
ANY ALTERATION THAT APPEARS ON THE
CHEQUE MUST BE ACCOMPANIED BY THE
FULL SIGNATURE OF THE DRAWER
ANY MULTILATION ON THE CHEQUE
MUST BE AUTHENTICATED BY THE BANK
IF THE CHEQUE IS TO BE PAID TO
SOMEONE OTHER THAN THE PAYEE IT
MUST HAVE AN APPROPRIATE
ENDORSEMENT
LEGAL ASPECTS
A CHEQUE SHOULD NOT BE PAID IF ANY OF
THE FOLLOWING IS INVOLVED
IF A NOTICE HAS BEEN SERVED TO THE
BANK ABOUT THE DEATH,INSANITY,OR
BANKRUPTCY OF THE DRAWER
IF THERE IS A STOP PAYMENT ORDER FOR
THE RESPECTIVE CHEQUE BY THE DRAWER
PRESENCY OF GARNISHEE ORDER FROM A
COURT OF LAW
NON PAPER MONEY/PLASTIC MONEY
PAYMENTS THROUGH PLASTIC CARDS (MONEY)
-PLASTIC CARDS:
THESE INCLUDE CREDIT CARDS, DEBIT CARDS, CHEQUE GUARANTEE
CARDS, TRAVEL AND ENTERTAINMENT CARDS, SHOP CARDS AND SMART
CARD OR CHIP CARDS:
TECHNICALLY, PLASTIC CARDS DO NOT ACT THEMSELVES AS A
PAYMENT MECHANISM. THEY HELP TO IDENTIFY THE CUSTOMERS AND
ASSIST IN CREATING EITHER A PAPER OR ELECTRONIC PAYMENT
CREDIT CARD
THIS ENABLES THE HOLDER TO OBTAIN INSTANT CREDIT. THEY ARE VERY WIDESPREAD IN
DEVELOPED COUNTRIES.
THE TWO BEST KNOWN ARE BARCLAY’S CARD, WHICH IS RUN BY BARCLAY BANK, BUT IS
AVAILABLE TO PEOPLE HOLDING ACCOUNTS AT OTHER BANKS AS WELL.
THEY
GAVE THE HOLDER AUTHORITY TO
BUY GOODS, AT SHOPS/SUPERMARKET
DESIGNATED BY THE ISSUING ORGANIZATION FOR AMOUNTS UP TO AN AGREED MAXIMUM.
THE SELLING SHOP THEN PRESENTS THE BILL TO THE ORGANIZATION THAT ISSUED THE
CREDIT CARD AND IS PAID
PROMPTLY: THE ISSUING ORGANIZATION THEN BILLS THE CARD
HOLDER AND EITHER ASKS FOR PROMPT CASH OR IN INSTALLMENTS IN WHICH CASE
INTEREST IS CHARGED OR UNPAID MONTHLY BALANCES
DEBIT CARD
THESE ARE ISSUED DIRECTLY BY BANKS AND
ALLOW CUSTOMERS TO WITHDRAW MONEY FROM
THEIR ACCOUNTS.
THEY CAN ALSO BE USED TO OBTAIN CASH AND
OTHER INFORMATION WHEN USED THROUGH
AUTOMATED LETTER MACHINES (ATMS)
CHEQUE GUARANTEE CARDS
THESE CARDS WERE INTRODUCED BECAUSE OF RETAILERS’
RELUCTANCE TO ACCEPT PERSONAL CHEQUES.
TYPICALLY,
WHEN
PAYING
BY
CHEQUES
FURTHER
IDENTIFICATION OF THE PAYER IS PROVIDED BY PRESENTATION
OF THE CHEQUE GUARANTEE CARD AND DETAILS FROM THE
CARD WILL BE WRITTEN ON THE CHEQUE IN ORDER TO
GUARANTEE PAYMENT MOST OF THESE TYPES OF CARDS
ALSO ACT AS DEBIT CARDS
TRAVEL AND ENTERTAINMENT CARDS(CHARGE
CARDS)
THESE PROVIDE PAYMENT FACILITIES AND ALLOW REPAYMENT TO BE
DEFERRED UNTIL THE END OF THE MONTH, BUT THEY DO NOT PROVIDE
INTEREST FREE CREDIT.
UNLIKE CREDIT CARDS, ALL BILLS HAVE TO BE REPAID AT THE END OF
THE MONTH AND NO ROLL OVER IS ALLOWED.
NORMALLY, UNPAID BALANCES ARE CHARGED AT A HIGHER INTEREST
RATE THAN FOR CREDIT CARDS, SO AS TO DISCOURAGE LATE PAYMENT.
THE MOST WIDELY USED CHARGE CARDS INCLUDE AMERICAN EXPRESS
AND DINNER CLUB
SMART, MEMORY OR CHIP CARDS
THESE ARE CARDS WHICH INCORPORATE A MICROPROCESSOR OR A
MEMORY CHIP.
THE
MICROPROCESSOR
CARD
CAN ADD,
DELETE AND
OTHERWISE
MANIPULATE INFORMATION ON THE CARD AND CAN UNDERTAKE A VARIETY
OF FUNCTIONS AND STORE A RANGE OF INFORMATION.
MEMORY CHIP CARDS (EG PRE-PAID PHONE CARDS) CAN UNDERTAKE A PRE-
DETERMINED OPERATION.
THE MAIN CHARACTERISTIC OF THE MICROPROCESSOR TECHNOLOGY IS TO
PROVIDE EXTRA SECURITY FEATURE FOR CARD PAYMENT
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TISS-TASMANIAN INDUSTRY SUPPORT SCHEME 2009
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