KOOLLEJJII TULLUU DIIMTUU

Competency 1
Develop Understanding of the Ethiopian Financial System and Markets

Unit Descriptor
This unit describes the performance outcomes, skills and knowledge required to understand the financial
systems and markets operating in Ethiopia, including identifying the main participants in financial markets,
the role of the National Bank, the impact of its decisions on business and consumers, key factors that
influence the Ethiopian economy and the role of financial regulators.
Introduction
The financial system plays the key role in the economy by stimulating economic growth, influencing
economic performance of the actors, affecting economic welfare. This is achieved by financial infrastructure,
in which entities with funds allocate those funds to those who have potentially more productive ways to
invest those funds. A financial system makes it possible a more efficient transfer of funds. As one party of the
transaction may possess superior information than the other party, it can lead to the information asymmetry
problem and inefficient allocation of financial resources. By overcoming the information asymmetry problem
the financial system facilitates balance between those with funds to invest and those needing funds.

Objectives
Dear learner after completing this competency you will be able to :

 Describe what is meant by the Ethiopian financial markets

 Explain the function and role of the National Bank of Ethiopia (NBE)
 Explain Ethiopia's monetary system
 Explain the key factors that influence the Ethiopian economy
 Describe the role of regulators
Learning outcome #1
1. The Ethiopian financial markets
1.1. Specific financial markets in Ethiopia are identified and discussed
Financial markets in Ethiopia caninclude
 bond market
 derivatives markets
 foreign exchange market
 money market including the short term money market
 options and futures markets
According to the structural approach, the financial system of an economy consists of three main
components:
1) Financial markets;
2) Financial intermediaries (institutions);
3) Financial regulators.
Each of the components plays a specific role in the economy.
According to the functional approach, financial markets facilitate the flow of funds in order to finance
investments by corporations, governments and individuals. Financialinstitutionsare the key players in the
financial markets as they perform the function of intermediation and thus determine the flow of funds. The
financial regulators perform the role of monitoring and regulating the participants in the financial system.
Definition of 'Financial Market'
Broad term describing any marketplace where buyers and sellers participate in the trade of assets such as
equities, bonds, currencies and derivatives. Financial markets are typically defined by having transparent
pricing, basic regulations on trading, costs and fees and market forces determining the prices of securities that
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trade. Some financial markets only allow participants that meet certain criteria, which can be based on factors
like the amount of money held, the investor's geographical location, knowledge of the markets or the
profession of the participant.
A financial market is a market in which people and entities can trade financial securities, commodities, and
other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities
include stocks and bonds, and commodities include precious metals or agricultural goods.There are both
general markets (where many commodities are traded) and specialized markets (where only one commodity
is traded). Markets work by placing many interested buyers and sellers, including households, firms, and
government agencies, in one "place", thus making it easier for them to find each other. An economy which
relies primarily on interactions between buyers and sellers to allocate resources is known as a market
economy in contrast either to a command economy or to a non-market economy such as a gift economy.

The purpose of financial markets

Financial assets exist in an economy because the savings of various individuals, corporations, and governments during a period of
time differ from their investment in real assets. By real assets, we mean such thing as houses, buildings, equipment, inventories,
and durable goods. If savings equaled investment in real assets for all economic units in an economy over all periods of time, there
would be no external financing, no financial assets, and money or capital markets. Each economic unit would be self-sufficient.

Current expenditures and investment in real assets would be paid for out of current income. A financial asset
is created only when the investment of an economic unit in real assets exceeds its savings and it finances this
excess by borrowing or issuing stock. Of course, another economic unit must be willing lend.

This interaction of borrowers with lenders determines interest rates. In the economy as a whole, savings-
surplus units those whose savings exceed their investment to real assets provide funds to savings deficit units
(those whose investments in real assets exceed their savings). This exchange of funds is evidenced by
investment instruments, or securities, representing financial assets to the holders and financial liabilities to
the issuers.

The purpose of financial markets in an economy is to allocate savings efficiently to ultimate users. If those
economic units that saved were the same as those that engaged in capital formation, an economy could
prosper without financial markets. In modern economies, however, most non-financial corporations use more
than their total savings for investing in real assets.

Most households, on the other hand, have total savings in excess of total investment. Efficiency entails
bringing the ultimate investor in real assets and the ultimate saver together at the least possible cost and
inconvenience.

Financial markets are not so much physical places as they are mechanisms for channeling savings to the
ultimate investors in real assets. The role of financial markets and financial institutions in moving funds from
the saving sector (savings-surplus units) to the investment sector (savings-deficit units). From the prominent
position held by certain financial institutions in channeling the flow of funds in the economy, the secondary
market, financial intermediaries, and financial brokers are the key institutions that enhance funds flows.

1.3. The participants in the financial markets and the roles of banks and financial institutions as financial
intermediaries are identified and their roles analyzed and discussed
Major Participants in Financial Markets
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Insurance Companies

 Issue contracts to provide a future payment if a certain event happens

 Use the fees from these contracts to invest in equities, debt and property

Finance Companies(short to medium term debt capital)

 Get funds by issuing debentures and borrowing from the general public
 Provide short-to-medium-term funds to business, particularly leasing finance

Banks

 Are the largest providers of funds to business

 Get most of their funds from deposits
 Provide a wide range of debt securities to business

Merchant Banks

 Get funds by short-term borrowing

 Lend mainly to corporations in such things as foreign currency and commercial bills

Companies

 Often have surplus funds from operations

 Invest funds on money market, commercial bills and sometimes buy shares in businesses

Superannuation/Mutual Funds

 Get funds from the savings of people preparing for retirement

 Invest funds on money market, commercial bills and sometimes buy shares in businesses

Government(National Bank of Ethiopia)

 Acts for the government to ensure gaps in the supply of funds are filled
 Works through the authorized dealers

There are two basic financial market participantcategoriesInvestor vs. Speculator and Institutional vs.
Retail .

Supply side vs. demand side

A market participant may either be coming from the Supply Side, hence supplying excess money (in the form
of investments) in favor of the demand side; or coming from the Demand Side, hence demanding excess
money (in the form of borrowed equity) in favor of the Supply Side. This equation originated from
Keynesian Advocates. The theory explains that a given market may have excess cash; hence the supplier of

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funds may lend it; and those in need of cash may borrow the funds supplied. Hence, the equation: aggregate
savings equals aggregate investments.
The demand side consists of: those in need of cash flows (daily operational needs); those in need of interim
financing (bridge financing); those in need of long-term funds for special projects (capital funds for venture
financing).

The supply side consists of: those who have aggregate savings (retirement funds, pension funds, insurance
funds) that can be used in favor of demand side. The origin of the savings (funds) can be local savings or
foreign savings. So much pensions or savings can be invested for school buildings; orphanages; (but not
earning) or for road network (toll ways) or port development (capable of earnings). The earnings go to owner
(Savers or Lenders) and the margin goes to the banks. When the principal and interest are added up, it will
reflect the amount paid for the user (borrower) of the funds.

Investor vs. Speculator

An investor is any party that makes an Investment.
However, the term has taken on a specific meaning in finance to describe the particular types of people and
companies that regularly purchase equity or debtsecurities for financial gain in exchange for funding an
expanding company. Less frequently the term is applied to parties who purchase real estate, currency,
commodityderivatives, personal property, or other assets.

Speculation, in the narrow sense of financial speculation, involves the buying, holding, selling, and short-
selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives or any valuable
financial instrument to profit from fluctuations in its price as opposed to buying it for use or for income via
methods such as dividends or interest. Speculation or agiotage represents one of three market roles in
western financial markets, distinct from hedging, long term investing and arbitrage. Speculators in an asset
may have no intention to have long term exposure to that asset.
Institutional investor
An institutional investor is an investor, such as a bank, insurance company, retirement fund, hedge fund, or
mutual fund that is financially sophisticated and makes large investments, often held in very large portfolios
of investments. Because of their sophistication, institutional investors may often participate in private
placements of securities, in which certain aspects of the securities laws may be inapplicable.
Retail investor
A retail investor is an individual investor possessing shares of a given security. Retail investors can be further
divided into two categories of share ownership.

1. A Beneficial Shareholder is a retail investor who holds shares of their securities in the account of a
bank or broker, also known as “in Street Name.” The broker is in possession of the securities on
behalf of the underlying shareholder.
2. A Registered Shareholder is a retail investor who holds shares of their securities directly through the
issuer or its transfer agent. Many registered shareholders have physical copies of their stock
certificates.

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Participants in the financial markets may include

 banks and non-banking financial institutions
 investors:
 corporations
 individuals
 local and international governments
 speculators:
 corporations
 Individuals.

Learning outcome #2
2. Explain the function and role of the National Bank of Ethiopia (NBE)
2.1. The role of the NBE as Ethiopia's central bank is researched and discussed and contrasted with other
banking institutions
The National Bank of Ethiopia was established in 1963 by proclamation 206 of 1963 and began operation in
January 1964. Prior to this proclamation, the Bank used to carry out dual activities, i.e. commercial banking
and central banking. The proclamation raised the Bank's capital to Ethiopian dollars 10.0 million and granted
broad administrative autonomy and juridical personality.
Following the proclamation the National Bank of Ethiopia was entrusted with the following responsibilities.
 To regulate the supply, availability and cost of money and credit.
 To manage and administer the country's international reserves
 To license and supervise banks and hold commercial banks reserves and lend money to them.
 To supervise loans of commercial banks and regulate interest rates
 To issue paper money and coins.
 To act as an agent of the Government.
 To fix and control the foreign exchange rates.

Mission, vision, values

The vision, mission and goals of the National Bank of Ethiopia has emanated from the overall vision of the
government which is "to see a country, wherein democracy and good governance are prevailed upon the
mutual consent and involvement of its people, wherein social justice is reigned, and wherein poverty reduced
and income of the citizens reach to a middle economic level"

Goal of the bank

1. Carry out extensive and sound institutional transformation tasks.

2. Maintain price and exchange rate stability.
3. Maintain adequate international reserves.
4. Improve the soundness of the financial system.
5. Play a decisive role in economic research and policy advice to the Government.
6. Create efficient Payment System.
7. Improve the currency management of the Bank.

National bank and its role in the economy:

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The National Bank of Ethiopia has its website at www.nbe.gov.et/ and periodically makes available to the
public several statistical publications on macroeconomic factors in Ethiopia.
The inter‐bank money market is weak and few banks access the re‐discount window.
According to its website, the functions of the National Bank of Ethiopia are as follows:
Coins, prints and issues the legal tender currency, and regulates the country's money supply
regulates the applicable interest rate and other cost of money charges
Formulating implements and follows‐up the country's exchange rate policy, and manages and administers
the international reserves of the country
Licenses, supervises and regulates the operations of banks, insurance companies and other financial
institutions
Sets limits on gold and foreign exchange assets, which banks, and other financial institutions authorized to
deal in foreign exchange an hold in deposits
Sets limits on the net foreign exchange positions and terms, and the amount of external indebtedness of
banks and other financial institutions
Provides short and long term refinancing facilities to banks and other financial institutions
Accepts deposit of any kind from foreign sources
Promotes and encourages the dissemination of banking and insurance services throughout the country
Prepares periodic economic studies, together with forecasts of the balance of payments, money supply,
prices and other relevant statistical indicators of the Ethiopian economy useful for analysis and for the
formulation and determination by the Bank of monetary, saving and exchange policies
Acts as banker, fiscal agent and financial advisor to the Government
Represents the country in international monetary institutions and acts consistently with international
monetary and banking agreements to which Ethiopia is a party
Exercises and performs such other powers and activities as central banks customarily
Perform
The Central Bank has a monopoly on all foreign exchange transactions and supervises all foreign exchange
payments and remittances. The currency, the Birr, is not convertible. The government carefully monitors and
controls its movement and as a result, it trades in a very narrow range.
The Birr is widely considered to be overvalued particularly in light of Ethiopia’s high inflation rate.

The role of the NBE includes:

 regulating banks and other financial institutions
 maintaining financial stability and regulating the Ethiopian Payments
System
 managing government debt
 regulating the payments system
 setting and implementing monetary policy

Government Bond Market

The Treasury bill market is the only active primary market in the country. Tenders are offered periodically by
the Central Bank. The government offers 28‐day, 91 day and 182‐day bills.
Stock Market
No stock exchange exists
Other Types of Finance/Financial Market
Micro finance
The formal microfinance industry began in Ethiopia in 1994/1995 with the government’s the

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Licensing and Supervision of Microfinance Institution Proclamation designed to encourage

Microfinance Institutions (MFIs) to extend credit to both the rural and urban poor of the country.
Since the government prohibits any foreign national from providing banking services inEthiopia, MFIs in the
country must be established as share companies with capital wholly owned by Ethiopian Nationals or by
organizations wholly owned and registered under the laws with a head office in Ethiopia. These shareholders
are precluded from selling or transferring their shares and "voluntarily forsake" their claim on dividends, if
any, declared by the MFI. Such shareholders do not have a real stake in the organization and would be
unlikely to lend it support at a time of financial crisis.
Interest rates charged on loans are not fixed, but a minimum interest rate of 3% to depositors is required by
law, which sometimes discourages mobilization in hard‐to‐reach areas (where administrative costs added to
the cost of capital make investment too expensive). Such high transactions costs mean that most MFIs
operate in urban or semi‐urban areas, leaving the rural poor underserved. On the other hand, MFIs are exempt
from Income and Sales Tax on their profits.
Other than the formally‐licensed MFIs, there are NGOs informally involved in the delivery of microfinance.
Their practices include subsidized interest rates, charity and lax delinquency penalties, which Gobezie notes
may undermine the health of the microfinance industry as a whole.
In finance, financial markets facilitate:
 The raising of capital (in the capital markets)
 The transfer of risk (in the derivatives markets)
 Price discovery
 Global transactions with integration of financial markets
 The transfer of liquidity (in the money markets)
 International trade (in the currency markets)

– And are used to match those who want capital to those who have it.

Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are
securities which may be freely bought or sold. In return for lending money to the borrower, the lender will
expect some compensation in the form of interest or dividends. This return on investment is a necessary part
of markets to ensure that funds are supplied to them.

Types of financial markets

Within the financial sector, the term "financial markets" is often used to refer just to the markets that are used
to raise finance: for long term finance, the Capital markets; for short term finance, the Money markets.
Another common use of the term is as a catchall for all the markets in the financial sector, as per examples in
the breakdown below.

 Capital markets which consist of:

o Stock markets, which provide financing through the issuance of shares or common stock, and
enable the subsequent trading thereof.
o Bond markets, which provide financing through the issuance of bonds, and enable the
subsequent trading thereof.
 Commodity markets, which facilitate the trading of commodities.

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 Money markets, which provide short term debt financing and investment.
 Derivatives markets, which provide instruments for the management of financial risk.[1]
 Futures markets, which provide standardized forward contracts for trading products at some future
date; see also forward market.
 Insurance markets, which facilitate the redistribution of various risks.
 Foreign exchange markets, which facilitate the trading of foreign exchange.

The capital markets may also be divided into primary markets and secondary markets. Newly formed (issued)
securities are bought or sold in primary markets, such as during initial public offerings. Secondary markets
allow investors to buy and sell existing securities. The transactions in primary markets exist between issuers
and investors, while secondary market transactions exist among investors.

Liquidity is a crucial aspect of securities that are traded in secondary markets. Liquidity refers to the ease
with which a security can be sold without a loss of value. Securities with an active secondary market mean
that there are many buyers and sellers at a given point in time. Investors benefit from liquid securities
because they can sell their assets whenever they want; an illiquid security may force the seller to get rid of
their asset at a large discount.

Role (Financial system and the economy)

One of the important requisite for the accelerated development of an economy is the existence of a dynamic
financial market. A financial market helps the economy in the following manner.

 Saving mobilization: Obtaining funds from the savers or surplus units such as household individuals,
business firms, public sector units, central government, state governments etc. is an important role
played by financial markets.
 Investment: Financial markets play a crucial role in arranging to invest funds thus collected in those
units which are in need of the same.
 National Growth: An important role played by financial market is that, they contributed to a nation’s
growth by ensuring unfettered flow of surplus funds to deficit units. Flow of funds for productive
purposes is also made possible.
 Entrepreneurship growth: Financial market contribute to the development of the entrepreneurial
claw by making available the necessary financial resources.
 Industrial development: The different components of financial markets help an accelerated growth
of industrial and economic development of a country, thus contributing to raising the standard of
living and the society of well-being.

Functions of Financial Markets

 Intermediary Functions: The intermediary functions of a financial markets include the following:
o Transfer of Resources: Financial markets facilitate the transfer of real economic resources
from lenders to ultimate borrowers.

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o Enhancing income: Financial markets allow lenders to earn interest or dividend on their
surplus invisible funds, thus contributing to the enhancement of the individual and the national
income.
o Productive usage: Financial markets allow for the productive use of the funds borrowed. The
enhancing the income and the gross national production.
o Capital Formation: Financial markets provide a channel through which new savings flow to
aid capital formation of a country.
o Price determination: Financial markets allow for the determination of price of the traded
financial assets through the interaction of buyers and sellers. They provide a sign for the
allocation of funds in the economy based on the demand and supply through the mechanism
called price discovery process.
o Sale Mechanism: Financial markets provide a mechanism for selling of a financial asset by an
investor so as to offer the benefit of marketability and liquidity of such assets.
o Information: The activities of the participants in the financial market result in the generation
and the consequent dissemination of information to the various segments of the market. So as
to reduce the cost of transaction of financial assets.

 Financial Functions
o Providing the borrower with funds so as to enable them to carry out their investment plans.
o Providing the lenders with earning assets so as to enable them to earn wealth by deploying the
assets in production debentures.
o Providing liquidity in the market so as to facilitate trading of funds.
o it provides liquidity to commercial bank
o it facilitate credit creation
o it promotes savings
o it promotes investment
o it facilitates balance economic growth
o it improves trading floors

Constituents of Financial Market

Based on market levels

 Primary market: Primary market is a market for new issues or new financial claims. Hence it’s also
called new issue market. The primary market deals with those securities which are issued to the public
for the first time.
 Secondary market: It’s a market for secondary sale of securities. In other words, securities which
have already passed through the new issue market are traded in this market. Generally, such securities
are quoted in the stock exchange and it provides a continuous and regular market for buying and
selling of securities.

The purpose of financial markets includes:

 enabling participants to invest surplus funds by buying securities

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 enabling participants to raise required funds by issuing securities

Based on security types

 Money market: Money market is a market for dealing with financial assets and securities which have
a maturity period of up to one year. In other words, it’s a market for purely short term funds.
 Capital market: A capital market is a market for financial assets which have a long or indefinite
maturity. Generally it deals with long term securities which have a maturity period of above one year.
Capital market may be further divided into: (a) industrial securities market (b) Govt. securities market
and (c) long term loans market.
o Equity markets: A market where ownership of securities are issued and subscribed is known
as equity market. An example of a secondary equity market for shares is the Bombay stock
exchange.
o Debt market: The market where funds are borrowed and lent is known as debt market.
Arrangements are made in such a way that the borrowers agree to pay the lender the original
amount of the loan plus some specified amount of interest.

 Derivative markets: A market where financial instruments are derived and traded based on an
underlying asset such as commodities or stocks.

 Financial service market: A market that comprises participants such as commercial banks that
provide various financial services like ATM. Credit cards. Credit rating, stock broking etc. is known
as financial service market. Individuals and firms use financial services markets, to purchase services
that enhance the working of debt and equity markets.
 Depository markets: A depository market consist of depository institutions that accept deposit from
individuals and firms and uses these funds to participate in the debt market, by giving loans or
purchasing other debt instruments such as treasure bills.
 Non-Depository market: Non-depository market carry out various functions in financial markets
ranging from financial intermediary to selling, insurance etc. The various constituency in non-
depositary markets are mutual funds, insurance companies, pension funds, brokerage firms etc.

The role of the NBE includes

 :regulating banks and other financial institutions
 maintaining financial stability and regulating the Ethiopian Payments System
 managing government debt
 regulating the payments system
 setting and implementing monetary policy
 fulfilling its regulatory responsibilities by controlling risks and promoting
efficiencies
 participating in the financial system as banker to the national payment system of
government
 providing facilities for final settlement of transactions

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2.2. The importance and effect of the NBE's monetary policy on the Ethiopian economy
The effect of the NBE's monetary policy may include
􀁸 changes in interest rates
􀁸 Flow on changes to employment, prices and production levels
􀁸 Increases or decreases in the supply of money in the Ethiopian economy
􀁸 acting to avoid or minimize a systemic collapse of financial institutions
Learning outcome #3
3. Ethiopia's monetary system
3.1 The various functions of money are explained and society's motivations for holding money are outlined

What are the Functions of Money

Money is one of the greatest inventions of a human thought. Perhaps, the whole structure of today’s economy
is predetermined by the existence of money. But when did money occur and what was the reason for its
occurrence? Money is a public institution, which increases wealth buy reducing the cost of exchange and
contributing to greater specialization in occupation o, according to ones comparative advantage. Money
appeared due to trade, and since it is established that trade is one of the most ancient occupations of mankind,
therefore the emergence of the monetary system can be dated back to the times of antiquity. The origin of
money is associated with 7-8 thousand years BC, when primitive tribes understood that they had surplus of
some goods, which could be exchanged for other needed products. Historically, as a means of exchange,
human used animals, furs, stones, shells etc. So money is determined by society itself, whatever the society
recognize as a mean of exchange – is money. Money is an integral element of commodity production, which
means its simultaneous development, so it can be considered that money take certain shapes at each stage of
economy, which best correspond to the nature and needs of its current level. Understanding of such term as
money, their role in the economy and the logic of its development...
Money has a major influence on the lives of most people. The more money a person makes, the more goods
he can consume and services he can afford, which typically translates into a higher standard of living.
Money, also called currency, is said to have three major functions in an economy.
Money performs four specific functions, each of which overcomes the difficulties of barter. The functions of
money are to serve as:

1. Medium of Exchange:

The most important function of money is to serve as a medium of exchange or as a means of payment. To be
a successful medium of exchange, money must be commonly accepted by people in exchange for goods and
services. While functioning as a medium of exchange, money benefits the society in a number of ways:

 It overcomes the inconvenience of baiter system (i.e., the need for double coincidence of wants) by
splitting the act of barter into two acts of exchange, i.e., sales and purchases through money.
 It promotes transactional efficiency in exchange by facilitating the multiple exchange of goods and
services with minimum effort and time,
 It promotes allocation efficiency by facilitating specialization in production and trade,
 It allows freedom of choice in the sense that a person can use his money to buy the things he wants
most, from the people who offer the best bargain and at a time he considers the most advantageous.

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2. Measure of Value:

Money serves as a common measure of value in terms of which the value of all goods and services is
measured and expressed. By acting as a common denominator or numeraire, money has provided a language
of economic communication. It has made transactions easy and simplified the problem of measuring and
comparing the prices of goods and services in the market. Prices are but values expressed in terms of money.

Money also acts as a unit of account. As a unit of account, it helps in developing an efficient accounting
system because the values of a variety of goods and services which are physically measured in different units
(e.g, quintals, metres, litres, etc.) can be added up. This makes possible the comparisons of various kinds,
both over time and across regions. It provides a basis for keeping accounts, estimating national income, cost
of a project, sale proceeds, profit and loss of a firm, etc.

To be satisfactory measure of value, the monetary units must be invariable. In other words, it must maintain a
stable value. A fluctuating monetary unit creates a number of socio-economic problems. Normally, the value
of money, i.e., its purchasing power, does not remain constant; it rises during periods of falling prices and
falls during periods of rising prices.

3. Standard of Deferred Payments:

When money is generally accepted as a medium of exchange and a unit of value, it naturally becomes the
unit in terms of which deferred or future payments are stated.

Thus, money not only helps current transactions though functions as a medium of exchange, but facilitates
credit transaction (i.e., exchanging present goods on credit) through its function as a standard of deferred
payments. But, to become a satisfactory standard of deferred payments, money must maintain a constant
value through time ; if its value increases through time (i.e., during the period of falling price level), it will
benefit the creditors at the cost of debtors; if its value falls (i.e., during the period of rising price level), it will
benefit the debtors at the cost of creditors.

4. Store of Value:

Money, being a unit of value and a generally acceptable means of payment, provides a liquid store of value
because it is so easy to spend and so easy to store. By acting as a store of value, money provides security to
the individuals to meet unpredictable emergencies and to pay debts that are fixed in terms of money. It also
provides assurance that attractive future buying opportunities can be exploited.

Money as a liquid store of value facilitates its possessor to purchase any other asset at any time. It was
Keynes who first fully realised the liquid store value of money function and regarded money as a link
between the present and the future. This, however, does not mean that money is the most satisfactory liquid
store of value. To become a satisfactory store of value, money must have a stable value.

5. Transfer of Value:

Money also functions as a means of transferring value. Through money, value can be easily and quickly
transferred from one place to another because money is acceptable everywhere and to all.

6. Distribution of National Income:

Money facilitates the division of national income between people. Total output of the country is jointly
produced by a number of people as workers, land owners, capitalists, and entrepreneurs, and, in turn, will

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have to be distributed among them. Money helps in the distribution of national product through the system of
wage, rent, interest and profit.

7. Maximization of Satisfaction:

Money helps consumers and producers to maximize their benefits. A consumer maximizes his satisfaction by
equating the prices of each commodity (expressed in terms of money) with its marginal utility. Similarly, a
producer maximizes his profit by equating the marginal productivity of a factor unit to its price.

8. Basis of Credit System:

Credit plays an important role in the modern economic system and money constitutes the basis of credit.
People deposit their money (saving) in the banks and on the basis of these deposits, the banks create credit.

9. Liquidity to Wealth:

Money imparts liquidity to various forms of wealth. When a person holds wealth in the form of money, he
makes it liquid. In fact, all forms of wealth (e.g., land, machinery, stocks, stores, etc.) can be converted into
money.

The different functions of money may include:

 as a means of exchange for acquiring goods and services
 indications of relative values between goods and services
 measure of liquidity

Motivations for holding money mayinclude:

 precautionary demand for money to pay future expenses which may not be anticipated
 speculative demand for money to be able to take advantage of future price changes in
favour of the purchaser
 transactions demand for money to pay everyday predictable expenses.

Reasons why people hold money

a.The transactions motive:People need to make day-to-day transactions (buy food, Clothes etc.) and
therefore need to hold cash in their hands. Of course, the increasing Spread of plastic money (credit cards)
has considerably reduced the transactions incentive for holding money. Assuming no plastic money, an
individual’s transactions demand for money is likely to increase with his/her income, as s/he is more likely to
make more transactions if he feels richer.
b.Precautionarymotive:In addition to money held for making transactions, people sometimes hold money
for precautionary purposes as well: i.e. to meet any urgent or unexpected expenditure needs, or to “snatch a
bargain” that might be taken by someone else. Again, precautionary demand for money is likely to increase
with income

c.Assets motive (also called speculative or investments motive):In addition to a and b, people might wish
to keep some cash to switch between various investments. So consider a person who owns some land, holds
some bonds, and has some stock market investments. Let’s say he spots a good investment opportunity on the
stock market but doesn’t have instant buyers for the land or bonds he holds. In this situation some spare cash
in hand would have helped him acquire the equity asset. The assets demand for money is likely to increase
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with income (for reasons similar to those for a and b) and decrease with interest rates (because the interest
rate is the opportunity cost of holding cash in your hands).
Generally, then, money demand Md increases with income levels and falls with interest rates. Note that we
refer to real income (which measures purchasing power) and real interest rates (which measure real return on
invested money), and not their nominal counterparts. Thus the demand for money we refer to is the demand
for real money. Contrast this with what have been talking about earlier: nominal money supply – i.e. what the
central bank controls through
its various instruments. Whether nominal and real money supply is equal or not depends much on the
assumption regarding prices. If prices are assumed fixed, then the two are equal, otherwise not.
THE CHARACTERISTICS OF MONEY

The characteristics of what serves as money depend somewhat on the degree of complexity in the society. A
relatively simple economy, with relatively few goods and services, few producers and consumers, and few
transactions, may be able to function with a form of money that would not work in a more complex society.
There are some general characteristics that are usually important for whatever serves as money in a modern
economy.
First, to serve as an effective medium of exchange, money must be durable. Repeating our earlier example,
we could have chosen to use apples as money and pay for everything in apples. But problems arise when the
apples rot. Who wants to carry around rotten apples? Good apples tend to be eaten, and nothing could erode
the value of your money more quickly than having it end up in your stomach.
Second, what serves as money must not be easily reproduced by people and should be relatively scarce. We
could use chestnuts as money. They’re relatively scarce and last a long time. But, if we did, people would
start growing chestnut trees, and we wouldn’t be able to control the supply. Soon there would be so many
chestnuts in use, and prices would be bid up so high, that you’d need a truck to carry the chestnuts to pay for
bread and milk. We could use rocks, but everyone can simply pick up rocks from all over the place.

Once again, we wouldn’t be able to control the supply, and we’d be back to our chestnut problem.
Third, although what serves as money must be relatively scarce (not rocks, for example), it can’t be too
scarce. Whatever serves as money has to be available in sufficient quantity to enable all the exchanges in our
economy to take place. We could use whooping cranes. But there wouldn’t be enough of them to enable all
the exchanges that have to take place. We would very quicklyrun out of money—to say nothing of the poor
birds.
Fourth, money has to be easy to transport. We could use elephants. But just think of all the problems at pay-
day if elephant money was used to provide your wage or salary. Pocket money would take on a whole, or
should we say hole, new meaning.
And last, money must be divisible into usable quantities or fractions. Imagine the difficulties you would incur
to purchase something that had a price of 1/50th of an elephant. Not a pleasant thought.
So money needs to be
o durable,
o not easily reproduced by people,
o relatively scarce,
o not too scarce,
o easily transported, and
o divisible.
But, as we emphasized earlier, the most essential attribute of anything that serves as money is its
acceptability. It must be readily accepted by people in the economy.

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3.2. The monetary cycle within the economy and on a global scale and instruments traded on the short term
moneymarketare described
Instruments traded on the short term money
market include:

 bills of exchange
 commercial bills
 government bills
 promissory notes
 Treasury bills.

Monetary Cycles
One of the most robust stylized facts is the forecasting power of the term spread for future real activity. The
economic rationale for this forecasting power usually appeals to expectations of future interest rates, which
affect the slope of the term structure. A possible causal mechanism for the forecasting power of the term
spread, deriving from the balance sheet management of financial intermediaries. When monetary tightening
is associated with a flattening of the term spread, it reduces net interest margin, which in turn makes lending
less profitable, leading to a contraction in the supply of credit

o Monetary theories

Some writers have ascribed economic fluctuations to the quantity of money in circulation. Changes in the
money supply do not always conform to underlying economic changes, and it is not difficult to see how this
lack of coordination could produce disturbances in the economic system. Thus, an increase in the total
quantity of money could cause an increase in economic activity.

The banking system, with its ability to expand the supply of credit in an economic expansion and to contract
the supply of credit in time of recession, may in this way amplify small economic fluctuations into major
cycles of prosperity and depression. Theorists such as the Swedish economist Knut Wicksell emphasized the
influence of the rate of interest: if the rate fixed by the banking system does not correspond to the “natural”
interest rate dictated by the requirements of the economy, the disparity may of itself induce an expansion or
contraction in economic activity.
Rational expectations theories

In the early 1970s the American economist Robert Lucas developed what came to be known as the “Lucas
critique” of both monetarist and Keynesian theories of the business cycle. Building on rational expectations
concepts introduced by the American economist John Muth, Lucas observed that people tend to anticipate the
consequences of any change in fiscal policy: they “behave rationally” by adjusting their actions to take
advantage of new laws or regulations, inevitably weakening or undermining them. In some cases, these
actions are significant enough to offset completely the outcome the government had hoped to achieve.
Although he was criticized for overstating the connection between human behaviour and economic
rationalism, Lucas influenced other 20th-century economists who asserted that business fluctuations resulted
from underlying changes in the economy. Historically, according to their view, economic fluctuations have
been marked by periods of innovation followed by slower periods during which the innovations were

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absorbed. Business cycles, therefore, serve as adjustments to underlying conditions—adjustments that are
necessary if economic growth is to continue.
Since the Great Depression, many governments have implemented anticyclical policies designed to offset
regular business fluctuations. The increasing complexity and diversification of modern economies, however,
have tended to reduce their dependence on any one sector, thereby limiting the possibility of boom-and-bust
effects resulting from specific industries.
MONEY MARKET INSTRUMENTS
Following are some of the important money market instruments or securities
A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker,
directing a certain person to pay a certain sum of money only to or to the order of a certain person, or to the
bearer of the instrument.
A promissory note is an instrument in writing (not being a bank note or a currency note) containing an
unconditional undertaking, signed by the maker, to pay a certain sum of money only to or to the order of a
certain person or to the bearer of the instrument.
Call Money: Call money is mainly used by the banks to meet their temporary requirement of cash. They
borrow and lend money from each other normally on a daily basis. It is repayable on demand and its maturity
period varies in between one day to a fortnight. The rate of interest paid on call money loan is known as call
rate.
Treasury Bill: A treasury bill is a promissory note issued by the RBI to meet the short-term requirement of
funds. Treasury bills are highly liquid instruments, that means, at any time the holder of treasury bills can
transfer of or get it discounted from RBI.
These bills are normally issued at a price less than their face value; and redeemed at face value. So the
difference between the issue price and the face value of the treasury bill represents the interest on the
investment. These bills are secured instruments and are issued for a period of not exceeding 364 days. Banks,
Financial institutions and corporations normally play major role in the Treasury bill market.
Commercial Paper: Commercial paper (CP) is a popular instrument for financing working capital
requirements of companies. The CP is an unsecured instrument issued
in the form of promissory note. This instrument was introduced in 1990 to enable the corporate borrowers to
raise short-term funds. It can be issued for period ranging from 15 days to one year. Commercial papers are
transferable by endorsement and delivery. The highly reputed companies (Blue Chip companies) are the
major player of commercial paper market.
Certificate of Deposit: Certificate of Deposit (CDs) are short-term instruments issued by Commercial Banks
and Special Financial Institutions (SFIs), which are freely transferable from one party to another. The
maturity period of CDs ranges from 91 days to one year. These can be issued to individuals, co-operatives
and companies.
Trade Bill: Normally the traders buy goods from the wholesalers or manufactures on credit. The sellers get
payment after the end of the credit period. But if any seller does not want to wait or in immediate need of
money he/she can draw a bill of exchange in favor of the buyer. When buyer accepts the bill it becomes a
negotiable instrument and is termed as bill of exchange or trade bill. This trade bill can now be discounted
with a bank before its maturity. On maturity the bank gets the payment from the drawee i.e., the buyer of
goods. When trade bills are accepted by Commercial Banks it is known as Commercial Bills. So trade bill is
an instrument, which enables the drawer of the bill to get funds for short period to meet the working capital
needs.

3.3. The impact of increases and decreases in the money supply and the importance of regulating the money
supply of any country is analyzed and discussed

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The national money supply is the amount of money available for consumers to spend in the economy. In the
United States, the circulation of money is managed by the Federal Reserve Bank. An increase in money
supply causes interest rates to drop and makes more money available for customers to borrow from banks.

The Federal Reserve increases the money supply by buying government-backed securities, which effectively
puts more money into banking institutions. An increase in paper money reduces the value of the dollar, but
increases the money banks can lend to consumers. When banks have more money to loan, they reduce the
interest rates consumers pay for loans, which typically increases consumer spending because money is easier
to borrow. The government will request an increase in the money supply when the economy begins to slow to
spur additional spending by consumers and build confidence in the economy.

An increase in money supply can also have negative effects on the economy. It causes the value of the dollar
to decrease, making foreign goods more expensive and domestic goods cheaper. With the complex global
economy, this can ripple out and affect other nations. Steel, automobiles, and building materials can all cost
more. As a result, the prices for home building and real estate increase because of increased material and
building expenses. It does make it easier for customers to get loans, however, because banks are more willing
to loan money.
It is important to distinguish the cause and effect of the two variables - you are asking why a decrease in
money supply leads to an increase in interest rates, and the replies have so far been telling you why an
increase in interest rates leads to a decrease in money supply.

So, can you change the money supply to have an effect on interest rates? Yes. Let's see what happens.

First, you have a decrease in money supply. This is usually the result of a central bank policy (although we
shall not go into how exactly they do this - might be confusing). Assuming that we are in the short run, prices
are given (i.e. do not change) and money demand remains the same. Now, there is disequilibrium in the
money market, where money demand is greater than money supply.

Keeping that in mind, we now look at the initial equilibrium interest rate, r*. Now, at this current interest rate,
people are holding less money than they desire, so they sell their assets (that pay interests) to have greater
liquidity. However, as we have mentioned earlier, money demand is greater than money supply, there will be
more people wanting to sell assets to obtain liquidity than people willing to buy assets and giving up
liquidity.

As a result, the interest rates get pushed up slowly, so as to reflect the market mechanism of creating a greater
incentive for people to hold on to / buy assets. The interest rate will then rise to a point where there are equal
numbers of assets being bought / sold. At this same point, money demand would also have decreased to
match the lower money supply.
In economics when interest rates increase, investment decreases and saving increase. People don't borrow
money as much when there is a high interest rate, but save more. So there is a decrease in the money supply,
because people aren't borrowing (aka spending) for houses, cars, etc. Economic growth occurs when people
spend money, not save.
Decrease in money supply will not cause in increase in interest rate. It should be opposed. Too high money
supply will cause inflation, simplify means very high price for overall product on the market. Inflation is an
economic problem. When interest rate raised, people will spend less money and save it into bank. People
invest less into stock, bond since those return is relatively decrease. As people spends less money in the
market overall, the money supply will decrease.
Learning outcome #4
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4. Explain the key factors that influence the Ethiopian economy

4.1. The role and impact of global market situation and Federal and Regional State governments action on the
economy is explored with reference to current events and issues

Global finance today is dominated by private capital flows, and private actors like your institutions play a
critical role in the international financial system. I am therefore very pleased to be here today, as part of the
continuous dialogue between the IMF and financial markets.

The Global Outlook

Inflation remains reasonably subdued so far - the second-round effects of higher oil prices have not been
significant. With monetary tightening underway in most cyclically advanced countries, inflation expectations
are generally well-anchored. In addition to further increases in oil prices, however, one risk to this outlook in
some countries is a significant rebound in unit labor costs as labor markets tighten, especially if productivity
growth were to weaken. Further, strong foreign exchange inflows pose a challenge for monetary policy in
some emerging markets - notably in Asia and the Commonwealth of Independent States. Without more
exchange rate flexibility,

A downward bias remains on short-term risks. On the upside, strong corporate balance sheets and wealth
effects from rising equity markets could lead to stronger than expected domestic demand. On the downside,
the key risks include further exchange rate volatility, faster than expected rises in interest rates (for example,
if triggered by inflationary pressures), and extended weakness in the euro area and Japan. Moreover, oil
prices have recently risen above their October peaks and continue to be volatile. With excess capacity very
low, the oil market remains

Prospects for International Financial Markets

Against this background of an expanding world economy, global capital markets are expected to see solid, if
slowing, earnings growth. As noted earlier, there is limited inflationary pressure, balance sheets of the
corporate, financial and household sectors continue to strengthen in many countries, and the credit quality of
emerging market borrowers continues to improve. Combined, these favorable fundamentals support financial
market stability. Let me go into more detail.

The overall excellent profitability of the corporate and financial sectors over the past few years has been an
important factor in the strengthening of their balance sheets. The ratio of liquid assets to debt has risen and
stayed at a relatively high level for some time now. So far, this preference for liquidity reflects the caution of

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corporate executives in making investments. This has contributed to the slow growth in employment in many
countries. By the same token, this cautious attitude has helped to contain the risk of creating investment
excesses in the recovery phase that, in the past, have contributed to sharp market corrections.

At the same time as financial institutions have improved their profitability, they have also strengthened their
capital bases and risk management systems. In particular, solvency ratios in the insurance sectors of many
countries have been improved. These developments have made financial institutions more "weather-proofed"
against potential future shocks. All in all, there has been significant improvement in the health of the
financial system up to the early part of 2005.

Amidst these positive developments, market volatility, mature government bond yields, and global credit
spreads have remained low. Looking ahead, while there is little reason to believe that this benign scenario
will end in the near future, the resilience of the global financial system could be tested by a number of
factors.

First, there remains a risk for disturbances in the currency markets. Currency adjustments to address the
growing global imbalances have so far been orderly. Portfolio inflows, A sharp reduction in such inflows, or a
reversal, could entail serious consequences for currency and capital markets. Witness, for example, the recent
episodes of market reaction to information and official statements on the diversification of central banks'
international reserves.

Second, low short-term interest rates are encouraging investors to move out along the risk spectrum in their
search for absolute or relative value. The search for yield has contributed to the compression of inflation and
credit risk premiums and encouraged the rapid growth of structured products, including credit derivatives.
The combination of compressed risk premiums, and the rapid growth of complex and leveraged instruments
that lack transparency, is a potential source of vulnerability that merits attention. There is little cushion for
bad news regarding asset valuations if expectations for continued favorable fundamentals change.

Third, A continued measured withdrawal of stimulus remains appropriate, and will likely contribute to
continued financial stability. However, a larger than expected spike in interest rates, resulting from
inflationary pressure or a sharp reduction of foreign portfolio inflows into fixed income markets, could bring
about market corrections.

Fourth, financial risk-taking, encouraged by a prolonged period of abundant liquidity, may have created very
high valuations. As a result, volatility may have been pushed to very low levels across a wide range of

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markets. Past tightening cycles have revealed hidden vulnerabilities as the incentive to reach for yield was
withdrawn. In some cases, emerging markets have experienced turbulence in the wake of tightening
monetary conditions.

Fifth, Solid global growth has boosted export demand and commodity prices. Interest rates and credit spreads
have remained low. With liquidity abundant, investor appetite for new issues from emerging market
borrowers has been quite healthy, permitting a high level of issuance at low cost. However, as in the credit
markets of mature economies, the factors contributing to low interest rates and low spreads may have peaked,
and less easy financing conditions are to be expected. Underlying interest rates are set to rise, and credit
spreads are more likely to widen than narrow. Of course, a widening of spreads could have the salutary effect
that investors better discriminate among emerging markets according to their respective fundamentals.

It is therefore appropriate that, in response to the string of emerging market crises during the second half of
the 1990's, a number of countries have strengthened efforts to develop local securities and derivatives
markets. As a result, some local markets have begun to provide alternative sources of funding. These will
prove particularly useful when the local banking system experiences difficulties, or when access to
international capital markets is curtailed. The development of these markets is already paying off in some
countries, attracting international investors searching for higher yields and diversification opportunities.

4.2. The impact of a change in domestic interest rates on different sectors of the economy is analyzed and
discussed

A change in aggregate expenditures on real production, especially those made by the household and business
sectors, that results because a change in the price level alters the interest rate which then affects the cost of
borrowing. This is one of three effects underlying the negative slope of the aggregate demand curve
associated with a movement along the aggregate demand curve and a change in aggregate expenditures. The
other two are real-balance effect and net-export effect.
The interest-rate effect is one of three basic effects that indicate why aggregate expenditures are inversely
related to the price level. The interest-rate effect works like this: A higher price level induces an increase in
the interest rate which results in a decrease in borrowing used for consumption expenditures and investment
expenditures. A lower price level has the opposite effect, inducing a decrease in the interest rate which
triggers an increase in borrowing used for consumption expenditures and investment expenditures.

Before examining the details of the interest-rate effect, consider the specifics of what it does. A typical
aggregate demand curve is presented in the exhibit to the right. The negative slope of the aggregate demand
curve captures the inverse relation between the price level and aggregate expenditures on real production.

Most investment expenditures by the business sector and a fair amount of consumption expenditures by the
household sector (especially for durable goods) are made with borrowed funds. Businesses typically borrow
the funds needed for capital goods like factories and equipment. Households often borrow the funds used to
buy durable goods like cars and furniture. The cost of borrowing these funds depends on the interest rate. A
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higher interest rate can add to the overall cost of the expenditure. A lower interest rate can reduce the overall
cost of the expenditure.

This means that changes in the interest rate can have a big impact on consumption and investment spending.
The interest rate tends to increase and decrease as the price level increases and decreases. This means that a
higher price level induces a higher interest rate which raises the cost of borrowing and discourages
investment and consumption spending. A lower price level has the opposite result.

Make note of the different role that interest rates play in a change in aggregate demand (a shift of the
aggregate demand curve) and a change in aggregate expenditures (a movement along the aggregate demand
curve). When interest rates change as a result of changes in the price level, the result is a change in aggregate
expenditures and a movement along the aggregate demand curve. This is, in fact, the interest-rate effect. If
interest rates change for any other reason (and there are many), the result is a change in aggregate demand
and a shift of the aggregate demand curve. In this case, interest rates are an aggregate demand determinant.

4.3. The impact of changes in consumer activity on the Ethiopian economy

Consumer activity may include:
 applications for home loans
 purchase of private health insurance
 purchase of university education
 purchase or building of residential accommodation
 retail spending
 tourism within Ethiopia by Ethiopians.

Housing's Economic Impact

Housing impacts local economies. See estimates of the jobs, income, and taxes generated from typical single
family and multifamily housing projects -- reports that can be customized for your area. Also, view other
useful and interesting information that has been compiled by NAHB's Housing Policy Department.

Tourism and the environment are continuously found in a relation of interdependence, as tourism is almost
always dependent on the quality of the environment. Moreover, the quality of the environment or certain
characteristics of it, are often a pole of attraction for tourists. Cases where traditional tourist destinations have
lost their glamour (and flow of visitors) due to environmental problems are not rare
Tourism, one of the major industrial sectors occupying one in fifteen workers worldwide (Croal, 1997), with
a range covering the developed and developing World, is included in the spectrum of environmental
protection activities. Globally, the tourism wave was multiplied almost 25 times. The continuing expansion of
the tourist phenomenon during the last fifty years was rapid, resulting to the huge phenomenon of “mass
tourism” with various consequences, one of which is the suffocating pressure to the environment, with
harmful effects (Williams and Shaw, 1998). Even if most of the registered cases of the negative consequences
of tourism concern the developing world, the developed world does not constitute an exception.
According to Skanavis et al. (2004), there exist two types of relationships between tourism and the
environment, a symbiotic one and a competitive one. In the symbiotic relation the environment and the
tourism coexist harmoniously and to an extent they complement each other. Human activities do not degrade
the natural environment; on the contrary they strengthen it resulting in mutual benefit. In the competitive
relation of tourism and environment, the conflict of these two is presented as economic and anthropogenic
activity trying to predominate over the environment and to lead to the degradation of it through the

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thoughtless growth of activities. Some of the most widespread cases of negative environmental impacts due
to the tourist activity are the sea quality from the marine transport, the quality of aquatic environment from
the disposal of sewages, unrefined or defectively processed, the quality of land from the uncontrolled
disposal of waste, the geomorphology due to extensive building and creation of infrastructure networks, the
flora, fauna and generally in the natural ecosystems from the various land uses, the loss of natural
ecosystems, the exhaustive fishery, the removal of fauna, due to noise pollution or deforestation, the
exhaustion of available quantity of aquatic potential due to the abrupt and increased consumption combined
with the reduction of permeability of grounds (UNEP, 1995).
The impacts of international tourism on natural environment are equally convergent with domestic tourism.
Domestic second home tourism is considered to be more environmentally sound form of tourism than for
example long-haul travelling by air, which causes remarkably higher emissions of green house gases and
pollutants. Having a second home does not inevitably reduce other forms of tourism and recreational
mobility, unless it substitutes them (Coenen and van Eekeren, 2003; Amposta, 2009; Skanavis&Giannoulis,
2010).
In recent years flying has become progressively cheaper, which has led to an increase in the popularity of
purchasing second or even third homes in amenity rich tourist resorts far from the permanent home (Gallent
et al., 2005). Mathieson and Wall (1982) underline that rural second home development causes clearance of
vegetation, disrupts wildlife and reduces soil stability, deposition of human wastes into natural waters
reduces water quality, and visibility of second homes may decrease the aesthetic value of rural landscape.
Dubois (2005) draws attention to growing energy consumption, floor space and land demand of second
homes.

Learning outcome #3
5. Describe the role of regulators
5.1. The main regulator of the financial system is identified
Definition of financial regulation
Financial regulation: laws and rules that govern what financial institutions such as banks, brokers and
investment companies can do. These rules are generally promulgated by government regulators or
international groups to protect investors, maintain orderly markets and promote financial stability. The range
of regulatory activities can include setting minimum standards for capital and conduct, making regular
inspections, and investigating and prosecuting misconduct.

Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain
requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system. This may
be handled by either a government or non-government organization. Financial regulation has also influenced
the structure of banking sectors, by decreasing borrowing costs and increasing the variety of financial
products available.

The objectives of financial regulators are usually:

1. market confidence – to maintain confidence in the financial system

2. financial stability – contributing to the protection and enhancement of stability of the financial system
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3. Consumer protection – securing the appropriate degree of protection for consumers.

4. Reduction of financial crime – reducing the extent to which it is possible for a regulated business to
be used for a purpose connected with financial crime.

Acts empower organizations, government or non-government, to monitor activities and enforce actions.
There are various setups and combinations in place for the financial regulatory structure around the global.
Leaf parts are in any case:

Financial intelligence collection

FININT does not necessarily involve money laundering, which refers to the practice of the undeclared and
covert transfer of money or other negotiable item. However FININT is used to detect money laundering,
which is often done as part of or as a consequence of some other criminal activity.

FININT involves scrutinizing a large volume of transactional data, usually provided by banks as part of
regulatory requirements. Transactions made by certain individuals or entities may be studied. Alternatively,
data mining or data matching techniques may be employed to identify persons potentially engaged in a
particular activity.

Where financial institutions are required to make manual reports of certain financial transactions, obtaining
this information is a type of HUMINT, just as the report of military police in a combat zone is HUMINT. Not
all HUMINT comes from espionage. Many industrialized countries have such reporting requirements.

It may be possible for the FININT organization to obtain access to raw data at a financial organization. From
the collection standpoint, if the data are in computer-readable format, this is a type of SIGINT. From a legal
standpoint, this type of collection can be quite complex. For example, the CIA obtained access to the Society
for Worldwide Interbank Financial Telecommunication (SWIFT) data streams, but this violated Belgian
privacy law.

Consumer activity may include:

 applications for home loans
 purchase of private health insurance
 purchase of university education
 purchase or building of residential accommodation
 retail spending
 tourism within Ethiopia by Ethiopians.
Supervision of stock exchanges

Exchange acts ensure that trading on the exchanges is conducted in a proper manner. Most prominent the
pricing process, execution and settlement of trades, direct and efficient trade monitoring.

Supervision of listed companies

Financial regulators ensure that listed companies and market participants comply with various regulations
under the trading acts. The trading acts demands that listed companies publish regular financial reports, ad

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hoc notifications or directors' dealings. Whereas market participants are required to publish major
shareholder notifications. The objective of monitoring compliance by listed companies with their disclosure
requirements is to ensure that investors have access to essential and adequate information for making an
informed assessment of listed companies and their securities.

Supervision of investment management

Asset management supervision or investment acts ensures the frictionless operation of those vehicles.
Supervision of banks and financial services providers
Banking acts lays down rules for banks which they have to observe when they are being established and
when they are carrying on their business. These rules are designed to prevent unwelcome developments that
might disrupt the smooth functioning of the banking system. Thus ensuring a strong and efficient banking
system
Regulatory reliance on credit rating agencies
Think-tanks such as the World Pensions Council (WPC) have argued that most European governments
pushed dogmatically for the adoption of the Basel II recommendations, adopted in 2005, transposed in
European Union law through the Capital Requirements Directive (CRD), effective since 2008. In essence,
they forced European banks, and, more importantly, the European Central Bank itself e.g. when gauging the
solvency of EU-based financial institutions, to rely more than ever on the standardized assessments of credit
risk marketed by two private US agencies- Moody’s and S&P, thus using public policy and ultimately
taxpayers’ money to strengthen an anti-competitive duopolistic industry. Ironically, European governments
have abdicated a key component of their regulatory authority in favor of a non-European, highly deregulated,
private cartel
Main regulator in the financial system may include: Financial Intelligence Center
5.2. The role of each regulator in protecting investors and consumers and promoting confidence in the
financial system is explained using examples
Regulation plays an important role in helping markets function effectively, and ensuring that they support
wider policy goals.
• Regulation can also distort competition – particularly by affecting the scope for new firms to enter markets,
and the ability and incentives of firms to compete with each other.
• It is important to identify possible unintended consequences of regulation.
Carrying out a competition assessment of new policy can help with this.
• To reduce distortions, policy makers should seek to minimize regulation, subject to achieving the wider
policy objective.
• Market-based approaches can sometimes be an effective alternative to direct regulation, harnessing markets
in a way that fits with wider policy goals.
Some degree of regulation is essential for modern markets to function. Buyers and sellers need to have
confidence that the contracts they sign will be upheld and that property rights are clearly defined.Regulation
can have beneficial effects for society. It often provides important protection, for instance regulations that
protect the health and safety of workers. Regulation also has a potentially important role in protecting
consumers, for example, through licensing of approved suppliers.Regulation typically consists of a set of
rules administered by the Government to influence the behaviour of businesses and, consequently, economic
activity.14 In this sense the term ‘regulation’ captures a wide range of Government actions, from primary
legislation setting market frameworks through to detailed regulations imposed and enforced by specialist
thematic and sectoral regulators.
There are examples where distortions resulting from regulation are not negative. For example,
competition law explicitly constrains the behaviour of firms in the market to ensure that consumers are not
harmed by abuse of market power
Key Takeaway

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 An increase (decrease) in the money supply, ceteris paribus, will cause a decrease (increase) in
average interest rates in an economy.
Summary
Financial markets in Ethiopia can include:
 bond market
 derivatives markets
 foreign exchange market
 money market including the short term money market
 options and futures markets
1. The purpose of financial markets and when they emerged in Ethiopia is researched and discussed
The purpose of financial markets includes:
 enabling participants to invest surplus funds by buying securities
 enabling participants to raise required funds by issuing securities
2. The participants in the financial markets and the roles of banks and financial institutions as financial intermediaries are
identified and their roles analyzed and discussed
Participants in the financial markets may include
 banks and non-banking financial institutions
 investors:
 corporations
 individuals
 local and international governments
 speculators:
 corporations
 Individuals.
The role of the NBE includes:
 regulating banks and other financial institutions
 maintaining financial stability and regulating the
Ethiopian Payments System
 managing government debt
 regulating the payments system
 setting and implementing monetary policy
 The importance and effect of the NBE's monetary policy on the Ethiopian economy and everyday consumers is
researched and discussed
The effect of the NBE's monetary policy may include:
 changes in interest rates
 flow on changes to employment, prices and production levels
 increases or decreases in the supply of money in the Ethiopian economy
 acting to avoid or minimise a systemic collapse of financial institutions
 The role of the NBE in regulating the Ethiopian Payments System may include:
 fulfilling its regulatory responsibilities by controlling risks and promoting efficiencies
 participating in the financial system as banker to the national payment system of government
 providing facilities for final settlement of transactions
The different functions of money may include
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 as a means of exchange for acquiring goods and services

 indications of relative values between goods and services
 measure of liquidity
Motivations for holding money may include:
 precautionary demand for money to pay future expenses which may not be anticipated
 speculative demand for money to be able to take advantage of future price changes in favour of the
purchaser
 Transactions demand for money to pay everyday predictable expenses.
Instruments traded on the short term money market include:
 bills of exchange
 commercial bills
 government bills
 promissory notes
 Treasury bills.
Consumer activity may include
 applications for home loans
 purchase of private health insurance
 purchase of university education
 purchase or building of residential accommodation
 retail spending
 Tourism within Ethiopia by Ethiopians.
Main regulator in the financial system may include:
 Financial Intelligence Centre


Competency 2
Develop Understanding of Taxation
Unit Descriptor
This unit describes the performance outcomes, skills and knowledge required to understand the role of taxation in the Ethiopian
economy, including why and how tax is levied and collected, types of taxes paid by business and individuals and its impact on
investment choices.
Introduction
Taxes are important sources of public revenue. The existence of collective consumption of goods and services necessitates putting
some of our income into government hands. Such public goods like roads, power, municipal services, and other public
infrastructures have favorable results on many families, business enterprises, industries and the general public. Public goods are
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normally supplied by public agencies due to their natures of non-rivalry and non-excludability. The nature of consumption of
public goods is such that consumption by one does not reduce consumption for others. Besides, consumption of public goods by an
agent does not exclude others from doing same. Such nature of public goods therefore makes them impossible for private suppliers
to avail them at market prices like other commodities. Government intervention in the supply of public goods is therefore
inevitable and can only be done if the public pays taxes for the production and supply of such goods.
It is therefore worth clarifying the Ethiopian tax system and the rationales behind for the business owners through the relevant
institutions that have access to and ability to understand this booklet.
Objectives
Dear learner after completing this competency you will be able to :

 Identify and discuss the role of taxation in the Ethiopian economy

 Identify and discuss direct tax
 Identify and discuss indirect tax
 Identify and discuss stamp duty tax
 Manage tax liability
Learning outcome
1. Identify and discuss the role of taxation in the Ethiopian economy
1.1. The purpose of taxation in the Ethiopian economy at the local, Regional and Federal
level and how this compares with other countries is explored and discussed
Purposes for which the Tax Revenue is utilized
The best instrument which the governments can use as a source of revenue is taxation. It can be said, therefore, that a major
function of taxation is to marshal the necessary funds to finance the ever-expanding level of public expenditures.
As in all other countries, one of the purposes of taxation in Ethiopia is the raising of as much revenue as possible to meet the ever-
expanding public expenditure for the supply of public goods and services which otherwise would not be available to the general
public by the market. The central aim of the tax system in Ethiopia is to collect sufficient money to finance the administrative
machinery of the government as well as to finance the fulfillment of basic infrastructures like roads, telecommunication, electricity
and other basic social services like education, health and water supply facilities.
In developing countries personal savings are usually low. This is because the per capita income of the population in these countries
is very low.
Moreover, the population in these countries is so high that it demands their governments to spend much of their limited revenues on
public goods, such as infrastructure, education and health. Thus the governments of these countries normally have to look into
various sources of finance, one of which is tax revenue, so that public goods and services which in turn positively impact
development are supplied in reasonable quantities.
With the increasing task of the government, the role of taxation in economic development has become even more significant. Such
goals addressed through taxation like maintaining and expanding adequate system of social services, the curtailing(reducing) of
unnecessary consumption of luxury items, the maintaining of economic stability, and the raising of funds for capital formation are
justified. In general the fundamental principle of the tax structure is the mobilization of economic surplus.
The tax system in Ethiopia is not only meant to raise revenue for current expenditures but also aims at directing economic agents to
the development goals foreseen by the government through the incentive schemes embedded within the prevailing tax laws. If the
investments are of high priority in-terms of the country’s overall development goals, then they are entitled to better tax incentives

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like tax holidays and the vice versa if otherwise. By doing so the government can direct the allocation of resources into areas of its
priority.
Through the tax system, government can protect domestic industries from competing imported goods through levying high tariff on
the later.
Taxation is also used for non-fiscal purposes such as reducing the inequalities in income distribution; encouraging certain industries
and discouraging others depending on how useful and appropriate they are at that particular economic stance.
Hence, some of the specific purposes of taxation in Ethiopia can be summarized as follows:
􏂷 Raising of as much revenue as possible to finance the country’s social and economic development programs and to alleviate
poverty;
􏂷 Promotion of capital investment and trade;
􏂷 Ensuring equity, fairness and consistency in the administration of tax laws;
􏂷 Encouraging certain industries which are held important in developing the country; and
􏂷 Discouraging other industries which are likewise not important to the long-run development of the country.
1.2. The various ways that tax is collected and from who is analyzed and discussed
Ways that tax is collected include:
Through regional and federal level taxes including:
 direct tax
Tax on Income from Employment / Personal Income Tax
Business Profit Tax
Tax on Income from Rental of Buildings
Tax on Interest Income on Deposits
Dividend Income Tax
Tax on Income from Royalties
Tax on Income from Games of Chance
Tax on Gain of Transfer of certain Investment Property
Tax on Income from Rental of Property
Rendering of Technical Services outside Ethiopia
Agricultural Income Tax
Land Use Tax
 indirect tax
Turnover Tax
Excise Tax
Value Added Tax
Customs Duty
 Stamp duty tax: instruments shall be chargeable with stamp duty include:
Memorandum and articles of association of any business
organization, cooperative or any other form of association;
Award; Bonds; Warehouse bond;
Contract and agreements and memoranda;

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Security deeds;
Collective agreement;
Contract of employment;
Lease, including sub-lease and transfer of similar rights;
Notarial acts;
Power of attorney;
Documents of title to property.
1.3. The role of the Ethiopian Revenues and Customs Authority (ERCA)
Establishment
1/ The Ethiopian Revenues and Customs Authority are hereby established as an autonomous federal government agency having its
own legal personality.
2/ The Authority shall be accountable to the Prime Minister.
5. Objectives
The Authority shall have the following objectives:
 To establish modern revenue assessment and collection system; and provide customers with equitable,
efficient and quality service;
 to cause taxpayers voluntarily discharge their tax obligations;
 to enforce tax and customs laws by preventing and controlling contraband as well as tax fraud and evasion;
 to collect timely and effectively tax revenues generated by the economy;
 to provide the necessary support to regions with a view to harmonizing federal and regional tax
administration systems. .
 Powers and Duties of the Authority
The Authority shall have the powers and duties to:
1/ establish and implement modern revenue assessment and collection system; provide, based on rules of transparency and
accountability, efficient, equitable and quality service within the sector; properly enforce incentives of tax exemptions given to
investors and ensure that such incentives are used for the intended purposes;
2/ implement awareness creation programs to promote a culture of voluntary compliance of taxpayers in the discharge of their tax
obligations;
3/ carry out valuation of goods for the purpose of tax assessment and determine and collect the
taxes;
4/ conduct study and research activities with greater emphasis to improve the enforcement of customs and tax laws, regulations'
and directives and the collection of other revenues; and based on the result of the study and research initiate laws arid policies and
implement the same up an approval.
5/ collect and analyze information necessary for the control .of import and export goods and the assessment and determination of
taxes; compile statistical data on criminal offences relating to the sector, and disseminate the information to others as may be
necessary;
6/ organize a training center wherein to build employees' capacity; and design appropriate training schemes;

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7/ examine goods and means of transport entering into or departing from Ethiopia through customs ports, frontier posts and other
customs stations, and ensure that customs formalities are complied with;
8/ provide information and appropriate support to the Federal Police in the control of illicit trafficking of goods and combating
contraband; and cause appropriate actions be taken in accordance with the law; investigate customs and tax offences, institute and
follow up criminal proceedings in courts; for the discharge of such responsibilities, organize its own prosecution and investigation
units and supervise their performance;
9 inspect and seize documents the possession of any person that are required for the enforcement of customs and tax laws;
10 organize and operate modern laboratory inspection of goods and documents;
11/ decide the place where import and export goods are to be deposited; establish warehouses, issue warehouse licenses; supervise
duty-free shops; control the handling and care of deposited goods; suspend or revoke warehouse licenses; collect license and
service charges;
12/ delegate, fully or partially, its powers. Of investigation, prosecution, prevention and control of customs and tax offences as well
as tax assessment, collection and execution powers to justice departments and revenue collecting agencies of regional states; and
provide the necessary support for and follow up its implementation;
13/ oversee and supervise the activities of the National Lottery Administration;
14/ provide appropriate capacity building support to regional revenue collecting agencies with a view to harmonizing federal and
regional tax administration systems;
15/ enter into contracts and international agreements regarding tax and customs administration;
16/ exercise the powers and duties that were granted to the Federal Inland Revenue Authority and the Customs Authority by other
existing laws;
17/ own property, enter into contracts, sue and be sued in its own name;
18/ perform such other related activities as required for the attainment of its objectives.
1.4. What taxation revenue is used for is explained and related to the wellbeing and lifestyle of Ethiopian citizens
Taxation revenue may be used toprovide:
 assistance to business and farming
 cultural and artistic resources and support
 defense and border protection
 education
 environmental protection
 foreign representation and trade promotion for Ethiopia
 essential infrastructure such as:
roads
transport systems
public building
sport and recreation amenities
public housing
health care

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 justice systems
 public safety
 scientific and other research
 welfare, income and community support systems
Learning outcome #2
2. Identify and discuss direct tax
A direct tax is generally a tax paid directly to the government by the person on whom it is imposed.A tax that is paid directly by an
individual or organization to the imposing entity. A taxpayer pays a direct tax to a government for different purposes, including real
property tax, personal property tax, income tax or taxes on assets. Direct taxes are different from indirect taxes, where the tax is
levied on one entity, such as a seller, and paid by another, such a sales tax paid by the buyer in a retail setting. A direct tax cannot
be shifted to another individual or entity. The individual or organization upon which the tax is levied is responsible for the
fulfillment of the tax payment. Indirect taxes, on the other hand, can be shifted from one taxpayer to another.

In a general sense, a direct tax is one imposed upon an individual person (juristic or natural) or property (i.e. real and personal
property, rental profits, livestock, crops, wages, etc.) as distinct from a tax imposed upon a transaction. In this sense, indirect taxes
such as a sales tax or a value added tax (VAT) are imposed only if and when a taxable transaction occurs. People have the freedom
to engage in or refrain from such transactions; whereas a direct tax (in the general sense) is imposed upon a person, typically in an
unconditional manner, such as a poll-tax or head-tax, which is imposed on the basis of the person's very life or existence, or a
property tax which is imposed upon the owner by virtue of ownership, rather than commercial use. Some commentators have
argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be." [1]

The unconditional, inexorable aspect of the direct tax was a paramount concern of people in the 18th century seeking to escape
tyrannical forms of government and to safeguard individual liberty.

2.1. Key terminology used in direct taxation is identified and discussed

Terminology used in taxation may include:

 interest on deposits
 allowances
 assessable income
 capital gain/appreciation
 deductions
 Exempt threshold
 Assessment of Tax
 Dividends
 gross income
 Higher Education Contribution Scheme
 taxable income

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 Tax Evasion
 Withholding tax
Taxation revenue may be used toprovide:
 cultural and artistic resources and support
 defense and border protection
 education
 environmental protection
 essential infrastructure such as:
 roads
 transport systems
 public building
 sport and recreation amenities
 public housing
 foreign representation and trade promotion for Ethiopia
 health care
 justice systems
 public safety
 scientific and other research
 welfare, income and community support systems
 assistance to business and farming
In traditional Ethiopia, taxation played a pivotal role. The taxation system of traditional Ethiopia provided for the conservation of
different entities starting from the central government and extending to lords, clergy, nobles, soldiers and the like. As we have seen
in the previous chapter, the taxation of traditional Ethiopia was paid in kind. Though not uniform, through the taxation system
employed throughout the country, any productive activity undertaken by any part of the society was charged with taxation. This
was evident in the facts that traders were subjected to taxation on the goods they sold; peasants were obliged to pay from what they
produced and collected from their lands; craftsmen were obliged to supply their products to their superiors and so on. Another form
of taxation in traditional Ethiopia was imposed upon the individual members of society. This was manifested in the imposition of
the obligation to render service to superiors.
The concept of income taxation was initially introduced in Ethiopia in the year 1944. The foundational principle of income tax in
Ethiopia was laid by Emperor Hailesellasie in 1882, when the emperor issued a decree requiring all peasants to pay one-tenth of
their agricultural products to tax officials. Accordingly, tax officials would seasonally go to the land of the peasants and collect
payment in accordance with the amount obtained from the land. The decree thus embodied the idea that each individual would be
taxed according to the amount he/she earns. Though it was first related to agricultural income, it was modified on a number of
occasions resulting in changes.
In administering the collection of these taxes, two methods of collection were employed at that time. Where the taxpayer was in a
position to keep accounts, the collection was to be made by the Income Tax Authority. Otherwise, income was to be assessed by a

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local tax assessment committee and the assessment was to be effective for five consecutive years. As is evident from the fact that
most taxpayers of the time were farmers, the latter method of collection was the most employed one.
2.2. Tax declaration forms, Tax File Number (TFN) requirements and rates of direct tax are identified and
analyzed

Tax File Number (TFN) is an 8 or 9 digit number issued by the Taxation Office to each taxpayer (individual, company,
superannuation fund, partnership or trust) to identify that taxpayer's Australian tax dealings. When it was introduced in 1988,
[1]
individuals received a 9 digit TFN and non-individuals were issued an 8 digit TFN. Now both are issued 9 digit TFNs. 10 digit
TFNs are expected in the future, but none have yet been issued.

The TFN serves a purpose similar to the American Social Security number, but its use is strictly limited by law to avoid the
functionality creep which has affected the US counterpart.

Taxpayers file their tax returns at the end of the financial year, can check their quoted income against records from the originators
of that income, such as banks, employers, and public companies. Forms of income covered by the TFN rules include:

 Interest from banks and similar institutions, from all account types, including term deposits.
 Interest from bonds and debentures.
 Dividends from public companies.
 Distributions from unit trusts, including cash management trusts.
 Superannuation payments (amounts paid out to a beneficiary).
 Some government benefits, in particular unemployment benefits.

The recipient of such income has a choice between quoting a tax file number, or not doing so. If the payee does quote his or her
TFN, tax is withheld at a marginal rate based on the payee's income. The money withheld is a prepayment of tax. When the
recipient files a tax return any so called "TFN amounts" are counted against his or her final liability, and any excess is refunded.
Anyone not filing a tax return has been taxed at the maximum rate already.

As a general rule taxpayers do quote their TFN. Institutions usually help by reminding or inviting clients to do so on any new
source of income (e.g., new accounts, new debentures, new shareholdings). Forms for quoting include a reminder of the key
provisions of the system, for example from Computershare

Exemptions

Some people and organizations are exempt from TFN withholding; they may state their exemption category instead of quoting a
TFN. This includes:

 Income tax exempt organizations (e.g., schools, museums).

 Non-profit organizations.
 Recipients of government pensions who are 80 years and older.

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 Children under 16 (earning up to $420 per year of interest, in 2005).

 Foreign residents for interest and dividends (they are subject to non-resident withholding tax instead).

People and organizations in these categories may still need to submit a tax return, but generally speaking these exemptions mean
those not needing to submit a tax return don't need to get a tax file number.

The exemption for children does not apply to company dividends, and if a bank account is held in more than one name, it is only
exempt if all account holders are under 16. Children can apply for a TFN and quote it in the same way as anyone else, if they wish.

If you already have a TFN but you don’t know where it is, you may have documents that contain it, such as a
notice of assessment or a payment summary from your employer. Alternatively, if you use a registered tax
agent, they can tell you your TFN.

o Applying for a TFN

If you’ve never been issued with a TFN, you can apply for one. You’ll receive your TFN no more than 28
days after we receive your completed application.

o Changing your details and nominating a representative

You can contact us by phone, mail or in person to change our records of your name and address, your contact
details and to add or update your nominated representative.

o Using your TFN and keeping it safe

There are a number of situations where you will be asked to provide your TFN, such as when you start work
or change jobs, apply for income assistance or join a superannuation fund. You should keep it secure and
only disclose it to certain individuals or organisations for tax-related purposes.

Tax on Income from Employment / Personal Income Tax

Every person deriving income from employment is liable to pay tax on that income at the rate specified in Schedule ‘A’ as follows:
Schedule ‘A’
Employment Income(per month) Tax Rate (in %) Deduction (in Birr)
over Birr to Birr
0 600 Exempt threshold
601 1650 10% 60
1651 3200 15% 142.5
3201 5250 20% 302.50
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5251 7,800 25% 565

7801 10,900 30% 955
over 10,900 35% 1500

Example: Computation of Personal Income Tax

Monthly Salary of 1500.00 Birr
- Personal Income Tax = 1500 Birr x 10% tax rate = 510 Birr
- Deduction = 150 Birr - 60 Birr deduction fee
- Tax payment = 1290 Birr
Employment income shall include any payments or gains in cash or in kind received from employment by an individual.
Employers have an obligation to withhold the tax from each payment to an employee, and pay the Tax Authority the amount
withheld during each calendar month. In applying the procedure, income attributable to the months of Nehassieand Pagume shall
be aggregated and treated as the income of one month.
If the tax on income from employment, instead of being deducted from the salary or wage of the employee, is paid by the employer
in whole or in part, the amount so paid shall be added to the taxable income and shall be considered as part thereof.
The following categories of income shall be exempt from payment of personal income tax:
 Income from employment received by casual employees who are not regularly employed provided that they do not work
for more than one month for the same employer in any twelve months;
 Pension contribution, provident fund and all forms of retirement benefits contributed by employers in an amount that does
not exceed 15% of the monthly salary of the employee;
 Subject to reciprocity, income from employment, received for services rendered in the exercise of their duties by
diplomatic and consular representatives, and other persons employed in any Embassy and who are national of that state
and bearers of diplomatic passports;
 Payments made to a person as compensation or gratitude in relation to personal injuries suffered by that person or death of
another person;
 Amounts paid by employers to cover the actual cost of medical treatment of employees;
 Allowances in lieu of means of transportation granted to employees under contract of employment;
 Hardship allowance;
 Amounts paid to employees in reimbursement of traveling expenses incurred on duty;
 Amounts of travelling expense paid to employees recruited from elsewhere than the place of employment on joining and
completion of employment or in case of foreigners travelling expenses from or to their country, provided that such
payments are made pursuant to specific provisions of the contract;
 Allowance paid to members and secretaries of board of public enterprises and public bodies as well as to members and
secretaries of study groups set up by the Federal or Regional Government;
 Income of persons employed for domestic duties.
Business Profit Tax
This is the tax imposed on the taxable business income / net profit realized from entrepreneurial activity. Taxable business income
would be determined per tax period on the basis of the profit and loss account or income statement, which shall be drawn in

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compliance with the generally accepted accounting standards. Corporate businesses are required to pay 30% flat rate of business
income tax. For unincorporated or individual businesses the business income tax ranges from 10% - 35%.
Unincorporated or individual businesses are taxed in accordance with the following schedule below:
Schedule ‘C’
Taxable Business Income /Net Profit per year Tax Rate (in %) Deduction (in Birr)
over Birr to Birr
0 1800 Exempt threshold
1801 7800 10% 180
7801 16800 15% 570
16801 28200 20% 1410
28201 42600 25% 2520
42601 60000 30% 4950
over 60, 000 35% 7950

Example: Computation of business profit tax

Business Net Profit per year/Taxable Income = 70,500.00 Birr
- Business Profit Tax = 70,500 Birr x 35% tax rate = 24,675 Birr
- Deduction = 24,675 Birr - 7,950 Birr deduction fee
- Tax payment = 16,725.00 Birr
In the determination of business income subject to tax in Ethiopia, deductions would be allowed for expenses incurred for the
purpose of earning, securing, and maintaining that business income to the extent that the expenses can be proven by the taxpayer.
The following expenses shall be deductible from gross income in calculating taxable income:
 The direct cost of producing the income, such as the direct cost of manufacturing, purchasing, importation, selling and
such other similar costs;
 General and administrative expenses connected with the business activity;
 Premiums payable on insurance directly connected with the business activity;
 Expenses incurred in connection with the promotion of the business inside and outside the country, subject to the limits
set by the directive issued by the Minister of Revenue;
 Commissions paid for services rendered to the business;
Sums paid as salary, wages or other emoluments to the children of the proprietor or member of the partnership shall only be
allowed as deduction if such employees have the qualifications required by the post.
The following categories of income would be exempted from payment of business income tax:
 Awards for adopted or suggested innovations and cost saving measures;
 Public awards for outstanding performance;
 Income specifically exempted from income tax by the law in force in Ethiopia, by international treaty or by an
agreement made.
 Penalty for understatement of tax:

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 If the amount of tax shown on a declaration understates the amount of tax required to be shown, the taxpayer is liable
for a penalty in the amount of 10% of the understatement or 50% if the understatement is considered substantial. The
understatement is considered substantial if it exceeds 25% of the tax required to be shown on the return or 20,000 Birr;
 The penalty shall continue to apply until, the Appeal
 Commission or a Court, as the case may be shall have rendered its final decision.
 Penalty for late payment:
 A taxpayer who fails to pay tax liability on the due date is subject to:
 A penalty of 5% of the amount of unpaid tax on the first day after the due date has passed; and
 An additional 2% of the amount of tax that remains unpaid on the first day of each month thereafter.

Tax on Income from Rental of Buildings

This is the tax imposed on the income from rental of buildings. If the taxpayer leased furnished quarters, the amounts received
attributable to the lease of furniture and equipment would be included in the income and taxed. The tax payable on rented houses
would be charged at the following rates:
􏂷On income of bodies 30% of taxable income
􏂷On income of persons according to the following schedule next page:

Schedule ‘C’
Taxable Income from Rental of Income Tax Payable (in %) Deduction (in Birr)
Buildings (per year) Deduction (in Birr)

over Birr to Birr

0 1800 Exempt threshold
1801 7800 10% 180
7801 16800 15% 570
16801 28200 20% 1410
28201 42600 25% 2520
42601 60000 30% 4950
over 60, 000 35% 7950

Example: Computation of Rental Income Tax

Net profit per-year/Taxable Income 38, 000.00 Birr
- Rental Income Tax = 38,000 Birr x 25% tax rate = 9,500 Birr
- Deduction = 9,500 Birr -2,820 Birr deduction fee
- Tax payment = 6,680 Birr
Conditions of payment:
􏂷The owner of a building who allows a lessee to sub-lease is liable for the payment of the tax for which the sub-lessor is liable,
in the event the sub-lessor fails to pay;

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􏂷When the construction of a rental building is completed or when the building is rented, the owner and the builder are required
to notify the administration of the Kebelein which the building is situated about such completion and the name, address, and tax
identification number of the person or persons subject to tax on income from rental of building;
􏂷The Kebeleadministration has the obligation to communicate the information obtained to the appropriate tax authority.
Tax on Interest Income on Deposits
Every person deriving income from interest on deposits shall pay tax at the rate of 5%. The payers are required to withhold the tax
and account to the Tax Authority.
Dividend Income Tax
Every person deriving income from dividends from a share company or withdrawals of profits from a private limited company
shall be subject to tax at the rate of 10%. The withholding agent shall withhold or collect the tax and account to the Tax Authority.
Tax on Income from Royalties
‘Royalty income’ means a payment of any kind received as a consideration for the use of, or the right to use, any copyright of
literary, artistic or scientific work including cinematography films, and films or tapes for radio or television broadcasting.
Royalties income shall be liable to tax at a flat rate of 5%. The withholding agent who effects payment shall withhold the foregoing
tax and account to the Tax Authority. Where the payer resides abroad and the recipient is a resident, the recipient shall pay tax on
the royalty income within the time limit set out.
Tax on Income from Games of Chance
Every person deriving income from winning of games of chance (e.g., lotteries, tombola’s, and other similar activities) shall be
subject to tax at the rate of 15%, except for winning of less than 100 Birr. The payer shall withhold or collect the tax and account to
the Tax Authority.
Tax on Gains of Transfer of Certain Investment Property
This is the tax payable on gains obtained from the transfer (sale or gift) of building held for business, factory, office, and shares of
companies. Such income is taxable at the following rates:
􏂷Building held for business, factory, and office at the rate of 15%;
􏂷Shares of companies at the rate of 30%.
Gains obtained from the transfer of building held for residence shall be exempted from tax provided that such building is fully used
for dwelling for two years prior to the date of transfer. Any person authorized by law to accept, register or in any way approve the
transfer of capital assets shall not accept, register or approve the transfer before ascertaining that the payment of the tax has been
duly effected.
Tax on Income from Rental of Property
The taxable income under this category is income derived from casual rental of property (including any land, building, or moveable
asset) not related to a business activity. This type of income is subject to tax at a flat rate of 15% of the annual gross income.
Rendering of Technical Services outside Ethiopia
All payments made in consideration of any kind of technical services rendered outside Ethiopia to resident persons in any form
shall be liable to tax at a flat rate of 10% which shall be withheld and paid to the Tax Authority by the payer. The term “technical
service” means any kind of expert advice or technological service rendered.
Agricultural Income Tax
According to Proclamation No. 152 of 1978 individual farmers and agricultural producer-cooperatives earning up to Birr 600 per
annum are required to pay 10 Birr. The tax rates on every additional income vary from 10% to 89% for income above 600 Birr.
In line with the economic policy and structural set up of the Federal
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Democratic Republic of Ethiopia, the former tax on income from agricultural activities and the land use rent was revised in 1995.
Since income tax from this source is allocated to Regional States in consonance with the provisions of the new constitution of
1994, each Regional State is entitled to issue a Proclamation providing for such a tax and rent.
Accordingly, the Oromia Regional State has promulgated Proclamation No. 8/1995 that revised agricultural income tax rates
schedule and rural land use fee. As for the payment of income tax from agricultural activities other taxpayers, except state farms,
shall pay at the following rate.
Agricultural Income Tax per Proclamation No. 8/1995, Oromiya
No. Annual Taxable Income Tax Rate
1 1 up to 1,200 Birr 15
2 2 1,201 - 5,000 5%
3 3 5,001 - 15,000 10%
4 4 15,001 - 30,000 20%
5 5 30,001 - 50,000 30%
6 6 over 50,000 40%

A state farm shall pay 40% of the taxable income it realizes from its agricultural activities. Income from agricultural activities is
said to be determined by estimating the price, in the area, of the crop before harvest. If the crop is sold, the price declared shall be
the basis for the assessment of income.
Land Use Tax
According to Proclamation No. 77/1976 and No. 152 /1978 individual farmers, who are not members of producer’s cooperatives,
are required to pay a land use fee of Birr 10 per hectare per annum. Whereas government agricultural organizations are paying 2
Birr per hectare per annum.
Presently regional states have their own land use rent systems. For instance, according to the Proclamation No. 8/1995 of Oromiya,
rural land held for agricultural activities is subject to land use rent payment on annual basis. The annual land use rent payable by a
farmer shall be Birr 10 for the first hectare and Birr 7.50 for each extra hectare of land. Meanwhile state farming enterprises shall
pay Birr 15 for each hectare of their land holdings.
Land use rent is to be collected between the 1stof Hidarand the 30thofMiaziaof the year.
How direct tax is assessed, tax returns completed and paid

Tax returns can be completed by:

accountant
an individual
tax agent
on-line or in written form
2.3. Sources of ongoing information about indirect tax in Ethiopia

Sources of ongoing information mayinclude:

 accountants and other financial services professionals
 Ethiopian Revenues and Customs Authority (ERCA)
 Industry associations and professional organizations

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 Federal and Regional governments agencies

 Taxpayers.

Learning outcome #3
3. Identify and discuss indirect tax
Definition of 'Indirect Tax'

A tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products. An indirect
tax is most often thought of as a tax that is shifted from one taxpayer to another, by way of an increase in the price of the good.
Fuel, liquor and cigarette taxes are all considered examples of indirect taxes, as many argue that the tax is actually paid by the end
consumer, by way of a higher retail price

Indirect taxes can also be defined as fees that are levied equally upon taxpayers, no matter their income. This is a primary reason
why they are thought of as taxes that are passed on, as the price of the tax is compensated for by simply increasing the overall price
of the good or service. Some economists argue that indirect taxes lead to an inefficient marketplace and alter market prices that
don't match their equilibrium price.

An indirect tax (such as sales tax, a specific tax, value added tax (VAT), or goods and services tax (GST)) is
a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic
burden of the tax (such as the consumer). The intermediary later files a tax return and forwards the tax
proceeds to government with the return. In this sense, the term indirect tax is contrasted with a direct tax
which is collected directly by government from the persons (legal or natural) on which it is imposed. Some
commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else,
whereas an indirect tax can be."

An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying
more for the products Examples would be fuel, liquor, and cigarette taxes. An excise duty on motor cars is
paid in the first instance by the manufacturer of the cars; ultimately the manufacturer transfers the burden of
this duty to the buyer of the car in form of a higher price. Thus, an indirect tax is such which can be shifted or
passed on. The degree to which the burden of a tax is shifted determines whether a tax is primarily direct or
primarily indirect. This is a function of the relative elasticity of the supply and demand of the goods or
services being taxed. Under this definition, even income taxes may be indirect.

Indirect taxation is policy often used to generate tax revenue. Indirect tax is so called as it is paid indirectly
by the final consumer of goods and services while paying for purchase of goods or for enjoying services. It is
broadly based since it is applied to everyone in the society whether rich or poor. Since the cost of the tax does
not vary according to income, indirect taxation is a regressive tax, or in other words it imposes a greater

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burden (relative to resources) on the poor than on the rich. The taxpayer who pays the tax does not bear the
burden of tax; the burden is shifted to the ultimate consumers. In the case of a direct tax, the taxpayer has to
bear the burden of tax personally; in case of indirect tax the taxpayer and the tax bearer are not the same
person

3.1. Key terminology used in indirect taxation is identified and discussed

Turnover Tax

A turnover tax is similar to a sales tax or a VAT, with the difference that it taxes intermediate and possibly capital goods. It is an
indirect tax, typically on an basis, applicable to a production process or stage. For example, when manufacturing activity is
completed, a tax may be charged on some companies. Sales tax occurs when merchandise has been sold.

An excise or excise tax (sometimes called a duty of excise special tax) is an inland tax on the sale, or
production for sale, of specific goods or a tax on a good produced for sale, or sold, within a country or
licenses for specific activities. Excises are distinguished from customs duties, which are taxes on importation.
Excises are inland taxes, whereas customs duties are border taxes.

Excise Tax

Excise taxes are placed mostly on raw materials and paid for by manufacturers at the initial stage. For manufacturers, this tax is
simply a cost of doing business. To help offset the costs, they pass them to consumers on the finished goods. This creates another
layer of indirect taxes that the average consumer pays.

Value Added Tax

VAT is a tax on consumer expenditure. It is collected on business transactions and imports. A taxable person can be an individual,
firm, company, as long as such a person is required to be registered for VAT.

Customs Duty

Customs taxes are applied to imported and exported products. These taxes are determined by the cities and states that house
seaports. People are usually unaware of the taxes associated with imported and exported goods, though all consumers pay them
regardless of how much income they earn. Manufacturers and merchants pass along higher prices to consumers to offset the taxes
they must pay when buying or selling raw materials or finished goods.

3.2. The structure of business and how this affects taxation is analyzed and discussed
The structure of business includes:
o sole trader: an individual trading on their own
o partnership: an association of people or entities carrying on a business together, but not as a
company
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o trust: an entity that holds property or income for the benefit of others
o company: a legal a legal entity separate from its shareholders

3.3. How indirect tax is assessed and paid is considered and discussed
Indirect Taxes
Turnover Tax
The Turnover Tax would be payable on goods sold and services rendered by persons not registered for Value Added Tax. The rate
of Turnover Tax is
 2% on goods sold locally;
 for services rendered locally:
 2% on contractors, grain mills, tractors and combine-harvesters;
 10% on others.
The base of computation of the Turnover Tax is the gross receipts in respect of goods supplied or services rendered. A person who
sells goods and services has the obligation to collect the Turnover Tax from the buyer and transfer it to the Tax Authority. Hence,
the seller is principally accountable for the payment of the tax. In accordance with the Turnover
Tax Proclamation No. 308/2002, the following would be exempted:
 Sale or transfer of dwelling used for a minimum of two years, or the lease of a dwelling;
 Rendering of financial services;
 Supply of national or foreign currency and of securities;
 Rendering by religious organizations of religious or other related services;
 Supply of prescription drugs specified in directives issued by the relevant government agency, and the
rendering of medical services;
 Rendering of educational services provided by educational institutions;
 Supply of goods and rendering of services in the form of humanitarian aid;
 Supply of electricity, kerosene and water;
 Provision of transport;
 Permits and license fees;
 Supply of goods or services by a workshop employing disabled individuals (if more than 60% of the employees
are disabled);
 Supply of books.
Tax Evasion
A person who evades the declaration or payment of tax, commits an offence and in addition to any penalty may be prosecuted and
be subject to a term of imprisonment of not less than five (5) years.
If any amount of tax is not paid by the due date, the person liable is obliged to pay interest on such amount for the period from the
due date to the date the tax is paid. The interest rate is set at 25% over and above the highest commercial banks lending interest rate
that prevailed during the preceding quarter.

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A person who fails to file a timely return is liable for a penalty equal to 5% of the amount of tax underpayment for each month (or
portion thereof) during which the failure continues, up to 25% of such amount. The penalty is limited to 50, 000 Birr for the first
month in which no return is filed
Excise Tax
It is believed that this tax should be imposed on luxury goods and basic goods, which are demand inelastic. It is also believed that
imposing the tax on goods that are hazardous to health and which are causes to social problems will reduce the consumption
thereof.
Rate of Excise tax:
The excise tax would be imposed on goods imported or either produced locally in accordance with the following schedule, given in
Excise Tax Proclamation No. 307/2002.
- Textile fabrics, knitted or woven of natural silk, rayon, nylon, wool or other similar materials
- Textile of any type partly or wholly made from cotton, which is grey, white, dyed or printed, in pieces of any length or width
(except Mosquito net and Abudgedid) and including, blankets, bed-sheets, counterpanes, towels, table clothes and similar articles
The base of computation of Excise Tax is the cost of production for goods produced locally; whereas for goods imported the base
of computation would be the cost of production, insurance and freight costs.
Excise Tax
It is believed that this tax should be imposed on luxury goods and basic goods, which are demand inelastic. It is also believed that
imposing the tax on goods that are hazardous to health and which are causes to social problems will reduce the consumption
thereof.

Note: The base of computation of Excise Tax is the cost of production for goods produced locally; where as for
goods imported the base of computation would be the cost of production, insurance and freight costs.

Value Added Tax (VAT)

VAT is a tax on consumer expenditure. It is collected on business transactions and imports. A taxable person can be an individual,
firm, company, as long as such a person is required to be registered for VAT.
Most business transactions involve supplies of goods or services. VAT is payable if they are:
 Supplies made in Ethiopia;
 Made by a taxable person;
 Made in the course or furtherance of a business;
 Are not specifically exempted or zero-rated.
 The Value Added Tax would be levied at the rate of 15% of the value of:
 Every taxable transaction by a registered person;
 Every import of goods, other than an exempt import; and
 Import of services.
A person who carries on taxable activity and is not registered is required to file an application for VAT registration with the
Authority if:

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 At the end of any period of 12 calendar months the person made , during that period, taxable transactions the total value of
which exceeded 500,000 Birr; or
 At the beginning of any period of 12 calendar months there are reasonable grounds to expect that the total value of
taxable transactions to be made by the person during that period will exceed 500,000 Birr.
Learning outcome #3
5. Manage tax liability
5.1 How tax payers can determine their tax liability
Tax payers can determine their tax liability by:
 assessing income:
 capital gains
 employments
 foreign
 investment
 rental property income
 assessing deductions:
 allowable medical expenses and health insurance rebates
 capital losses
 dependent rebates
 gifts and donations
 rental property expenses
 tax offsets
 work related clothing expenses
 work related education expenses
 work related travel expenses
 zone and overseas forces allowances
 lodging returns and paying governments:
 land tax where applicable
 payroll tax (rate varies by jurisdiction and depends on size of payroll so many small business operators are
exempt)
 stamp duty on:
 hire purchase agreements
 insurance polices
 leases and mortgages
 motor vehicle purchases
 property transfer

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5.2. Under or overpayment of tax and its implications is analyzed and discussed

Under or overpayment of tax may involve:

Claiming interest on early payments that may be possible for certain tax categories such as:
 income tax
 Higher Education Contribution Scheme
 amended assessments of earlier years
 paying interest on overdue amounts

Summary
 The purpose of taxation includes but not limited to:
 financing government activity
 maintaining equity in the national economy
 promoting efficiency where markets fail to control pollution or health dangers
 social infrastructure
 social services
 Ways that tax is collected include:
through regional and federal level taxes including:
direct tax
Tax on Income from Employment / Personal Income Tax
Business Profit Tax
Tax on Income from Rental of Buildings
Tax on Interest Income on Deposits
Dividend Income Tax
Tax on Income from Royalties
Tax on Income from Games of Chance
Tax on Gain of Transfer of certain Investment Property
Tax on Income from Rental of Property
Rendering of Technical Services outside Ethiopia
Agricultural Income Tax
Land Use Tax
indirect tax
Turnover Tax
Excise Tax
Value Added Tax
Customs Duty
Stamp duty tax: instruments shall be chargeable with stamp duty include:
Memorandum and articles of association of any business
organization, cooperative or any other form of association;
Award; Bonds; Warehouse bond;
Contract and agreements and memoranda;
Security deeds;
Collective agreement;
Contract of employment;
Lease, including sub-lease and transfer of similar rights;
Notarial acts;
Power of attorney;
Documents of title to property.
Taxation revenue may be used toprovide:
 assistance to business and farming
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 cultural and artistic resources and support

 defense and border protection
 education
 environmental protection
 essential infrastructure such as:
 roads
 transport systems
 public building
 sport and recreation amenities
 public housing
 foreign representation and trade promotion for Ethiopia
 health care
 justice systems
 public safety
 scientific and other research
 welfare, income and community support systems

Rates of tax and calculators can be accessed from:

 Ethiopian Revenues and customs Authority (ERCA) publications and website
 accountants and tax agents

Tax is assessed through:

 Business Activity Statements

 payroll
 allowable deductions
 capital gains
 financial adjustments such as:
 write-offs
 revaluations
 profits and losses
 superannuation payments
 fringe benefits assessment

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: Apply 5S Procedures 3
Lo – 1: Prepare for work
Quality Assurance (QA)
Quality assurance (QA) is a process-centered approach to ensuring that a company or organization is
providing the best possible products or services. It is related to quality control, which focuses on the end
result, such as testing a sample of items from a batch after production. Although these terms are sometimes
used interchangeably, quality assurance focuses on enhancing and improving the process that is used to create
the end result, rather than focusing on the result itself. Among the parts of the process that are considered in
QA are planning, design, development, production and service.
OHS requirements may include:
 Legislation/Regulations/Codes of practice and enterprise safety policies and procedures. This may include
protective clothing and equipment, use of tooling and equipment, workplace environment and safety,
handling of material, use of fire fighting equipment, enterprise first aid, hazard control and hazardous
materials and substances.
 Personal protective equipment is to include that prescribed under legislation/regulations/codes of practice
and workplace policies and practices.
 Safe operating procedures are to include, but are not limited to the conduct of operational risk assessment
and treatments associated with workplace organization.
Emergency procedures related to this unit are to include but may not be limited to emergency shutdown and
stopping of equipment, extinguishing fires, enterprise first aid requirements and site evacuation.
Tools and equipment May include:
 Paint
 Hook
 Sticker
 Signboard
 Nails
 Shelves
 Chip wood
 Sponge
 Broom
 Pencil
 Shadow board/Tools board
Safety equipment and May include:
tools  Dust masks/goggles
 Glove
 Working cloth
 First aid and safety shoes

5S system
The heart and soul of visual management is 5S. It is systematic approach to workplace organization and
cleaning that will transform a disorganized workplace into an efficient running machine.
The 5Ss are: listed by English & Japanese language
• Sort (Seiri) – The first step in 5S is to eliminate all the things in the workspace that are not being
used and store them away. If a tool are material is not used on a daily basis, eliminate it from the
workstation.

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• Set in Order(Systematize / Stabilize / Straighten)(Seiton) – The second step is to arrange the

items used on a daily basis so that they can be easily accessed and quickly stored. Your goal is to
make eliminate any unnecessary movements and actions by the worker to make his process as
efficient as possible.
• Shine/Sweep/Clean (Seiso) – Next is to get everything cleaned and functioning properly. The goal
is to remove all the dirt and the grime and to keep it that way on daily basis. You want to get it clean
and keep it clean.
• Standardize/Sanitize (Seiketsu) – The fourth step is to develop a routine for sorting, setting and
shining. Standardize creates a system of tasks and procedures that will ensure that the principles of
5S are performed on a daily basis.
• Sustain/Self-discipline (Shitsuke) – In the last step, you want to create a culture that will follow the
steps on a daily basis. The chief objective of sustain is to give your staff the commitment and
motivation to follow each step, day in and day out.
What is 5S?

5S is a systematized approach to:

* organize work areas
* keep rules and standards
* maintain discipline

5S utilizes:
* workplace organization
* work simplification techniques
5S practice:
* develops positive attitude among workers cultivates an environment of efficiency,
effectiveness and economy

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What can you gain from 5S?

Practicing 5S brings benefit not only to thecompany’s business but also to the people who practice it.
• 5S makes your workplace more pleasant
• 5S makes you work more efficiently
• 5S improves your safety
What can a company gain from 5S?
P 5S increases PRODUCTIVITY.
Q 5S improves QUALITY.
C 5S reduces COST.
D 5S makes DELIVERY on time.
S 5S improves SAFETY.
M 5S improves MORALE.

Why 5S brings such benefits?

• 5S improves CREATIVITY of people.

• 5S improves COMMUNICATION among people.
• 5S improves HUMAN RELATIONS among people.
• 5S improves TEAMWORK among people.
• 5S improves CAMARADERIE among people.
• 5S gives VITALITY to people.
5S in WORK STATIONS
VISIBLE RESULTS:
• Decrease in the number of accidents and close calls
• Proper storage
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• Improved productivity
• Greater people involvement in improvement activities
• Better use of floor space
• Early detection of problems
• High product quality
• Decreases delay
• Low employee turnover
• Low machine breakdown rates
• Detection system
• Zero breakdown
INVISIBLE RESULTS:
• Happier employees with high morale.
• Happier customers.
5S PHILOSOPHY
 Productivity comes from the elimination of waste
 It is necessary to attack the root cause of a problem, not just the symptoms
 Participation of everybody is required

Lo – 2 :Sort items
Items May include:  Tools
 Jigs/Fixtures
 Materials/components
 Machine and equipment
 Manuals
 Documents
 Personal items (e.g. Bags, lunch boxes and posters)
 Safety equipment and personal protective equipment
 Other items which happen to be in the work area
SEIRE (SORT)

Sorting is a step that involves selecting what you need to complete the job and removing everything else from
your work area.
 Taking out and disposing unnecessary items.
 Sort/classify the items that you “need” from the items that you “want or not needed”.
 Dispose the items that you do not need and regroup the items that you need..
Clearly distinguish needed (frequently used) items from unneeded items and eliminate the later.

PROCESS/PROCEDURE:

Step 1: - Look around your workplace with your colleagues.

- Decide and identify which items are unnecessary for you.
- Dispose of unnecessary items.
Step 2: - If you and your colleagues cannot decide if an item is unnecessary, place a Disposal
Notice on the item, indicate the date and set the item aside.

Step 3: - After a certain period, check if the item is still needed or not.
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- If no one needs the item after 3 months, it only means that the item is no longer needed hence,
dispose the item right away.
NOTE:
• It is recommended that this approach be used company-wide, involving people from different
departments.
• Never keep anything which is unnecessary to your work.
• While looking around for unnecessary items in your workplace, look at every nook and corner
like when you are looking for cockroaches.

Lo – 3 Set all items in order

SEITON (SYSTEMATIZE / SET IN ORDER / STRAIGHTEN)

This step customizes your workstation and surrounding area to meet your work area needs. Arrange
remaining items so they are easy to select, use, and to return to their proper location.
 Arrangement / organization of necessary items in good order for use.
Keep needed items in correct place and sequence of use to allow easy and quick retrieval.
PROCESS/PROCEDURE:
Step 1: - Make sure that all unnecessary items are eliminatedfrom your workplace.
- Decide where you can place necessary items.
- Take into consideration the flow of your work.
- Take into account the movement of carts or even people passing your desk from this
point of view to ensure safe and efficient operation.
Step 2: - Place frequently needed items close to the user to minimize effort and time wastage.
- Things that are not used often could be placesslightly farther away.
- Make a plan on these principles and locate/storethings accordingly.
Placement of Materials/Equipment Based on Frequency of Use

Priority Frequency of Use How to Store

Low Less than once a year Throw away
Once a year or so Store in distant place
Once every 2-6 months
Average Once a month Store together some-
Once a week where in the office
High Once a day Carry or keep at
Once an hour your workplace

STEP 3: - It is necessary to make sure that everyone in your workplace knows where things are kept for
efficient use.
- Make a list of things with their locations.
- Label each drawer and cabinet to show what is kept inside.
STEP 4: - Apply the same principles as in Step 3.
- Indicate the places where fire extinguishers arelocated as well as passages for carts.
- Place warning signs for safety precautions.

NOTE:
Three Rules for Storage Space

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• Get rid of all unnecessary items

• Decide proper storage layout/classification
• Standardize names
Arrange necessary items in good order
 prevent loss and waste of time
 easy to find and pick up necessary items
 ensure first-come-first-served basis
 make production flow smooth and work easy
SEITON PRACTICES
 Don’t place goods in frontage along passages
 Store goods for first-in-first-out retrieval
 Everything must have its location
 Label items and their location systematically, mark everything
 Separate special tools from common ones
 Frequently used items nearer to the user
 Make things visible to reduce searching time, organize by color
 Keep space for safety equipment and evacuation passages clear

Things used constantly Place as close

as possible

Things Things used occasionally Place a little

Needed Further away

Seldom used, Enclose in a separate,

but still needed Designated place
Classification
Immediate disposal
No potential use

Things Consider where

Potentially useful Useful and move
not or valuable
needed

Arrange responsible,
Requiring special disposal
Inexpensive disposal

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Lo – 4 perform Shine activities

Shine ActivityMay  Inspection
include:  Cleaning
 Minor maintenance May include, but not limited to:
 Tightening bolts
 Lubrication and Replacing missing parts
SEISO (SHINE / SWEEP)
This step is powerful because its purpose is to find the reason why things become dirty. Emphasis is on the
removal of dust, dirt and grime to reveal the source and eliminate it.
 Cleaning of the workplace, including tools and equipment
Clean it so that defects are so easy to spot and eliminate.
PROCESS/PROCEDURE:

Step 1: - Determine the subject of clean up (what to clean)

e.g, location (storage, shelves, etc.), equipment, space (passageway, room, etc.)
Step 2: - Assign persons responsible for cleanup (who, where).
Step 3: - Determine the method of clean up (how to do it).
- Target the ff areas for cleaning (storage, equipment and surroundings)
- Draw up a cleaning responsibility map
- Create a cleaning schedule.
Step 4: - Implement cleaning.
Step 5: - Make a daily 5-minute cleaning habit before going home (Keep it simple and easy to
Understand.)
NOTE:
• Do not wait until things get dirty.
• Clean your workplace; machines and equipment, tools and furniture regularly.
• Put aside 3-minute of seiso per day.
• Be responsible for your own work area.
• Never throw anything and make it your habit.
• Cleaning is also checking.
Clean your workplace completely
 keep environmental condition as clean as the level necessary for the products
 prevent deterioration of machinery and equipment and make checking of abnormalities easy
 Keep workplace safe and work easy
SEISO PRACTICES
 Big Seiso ( Clean-Up Day )
 3-5 minute cleaning daily
 Assign owner to each machine
 Combine cleaning with inspection
 Make daily maintenance points clear by providing visible instructions
 Prevent causes of dust and dirt
Lo – 5 Standardize 5s
Tools and techniques May include:
to standardize 5S  5S Job Cycle Charts
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
Visual 5S

The Five Minute 5S

Standardization level checklist

5S checklist

The five Whys and one How approach(5W1H),Suspension

Incorporation and Use Elimination,5S slogans,5S posters

5S photo exhibits and storyboards,5S newsletter,5S maps,5S pocket
manuals,5S department/benchmarking tours,5S months,5S audit,
Awarding system
 Big cleaning day
 Patrolling system May include, but not limited to:
 Top management Patrol
 5S Committee members and Promotion office Patrol
 Mutual patrol
 Self-patrol
 Checklist and Camera patrols
Relevant procedures May include, but not limited to:
 Assign 5S responsibilities
 Integrate 5S duties into regular work duties
 Check on 5S maintenance level
 OHS measures such as signage, symbols / coding and labelling of
workplace and equipment
 Creating conditions to sustain your plans
 Roles in implementation
Reporting May include, but not limited to:
 Verbal responses
 Data entry into enterprise database
 Brief written reports using enterprise report formats
SEIKETSU (SANITIZE / STANDARDIZE)

This step creates a work area free of checklists; if good standards are put in place it will be easier to maintain
and continue improving.
 Maintaining the workplace in high standard of housekeeping and organization.
Set easy-to-follow standards and develop a structure to support the three first (S’s) pillars.
PROCESS/PROCEDURE:
Step 1: - Establish standards for maintaining compliancewith 3S.
- Remember the 3 “NO” principles:
 No unnecessary items
 No mess
 No dirt
Step 2: - Make a schedule for cleaning your workplace.
Step 3: - Interdepartmental competition and cooperation is avery effective means of sustaining
andenhancingpeople’s interest in 5S
Maintain a high standard of housekeeping and workplace organization at all times.
 Maintain cleanliness and orderliness
 Prevent miss-operation
 Make it easy to find out abnormality
 Standardize good practices

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SEIKETSU PRACTICES
 Visual control signs
 Color coding
 Maintenance labels
 Fixed-point photography

Lo – 6 Sustain 5S
SHITSUKE (SUSTAIN/SELF-DISICPLINE)
Sustaining is the end result of how well we have performed the previous four S’s. In the sustainability stage,
think of ways to eliminate effort in maintaining an area.
 Doing things spontaneously without being told.
Educate people so that 5S expands beyond initial limits and turns into natural standard behavior.
PROCESS/PROCEDURE:
Step 1: - Create reasonable rules.
 Create reasonable rules of behavior in the workplace. Engage everyone concerned in the
creation of rules not just the department heads or supervisors.
 Discuss the rules with everyone concerned. This will result to a feeling of involvement.
 Show rules and standards clearly and attractively using illustrations, photographs and color-
coding.
Step 2: - Exhibit before and after 5S photos where everyone will see them.
Step 3: - Recognize good practices and good performance.
Train people to follow good housekeeping rules autonomously.
• Enhance autonomous management activities
• Maintain the discipline needed to do a good job
• Upgrade productivity and quality consciousness
 Wash hands after going to the toilet
 Wash hands before and after meals
 Eat and smoke at designated places
 Keep workplace always clean and tidy
 Wear clean uniform and shoes
 Follow safety rules
 Put things back in their proper places
 Work according to standards
 Observe proper office decorum

Unit of Competence :- Apply Business Communication in the work place

SYMBOLS
These symbols are located at the left margin of the module. These illustrate the actions that should be taken
or resource to be used at a particular stage in the module.

LO Learning
Self-Check
Outcome

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Key to
Resources
Correction

Reading Activity Assessment

Use Computer Remember/Tips

Operation Sheet Safety

This guide will also assist you to attain the learning outcome stated in the cover page. Specifically, upon completion of this
Learning Guide, you will be able to –
LO1-Obtain and convey workplace information (10hr)
o Accessing information from appropriate sources
o Using effective questioning , active listening and speaking skills
o Using appropriate medium
o Using appropriate non- verbal communication
o Identifying and following appropriate lines of communication
o Using defined workplace procedures
o Carrying out personal interaction

LO2-Participate in workplace meetings and discussions (5hr)

o Attending Team meetings on time
o Express own opinions and listening those of others
o Consistingmeeting inputs
o Conductingworkplace interactions
o Interpreting and implementing meetings outcomes

LO3-Complete relevant work related documents (5hr)

o Completing range of forms
o Recording workplace data
o Using basic mathematical processes
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o Identifying and acting up on errors

o Completing reporting requirements
LO4-Describe team role and scope (5hr)
o Identifying the role and objective of the team
o Identifying team parameters and responsibilities
LO5-Identify own role and responsibility within team (5hr)
o Identifying individual role and responsibilities
o Recognizing roles and responsibility
o Identifying reporting relationships
LO6-Work as a team member (5hr)
o Using effective and appropriate forms of communications
o Makingeffective and appropriate contributions
o Observing Protocols in reporting
o Contributing to the development of team work plans.
LO1- Obtain and convey workplace information
Collect information

Definitions

 Record: a written or electronic document to preserve information or keep a record of a transaction,

 Records management: the practice of maintaining business records from their creation and up to
their eventual disposal, including classifying, storing, securing, archiving and/or destruction.

What is information?

Each organization must have access to information and data if it is to function efficiently. This information
needs to be collected (or created), stored and cared for and be easily accessed or retrieved. Records are
sources of information (documents or other items) which the organization wants or needs to retain.

Types of information Examples

Correspondence faxes, letters, memos, email
computer databases customer records, library catalogue
computer files copies of letters, memos, other documents
sales records monthly forecasts, targets achieved
Forms membership forms, insurance forms
Invoices accounts from suppliers, accounts to debtors
personnel records personal details, salary rates
minutes of meetings staff meetings, board meetings

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The overall objective of any records management system is to provide the right information at the necessary
time to the correct person(s) at an affordable cost. Information is stored so specific information is available
when it is needed and in such a way that security and confidentiality is maintained.

Who may request information?

 supervisor
 colleague within your area/department
 colleague outside your area or department
 person outside of the organization (e.g. a client)

Points to consider when responding to requests for information:

 Document the request - it is important to record who requested the information, what information
was requested, the date and time of the request, when and how the information was delivered and any
problems encountered.

 Urgency of request - responding within an appropriate timeframe which may or may not be
specified.

 Prioritizing requests - deciding in what order to respond to requests, with the most urgent request
being answered first (to enable your time to be used efficiently and ensuring everyone gets their
information when needed).

 Information required - fully understanding the type of information which is required and knowing
where to access the most up-to-date and relevant information.

 Level of security of the information - knowing who is able to gain access to the information being
requested.
o confidential - generally restricted to a few people who have been given the authority to access
that information
o high security - not for general use, may have restrictions attached relating to when, where,
how or who may access the information
o general access - available to any person.

 location of information - information may be available from a source within the business (either in
print or digital form); if not, you may need to seek information from outside sources, archives or the
Internet which could involve more time.

 delivery of information - could be in print or digital form. It is important to keep a record of when
and how the information was delivered, E.g. personally, electronically, posted.

 tracking of information - if paper files are removed from a centralised area, it is important to keep a
record of when the file was removed, who borrowed it and when it is to be returned. If the file is
passed on to someone else, this record must be updated. Any person wishing to access a removed file
will then know where it is.
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Appropriate sources
 Team members
 Suppliers
 Trade personnel
 Local government
 Industry bodies

1.2 Effective questioning, active listening and speaking skills are used to gather and convey information
What is Active Listening?
Remember it means making sure you fully understand and comprehend what is being said.
It is vitally important that beauty operators use “questioning and active listening” to identify caller and
accurately establish and confirm requirements.
In addition to listening skills, the operator must confirm the caller's requirements.
Questioning techniques are crucial to identify the needs of the client over the phone.

What is business information?

 Client documents (email, letters, contracts)
 Internal memos
 Departmental reports
 Sales reports
 Invoices and customer statements
 Personnel staff files
 Internal telephone directory
 Customer databases
 Legal documents

1.3 Appropriate medium is used to transfer information and ideas

At work, communication falls into two main categories: external communication and internal
communication.
External communication involves communicating outside the organization, perhaps
with customers, clients, suppliers, competitors and other organizations.
Internal communication involves communicating inside the organization, with your
colleagues and supervisors that is the people you work with.

This unit of work will deal with internal communication.

METHODS OF COMMUNICATION
In the workplace, communication can be:
 Verbal (speaking) – talking face to face or on the telephone
 Non-verbal (not speaking) – using ‘body language’ to show how you feel, such as the look on your
face or the signs you make with your hands or arms
 Written – writing letters, forms, messages, emails and faxes
LINES OF COMMUNICATION
Lines of communication are the channels through which people communicate.
Lines of communication can be:
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 Oral or written
 Informal or formal (informal is used when you know someone very well; formal is used when you
don’t personally know the person)
 Direct or indirect (direct means not using another person or equipment; indirect means allowing
another person to act as a go-between)
Factors influencing lines of communication:
 Authority
 Seniority
 Proximity
 People in go-between roles
 The number of people you need to communicate with
 Sensitive information
EQUIPMENT USED TO COMMUNICATE
 Telephones
 Voice mail
 Diaries and electronic diaries
 Computer network systems
 Facsimile machines
 Overhead projectors
 Blackboards, whiteboards, and flipcharts
 Memoranda
 Letters
 Face-to-face discussion
BODY LANGUAGE
Body language is ‘non-verbal communication’ – no words are used but you still communicate a lot.
There are TWO main reasons why body language is so important.
1. People remember more of what they see than what they hear
2. People often lie with words, but facial expressions, and body language, tend to be more honest.
When a person’s words and body language say different things, we tend to believe the body language
and doubt the words.
How do we communicate with body language?
1. Eye contact
2. Posture
3. Body position
4. Personal space
5. Actions and gestures
6. Facial expressions
EFFECTIVE QUESTIONING
We need to question speakers effectively in order to ensure that we gain all the information we need. There
are TWO main types of questions that we can ask people.
Closed questions – these generally require a ‘yes’ or ‘no’ answer
Open questions – these encourage more conversation
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Communication equipment
There is a variety of equipment to be used for communication.
Communication equipment can include:

 facsimile (fax) machines

 information technology components including hardware, software and communication packages
 keyboard equipment including mouse, touchpad, keyboard
 network systems
 pens, pencils
 Telephones.Communication process and equipment
Communication process/cycle
The communication process is a four part process. The sender sends a message to the receiver who provides
feedback to the sender.

The Communication Process

• a sender who has a message or idea which they wish to send

• a message which is sent between the sender and the receiver
• a method (face-to-face, telephone, letter, form) by which the message is sent
• a receiver who receives and understands the message
• feedback passed from the receiver to the sender showing that the message has been received and
understood.

Barriers to Successful Communication

Barriers to good communication can make things difficult and cause misunderstandings. Good
communication is affected when the sender and the receiver do not understand the message in the same way.

• Physical Barriers – has something to do with the environment and transmission mediums.
• Personal Barriers – has something to do with attitude and the influence of psychological and
sociological factors.
• Semantic barrier – has something to do with language and cultural factors.

Communication Styles

• Reflecting Behaviours and Professional Values

• Aggressive
• Passive
• Assertive

Elements of the Aggressive Style

1. Beliefs – “Everyone should be like me”

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2. Communication Style – Closed mined, poor listener, interrupts, and monopolizing

3. Characteristics and Behaviours – Achieve goals at others’ expenses, puts others down,
bossy type, know-it-all-attitude, doesn’t show appreciation, impatience & anger
4. Nonverbal cues – “Don’t ask why, just do it”
5. Effects – Provokes counter aggression, ill health, wastes time and energy over supervising others, pay
high price in human relationships, fosters resistance, defiance, sabotaging, striking back, and
lying.

Elements of the Passive Style

1. Beliefs – “Don’t express true feelings”, “ Others have more rights than I do”
2. Communication Style – Indirect, always agree, doesn’t speak up, hesitant
3. Characteristics and Behaviours – Apologetic, self-conscious, trust others, doesn’t express own wants
and feelings, tries to sit on both sides to avoid conflict, asks permission unnecessarily, complains
instead of taking actions.
4. Nonverbal cues – Smiles and nods in agreement, downcast eyes
5. Effects – Gives up being him/her, builds dependency relationships, doesn’t know where he/she
stands, slowly loses self esteem, is not well liked.

Elements of the Assertive Style

1. Beliefs – “Believes self and others are valuable”, “ I have rights and so do others”
2. Communication Style – Effective, active listener, states limits, expectations, express self directly,
honestly, checks on others feelings.
3. Characteristics and Behaviours – trusts self and others, confident, consistent, open flexible, versatile,
operates from choice action, oriented, firm, fair, just.
4. Nonverbal cues – “I choose to……”, “ What alternatives do we have”
5. Effects – Increased self-esteem and self-confidence, increased self-esteem if others, feels motivated
and understood, others know where they stand.

Effective verbal communication skills

Appropriate language: In the workplace it is important to use language appropriate to the audience. The
industry terminology used when speaking to a colleague is not always appropriate to use when speaking to a
client as they may not understand the industry terminology being used.

Clear voice: Speak simply and slowly so the audience can understand. Choose your words carefully and
repeat important information.

Audible volume: The volume of your voice needs to be loud enough so you can be heard. Adjust how loudly
you speak to accommodate both your surroundings and the audience. You may need to speak more loudly
when there is outside noise like traffic. An elderly client may need you to speak more loudly so it is easier for
them to hear clearly.

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Courteous tone: Be polite and well-mannered when speaking. It establishes rapport and shows respect for
clients.

Active listening: Listening is an important skill in communicating with others, as you are able to learn what
the other person wants and means. To fully understand the message being conveyed, it is important that you
ask questions to clarify the meaning. It is also important to clarify that the other person understands your
message. You can do this by asking questions.Interference to Effective Listening

Noise - it is very hard to listen in a noisy environment.

Temperature - if you are feeling uncomfortably hot, it is hard to concentrate on listening.

Closeness - when a speaker is too close to you, your mind may be on the invasion of your
space rather than what is being said.
Time - when people are tired or hurried they are less able
to fully concentrate on what is being said .
Impatience- if you are feeling impatient and want to get away to do other things, your mind
will not be concentrating to a speaker.
Distractions - any type of distraction whether it be
something going on outside, work or personal
worries tends to stop you from paying full attention
to what a speaker says.

Attitude - if you do not like a speaker or do not like what

they are saying you may quickly tune out.

Lack of interest - when you are not interested in a topic

it is difficult to pay full attention.
Personal Perception - often people think they already
knowwhat is about to be said and so they don’t
bother to listen.
Business letters
There are six main forms of business letters.
Acknowledgement - sent to confirm that the business has received a letter, for example when a business
receives a job application.

Claim - known also as a letter of complaint. These letters should be written tactfully without blame or anger.
The problem should be stated first with adequate information provided so that the business can reply to offer
a solution.

Adjustment - written in reply to a claim or letter of complaint, usually to offer a solution. This letter is also
sent when an adjustment or change is made to a client's account.
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Confirmation - used to confirm something that has been agreed upon either over the phone or in person.
This will serve as a written record so that details can be checked.

Enquiry -these are requests for information.

Covering letter - a brief description of what is being sent. For example when a business is sending brochures
to a client, a brief covering letter is included.

Responding to individual differences

Communication in the workplace is effective when positive relationships are developed and maintained.
Responding positively to individual differences by valuing all individuals and treating them with respect,
courtesy and sensitivity will ensure effective communication. Taking a proactive approach to acknowledge
an individual's differences will build mutual trust and confidence.

The skilled migration program is designed to assist national economic development by attracting highly
skilled immigrants to live and work in Australia, bringing with them skills, business expertise and capital.
United Kingdom, China and India are the three largest sources of these skilled workers.

Tolerance and respect

Positive relationships show tolerance and respect for an individual's differences

Developing and maintaining a positive workplace relationship will consider the following aspects:
Culture: The ethnicity of an individual. Ethnicity is use to describe a shared identity or similarity of a group
of people on the basis of one or more factors. It takes into consideration their cultural traditions, religion,
language and shared history.
Cultural diversity: At the 2006 Australian Census 44% of Australians were either born overseas or had at
least one overseas-born parent. People from over 200 countries make up Australia's multi-cultural society.
Cultural awareness: Being aware of differences between cultures and taking this into consideration in all
communication.
Pro-active strategies promoting workplace diversity
There are a number of strategies to promote workplace diversity.

Staff training - can promote workplace diversity and can take a number of forms. For example, using
internal or external sources of training to raise awareness of cultural customs and courtesies. Providing an on-
the-job mentor for a new employee, who can provide additional information and answer questions, can assist
in ensuring the new employee is effective in their job.

Using a range of communication media and techniques -Circulate policies and related information widely
and in appropriate languages. Posters and leaflets can also be used.

Promote cultural celebrations - Celebrate with the local community cultural events such as The Blessing of
the Fishing Fleet at Easter by the Italian community or the Chinese New Year Spring Festival.
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Use an individual's differences - Recognize and appreciate staff by using their skills and talents such as
their native language skills, to assist other staff or clients.
Actively seek to break down barriers - This can be achieved by implementing positive work environment
policies such as:

 flexible work practices

 job sharing
 leave for carers of family members who are sick, older or who have disabilities.

ORGANISATIONAL PROCEDURES
Organizational procedures for communication are rules that a workplace puts into place to make sure
everyone does their job properly. Procedures relate to:
 Specific tasks – how to ensure that specific tasks are performed effectively, efficiently, and safely
 Following instructions – how instructions should be given, received, and acted upon
 Requests from colleagues – how to respond when other people need your assistance
 Answering telephone calls – how to treat callers and deal with their requests
 Use of voice mail – how to ensure that voice mail is used professionally and effectively
 Use of internet and email – how to get the best from internet technologies, how to avoid the pitfalls,
and how to avoid getting viruses
 Formal and informal discussions – how meetings should be structured, and who should be included,
or informed when discussions take place
In small organizations, none of the rules will be written down. In these cases, you will need to rely heavily
on asking questions and making notes. It is up to you to ensure you get the help you need. Don’t just wait
to be told. When you start a job, people are normally willing to help you out if you are polite and friendly.
Who should you ask?
You can ask the following people:
 Your supervisor – this is the person who gives you regular instructions and feedback
 Your mentor – this is a more experienced person who acts as your guide and advisor
 Trainers – these people help you learn about the company and its procedures and processes
 Colleagues – these people are the ones you work with. Get to know them, so that you can ask
questions in a relaxed and easy way. It is important to take notes when they explain things. This saves
you asking the same questions over and over, and tells them you are taking them seriously and not
wasting their time.

In larger organizations, rules and communication requirements are

generally written down in a variety of places including the
following:
 A general employee handbook or manual
 Business plans or performance plans
 Health and safety guidelines
 Instructions for the use of equipment
 Customer service guidelines
 A style guide, setting out rules for written communication
 Data protection guidelines

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LO2- Participate in workplace meetings and discussions

Meetings are the most popular method of interactive communication. It facilitates direct, face-to-face
communication and essential at various levels in all organization. They serve as channels of oral
communication among the members of the meeting. However, they are supported by written communication
like notices to bring people together, agenda to structure the meeting, minutes to record the proceedings and
report to pass information to the higher authorities.
Advise people of the meeting in time for them to be able to attend
 Set an agenda
 Start and finish on time
 Manage the participants
 Follow up on agreed actions
 Take and distribute minutes
Talk to your supervisor and ask their permission to complete the activity below.
 Why was your workplace meeting held?
 What was good about the meeting and why?
 What was bad about the meeting and why?
 What are your suggestions for improvement?

Team Meetings

Hold regular staff meetings. They only need to be 10-20 minutes long. Aim to achieve two way
communication with you and your staff.

What is the purpose of meetings?

 Give people information about the business in general; it’s goals, challenges etc
 Solve problems
 Discuss ideas
 Explain something
 Report on progress
 Share information
What can go wrong at meetings?
 Can be slow/frustrating
 Often go “off track”
 No decisions are made - or they are unclear
 Go on too long
 Dominated by a few people
 Get bogged down in trivial issues
 People don’t say what they think
 Fights
 No follow up
 No record of decisions made
 No agenda to tell what will be discussed
Suggestions for making your meetings effective
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 Dates of future meetings (not just the next meeting) are set well ahead so that people can
make arrangements to attend and can record the information in their diaries
 Make sure everyone has a chance to contribute
 Decide on the purpose of the meeting and stick to it
 Use minutes and agendas
 There are time estimates of how long each agenda item should take
 Have a chairperson to keep the meeting on track
 Listen to people
 7 Ways for an Effective Team Meeting
1. Make an Agenda
During a team meeting, begin by stating the agenda. An agenda is an outline of all the points or topics that
need to be discussed in the given amount of time. Agenda can be plain solicitation of ideas to resolution of
conflicts to presentation of updates to brainstorming.
2. Be Time Sensitive
Some managers use meetings to grandstand or show off. Remember that time spent on meetings is limited
and time is better spent on implementing projects.
3. Assign Someone to Take Notes
A common mistake committed during meetings is that no one takes note of the discussions and agreements.
When this happens, no one remembers what he or she is supposed to do and nothing is accomplished.
4. Listen to the Team
A team meeting is a time to hear the thoughts and insights of the individual members. Managers should never
hog the limelight and do a monologue. To have effective meetings, managers should encourage their team
members to speak up their thoughts.
5. Assign Tasks and Responsibilities
Meetings are nothing if members don’t know their tasks and responsibilities. Before a manager closes a
meeting, he must assign all the tasks required for the project and each member should have a role to play.
Every member must have a clear understanding of what he or she must do.
A timeline should also be discussed during the meeting so that everyone knows the time they have to work on
the projects.
6. Solicit Feedback
Feedback is important in any team and managers must regularly get feedback not only with the status of the
projects but also in how meetings are conducted.
Many managers make the mistake of assuming that the way they conduct team meetings is effective but it
never hurts to ask his staff if they perceive it the same way.
7. Determine Frequency of Meeting
It may be an overkill to have daily meetings for just one project. Managers must make efficient use of their
time and make sure that their team spends more time working on projects.
Managers don’t need to organize team meetings to get updates from their team. Sometimes, a one-on-one
interaction or email updates can be enough. Reserve meetings to discuss bigger issues.

LO3: Complete relevant work related documents

Data collection methods
1. Centralized data collection – Usually through a single mainframe computer – Relies heavily upon
hard or paper copies – Centralized filing system with an army of clerks •
2. Decentralized data collection – Small computers are networked and often physically remote from
each other – Primary documents are processed by individuals at point of origin – Electronic file
management systems are extensively used
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Business use of information

Primary use – Make decisions – Provide information on decisions made previously – Record transactions
with clients and customers – Provide a basis for management planning – Provide a source of material for
research into better products or service – Satisfy all legal and taxation requirements

Secondary use – Statistical analysis for decision making and future plans – Input to providing administrative
services – Maintaining stock levels and supplies, equipment maintenance and purchasing – For use in
management reports •

Tertiary use – Internal audit – Evaluation of management system itself Collect Business use of information
A. Electronic filing systems –
Advantages
 Customer details are immediately available Easier
to search than manual systems –
Disadvantages
 Power failure renders the system inoperative
 Virus can destroy data banks Staff can
 intentionally or otherwise delete important files
3. Paper-based filing – Being used as a backup in many organizations – Most businesses run dual
systems in case of emergency
Effective information systems should:
 Be simple and easy to use – Must provide for search functions and ease of access
 Be readily accessible to authorized staff – Only staff at appropriate authority levels will have
access to sensitive information, e.g. profit margins
 Have a high retrieval speed – Staff should be able to obtain data from the corporate databases
and open them immediately on their desktops
4. Be safe and secure – Passwords will be delegated to authority levels – Passwords should be changed
on a regular basis
The record life cycle
Either external or internal creation –
 External, e.g. customer transactions –
 Internal, e.g. memo relating to policy changes

Collecting information from appropriate sources

Knowledge of one's workplace responsibilities can be obtained from a variety of sources.
To obtain, understand and clarify workplace procedures an employee can:
 use the above sources to gain an outline of workplace responsibilities
 consult with appropriate personnel
 draw on their active listening skills
 ask open and closed questions.

Records disposal

 All files go through a life cycle from ‘creation’ to ‘disposal’

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 Regular checks of file usage (easily done if kept electronically) to determine if a file can be moved
from the active list to a lower order of classification
5. If files have been approved for disposal they should be shredded and the remnants dispatched to the
recycle bin. Computer files, once deleted, are generally gone forever so take care when making the
decision to delete

LO4: Describe team role and scope

What is a Team?
A team can be defined as “a group of two or more interdependent individuals who interact with and influence one another in order
to accomplish a common purpose.” Social scientists have defined a team as a collection of two or more interacting individuals with
a stable pattern of relationships between them who share common goals and who perceive themselves as being a group. A group or
a team needs to interact and come together to achieve a particular and common objectives. Hence, group or team is expressed as:
 A human collection, assemblage, cluster group or aggregation of persons
 Who have significantly interdependent relations with each other, and
 Who perceive themselves as a group or a team
TEAMS VS. GROUPS: WHAT’S THE DIFFERENCE?
There is some debate whether groups and teams are really separate concepts, or whether the terms can be used interchangeably. We
think that there is a subtle difference between the terms. A group is two or more people with a common relationship. Thus a group
could be co-workers or people meeting for lunch or standing at the bus stop. Unlike teams, groups do not necessarily engage in
collective work that requires interdependent effort.
A team is “a small number of people with complementary skills who are committed to a common purpose, performance goals, and
approach for which they hold themselves mutually accountable.”
Groups become teams when they meet the following conditions:
• Team members share leadership.
• Both individuals and the team as whole share accountability for the work of the team.
• The team develops its own purpose or mission.
• The team works on problem solving continuously, rather than just at scheduled meeting times.
• The team’s measure of effectiveness is the team’s outcomes and goals, not individual outcomes and goals. Thus while not all
groups are teams, all teams can be considered groups.
What Makes a Team?
There are two factors that distinguish team from groups. These are
 The level of dependency
 The degree of communality

The level of dependency

 The work of one individual within the team is not dependent for its successful execution of the work of other members.
 Where the work of each person is totally interlinked with the work of others so that he/she cannot achieve others output unless
the other members of the team achieve their part.
 High level of dependency requires people to collaborate with each others to adapt their activity and behavior; hence, as a result
team is formed.
The degree of communality
The degree of communality factor also distinguishes groups from teams when the degree to which the goals of the team overrides
the goal of its individual members. High degree of community results team.
Requirements of a Team
There are four major requirements for a team

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Characteristics of Team
We can summarize the team characteristics as follows:
 A team can involve as few as two people.
 A team is not a mere aggregate of individuals.
 A team success depends on the interdependent and collective efforts of various teams.
 Members.
 Team members are likely to have significant impacts on one another as they work together.

The features of an effective team include:

 combined group effort of all members
 clear goals
 group members focused on learning
 mutual trust and support
 open communication and democratic processes

LO5: Identify own role and responsibility within team

Role
All work group/team are defined by role that members in the group/team perform. The greater the group’s/team’s task complexity,
the more role will emerge. Role is a set of expected behavior pattern attributed to someone occupying a given position in a social
unit.
Role expectations are defined as how others believe you should act in a given situation. How you behave is determined to a large
extent by the role defined in the context in which you are acting.
Kinds and Responsibilities of Team
There are four common kinds of teams found in an organization. These are problem – solving teams, self-managed teams cross –
functional teams, and virtual teams.
Problem solving team – these are typically composed of 5 to 12 hourly employees from the same department who met for a few
hours each week to discuss ways to improve quality, efficiency and the work environment. Members of problem – solving teams
share ideas or offer suggestions on how work processes and methods can be improved.
Self-managed work team are groups of employee (typically 10 to 15 in number) who perform highly related or interdependent
jobs and take on many of the responsibilities of their former supervisors. Typically, this includes planning and scheduling of work,
assigning tasks to members; collective control over the pace of work; making operating decisions and taking action on problems.
Fully self-managed work teams even select their own members and have the members evaluate each other’s performance.

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Cross-Functional Teams: These are teams made up of employees form about the same hierarchical level, but from different work
areas, who come together to accomplish a task. The cross-functional team included flight crew, ramp personnel, mechanics,
dispatchers, reservation agents and the like.
Virtual Teams: The previous types of teams do their work face-to-face. Virtual teams use computer technology to tie together
physically dispersed members in order to achieve a common goal. They allow people to collaborate online using communication
links, such as wide area networks, video conferencing, or e-mail whether they are only a room away or continents apart. Virtual
teams can do all the things that other teams do: sharing of information, making decisions and completing tasks. The three primary
factors that differentiate virtual teams from face-to-face teams are:
(a) The absence of proverbial and non-verbal cues. This help to clarify communication by providing increased meaning but are
not available in on-line interaction
(b) Limited social context. Virtual teams often suffer from less social rapport and less direct interaction among members.
(c) The ability to overcome time and space constraints. Virtual teams are able to do their work even if members are thousands of
miles apart and separated by dozen or more time zone.

LO6: Work as a team member

Organizations function by means of the collective action of people, yet each individual is capable of taking independent action
which may not be in line with policy or instructions, or may not be reported properly to other people who ought to know about it.
Good communications are required to achieve coordinated results. Organizations are subject to the influence of continuous change
which affects the work employees do, their well-being and their security. Change can be managed only by ensuring that the reasons
for and the implications of change are communicated to those affected in terms which they can understand and accept.
Individuals are motivated by the extrinsic reward system and the intrinsic rewards coming from the work itself. But the degree to
which they are motivated depends upon the amount of responsibility and scope for achievement provided by their job, and upon
their expectations that the rewards they will get will be the ones they want, and will follow from the efforts they make. Feelings
about work and the associated rewards depend very much on the effectiveness of communications from their managers or team
leaders and within the company.
Above all, good two-way communications are required so that management can keep employees informed of the policies and plans
affecting them, and employees can react promptly with their views about management’s proposals and actions. Change cannot be
managed properly without an understanding of the feelings of those affected by it, and an efficient system of communications is
needed to understand and influence these feelings.
But the extent, to which good communications create satisfactory relationships rather than simply reducing unsatisfactory ones, can
be exaggerated. A feature of management practices is the way in which different management theories become fashionable or
influential for a while and then decline in favor. Among these has been the ‘good communications’ theory of management. This
approach to dealing with management problems is based upon the following assumptions:
 The needs and aims of both employees and management are, in the long run, the same in any
organization. Managers’ and employees’ ideas and objectives can all be fitted together to form a single
conceptual framework.
 Any differences in opinion between management and employees are due to misunderstandings which have
arisen because communications are not good enough.

The solution to industrial strife is to improve communications. This theory is attractive and has some validity.
Communication Areas and Objectives
Employee relations are mainly affected by managerial and internal communications, although external communications are an
additional channel of information. The strategy for managerial communications is concerned with planning and control procedures,
management information systems and techniques of delegating and giving instructions.
COMMUNICATIONS STRATEGY
The strategy for internal communications should be based on analyses of:
 What management wants to say;
 What employees want to hear;
 The problems being met in conveying or receiving information.

These analyses can be used to indicate the systems of communication that need to be developed and the education and training
programs required to make them work. They should also provide guidance on how communications should be managed and timed.
Bad management and poor timing are frequently the fundamental causes of ineffective communication.
What management wants to say?
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What management wants to say depends upon an assessment of what employees need to know, which, in turn, is affected by what
they want to hear. Management usually aims to achieve three things: first, to get employees to understand and accept what
management proposes to do in areas that affect them; second, to obtain the commitment of employees to the objectives, plans and
values of the organization; and, third, to help employees to appreciate more clearly the contribution they can make to
organizational success and how it will benefit them

Communication Areas and Objectives

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Communication Area Objectives

1.The communication downwards and sideways of 1. To ensure that managers and supervisors receive clear,
corporate or functional objectives, policies plans and accurate and prompt information on what they are
budgets to those who have to implement them expected to achieve the company’s objectives.
Relation
Managerial

2.The communication downwards of direct instructions 2. To ensure that the instructions are clear and precise and
from a manager to a subordinate on what the latter has to provide the necessary motivation to get people into
do action.
3. The communication upwards and sideways of 3. To ensure that managers and supervisors have adequate
proposals, suggestions and comments on corporate or scope to influence corporate and functional decisions on
functional objectives, policies and budgets from those who matters about which they have specific expertise and
have to implement them knowledge.
4. The communication upwards and sideways of 4. To enable management to monitor and control
management information on performance and results performance in order that, as necessary, opportunities can
be exploited or swift corrective action taken.
Relati

5.The communication downwards of information on 5. To ensure that (i) employees are kept informed of
company plans, policies or performance matters that affect them, especially changes to working
conditions and factors influencing their prosperity and
security, (ii) employees are encouraged to identify
6. The communication upwards of the comments and themselves with the company.
reactions of employees to what is proposed will happen or 6. To ensure that employees are given an opportunity to
what is actually happening in matters that affect them voice their suggestions and fears and that the company is
in a position to amend its plans in the light of these
comments.
Internal

ons

7.The receipt and analysis of information from outside 7. To ensure the company is fully aware of all the
Relations

which affects the company’s interests information on legislation and on marketing, commercial,
External

8. The presentation of information about the company and financial and technological matters that affect its
its products to the government, customers and the public interests.
at large 8. To exert influence in the interests of the company, and
to persuade customers to buy its products or services.

Communications from management should be about values, plans, intentions and proposals (with the opportunity for discussion
with and feedback from employees) as well as about achievements and results. Exhortations should not be used: no one listens to
them. It is better to concentrate on specific requirements rather than resorting to general appeals for abstract things such as
improved quality or productivity.
The requirements should be phrased in a way which emphasizes how all concerned will actually work together and the mutual
benefits that should result.
What employees want to hear?
Clearly, employees want to hear about and to comment upon the matters that affect their interests. These will include changes in
working methods and conditions, changes in the arrangements for overtime and shift working, company plans which may affect
pay or security, and changes in terms and conditions of employment. It is management’s job to understand what employees want to
hear and plan its communications strategy accordingly. Understanding can be obtained by conducting ‘focus groups’ discussions
which bring together groups of employees to focus on particular issues that concern them, by means of attitude surveys, by asking
employee representatives, by informally listening to what employees say, and by analyzing grievances to see if improved
communications could modify them.

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Analyzing communication problems

Specific examples of employee relations problems where communication failures have been the cause or a contributory factor
should be analyzed to determine exactly what went wrong and what needs to be done to put it right. The problems may be any of
those listed earlier in this chapter, including lack of appropriate channels of communication, lack of appreciation of the need to
communicate, and lack of skill in overcoming the many formidable barriers to communication. Problems with channels of
communication can be dealt with by introducing new or improved communications systems. Lack of skill is a matter for education
and training.

Communication Systems
Communication systems can be divided into those using an intranet, those using the written word such as magazines, newsletters,
bulletins and notice-boards, and those using oral methods such as meetings, briefing groups and public address systems. The aim
should be to make judicious use of a number of channels to make sure that the message gets across.

ModuleTitle:ApplyingBusinessTechnology
 Technologyand softwareapplications
 Workspace,furnitureand equipment
 Usetechnologyaccordingtoorganizationalrequirement

Thisguidewillalsoassistyoutoattainthelearningoutcomestatedinthecoverpage.Specifically,uponcompletionofthis
LearningGuide,youwillbeableto:

 Select appropriate technology and software applications to achieve

therequirements ofthetask
 Adjust workspace,furnitureand equipment tosuituserergonomicrequirements
 Usetechnologyaccordingtoorganizationalrequirements
LearningInstructions:
1. Read thespecificobjectives of this LearningGuide.
2. Followtheinstructionsdescribed below3to6.
3. Readtheinformationwrittenintheinformation“Sheet1,Sheet 2,Sheet3 andSheet4”.
4. Accomplishthe“Self-check1,Self-check2,Self-check3andSelf-check4”inpage-6,9,
12and14respectively.
1. Askfromyourteacherthekeytocorrection(keyanswers)oryoucanrequestyourteachertocorrectyou
rwork.

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1.1 BusinessTechnology
Allofficeenvironmentsuseavarietyoftechnologytocarryouttheirwork.Businesstechnologyincludesany
hardwareorsoftwareusedtocompleteworkplacetasks.
Technologyincludes:
 Computertechnology, such aslaptopsandpersonalcomputers
 Printers
 Scanners
 Photocopiers
To select appropriate technology and software for your tasks, you need to understand
thefunctionsofthetechnology availabletoyou.

You also need to understand the operational guidelines for using the equipment safely. Ifyouareworking ata
computer foranextended period each day,youshould makesureyour workstation is comfortable and
designed so you can carry out your tasks efficiently.You will need to organize your work so you aren‟t doing
a repetitive task for along time.Youalsoneedto taketimetostandupandstretch.

You must learn how to use technology according to your organization’s requirements; forexample, you
should know your organization’s login procedures and how to name, openand close files. You must be aware
of your workplace’s work health and safety (WHS)policiesandprocedures.

Technology varies from organization to organization. All workers should receive training inthe technology
they need to use.Organizationsshould have training manuals specific tothe equipment used. If you are
unsure, ask your manager or work colleagues to tell youwheremanualsare stored.

Before you can select the appropriate technology for your work, you need to understandhow each type of
business technology functions. Computers will be examined first as theyhave become essential in
workplaces. Here is a basic outline of personal computers andlaptops,andthebenefitsofusingboth.

Personalcomputers

A computer is an electronic device for storing and processing information. A

personalcomputerhasaseparateharddriveandmonitorthatareattachedtootherequipmentsuch
as a keyboard and mouse. Personal computers are used in all organizations to carry
outmanydifferenttasks.Organizationaldataisusuallyprocessedusingacomputeranddifferentsoftwareapplications.

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Laptops

A laptop is a small, portable computer that has its hard drive, screen and keyboard withinthe same piece of
equipment. Laptops are popular as they are portable, lightweight anddon‟t solely rely on a plug-in power
supply (they have rechargeable batteries). However,laptops have disadvantages. Their small size makes
them easy to steal, and they are notadjustable and, therefore, not as comfortable to use unless a separate
laptop stand isavailable.

1.2 Softwareapplications

Softwareapplicationsmayinclude:
 Email
 internet
 Word processing
 Spreadsheet
 Database
 Accountingorpresentationpackages

Theinternetisaninterconnectingnetworkofcomputersfromaroundtheworldthatcommunicate with each

around. It started with four interconnected computers developed bythe US Department ofDefensein 1969
and was known as ARPA net, the
AdvancedResearchProjectsAgencyNetwork.Theinternethasarichrangeofusefulfeatures,capabilities and
functions. Knowing how to use and get the most out of the internet
helpsorganizationscommunicate,researchnewproductsandservices,advertisetheirownproducts and services,
and gain a greater understanding of competitors. For a computer
togainaccesstotheinternet,itneedstohaveawebbrowser.Webbrowsersprovideawayto look at all the
information on the internet or World Wide Web. There are four leading
webbrowserapplications:MicrosoftInternetExplorer,Safari,MozillaFirefox,andGoogleChrome. To search for
information on the web, you need to use a search engine. A
searchenginereceivesauser‟squestion,searchesitsdatabasefordocumentsmostrelevanttothe question and
returns a relevance-ranked list of documents back to the user.
SearchenginesincludeGoogle,BingandYahooSe

2.1 Concepts ofErgonomic

Ergonomics is about creating comfortable conditions to work in. It is concerned with
fittingthejobtotheworker,ratherthantheworkertothejob.Thisisdonebyadaptingworkstations,tools and
equipmenttosuiteachworker‟s individualneeds.

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ErgonomicRequirements

Workspace, furniture and equipment are adjusted to suit the ergonomic requirements of theuser
Chair
 Chairheightshouldbesetsothatfeetareflatonthefloor(whereafootresthasnotbeenprovided)andthi
ghsarehorizontal.

 Thebackrestshouldprovidefirmlowerbacksupportsoadjustmentupordown,and/orbackwardsor
forwardsmay needtobemadeuntilcomfortable.

 Armrestsshouldnot interfere with performanceofgeneraltasks.

Desk

 Theheightofthedeskorchairshouldbeadjustedsothatthesurfaceofthedeskisatelbowheight(whensi
tting).

 There should beplenty ofroomfor legsbelow the desksurface

 Personalandstationeryitemsshouldbearrangedforeasyaccess,tominimizetwistingand bending.
Computer

 The monitor should be positioned after adjustments have been made to the desk orchair. It is
recommended that the top of the screen be level with the eyes and bepositioned
about50cmaway fromthebody whenseated.

 The keyboard should be placed on thedesk, as close to the user as possible. Allowroom for it to
be moved away when not in use. The angle of the keyboard can beadjustedby
alteringthesupportsunderneath.

 Themouseshouldbepositionednexttothekeyboardonthepreferredside.Wristshould be straight
whilst using the mouse with the desk supporting the wrist and not thearm.

Telephone

 The telephoneshouldbeeasilyaccessible,yetnotinthewayofthework area.

 Theusershouldbeabletotalkonthephonewithoutstandingorhavingtostretchtoreachit.
Aheadsetisa convenientalternativeforconstantphoneusers.
Documentholder

 Thedocumentholdershouldbeplacedclosetothescreentominimizethemovementrequiredtoturnfr
omonetotheother.

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 Dependinguponpersonalpreference,itmaybepreferabletoswapthescreenpositionwiththedocum
ent holder,iftending tolookatthe document moreoften.
WorkOrganization

Workorganizationmeetsorganizationalandoccupationalhealthandsafetyrequirementsforcomputeroperation

Workarea
 Workareashouldbekeptuncluttered.Desksshouldonlyhaveonthemwhatisreallyneeded.

 Traysshouldbeusedforsortingdocuments,andanydocumentsthatarefinishedwithorwillnotbeneed
edforsometime,shouldbefiled away.
Rest periods

 Itisimportanttohavefrequentbreaksawayfromtheworkstation.Therecommendedintervalisten
minutesforeach hourworkedin frontofacomputer.

 Ifunabletotakethistimeout,worktasksshouldbevaried.Forexample,phonecallscould be made;
filingorotherworkrelatedtaskscould bedone fora few minutes.
Paperwastage

 Proofread andeditdocumentson screenbefore printing

 Don'tprintmorepagesthanneeded,usethe"printrange"functionofsoftwaretoonlyprintthosepages
whichhavebeenedited

 Print onbothsides ofyourpaper where possible

 Usescrappaperfromprinteddocumentsnolongerneeded.Writeonthebackforinformalnotesor
memos

 Use theduplexfacility ofthe photocopier.

Use recycledpaperproductswhereverpossible

 Reuseofficeproductssuchasfolders,envelopes andpackaging materials.

Energyand power use

 Use the"power save" featureofyourprinter,ifavailable

 Switchoff lightsand equipment whennot required.

.
InstructionSheet LG11:Processandorganize data

Thislearningguideisdevelopedtoprovideyouthenecessaryinformationregardingthefollowingcontentcoverage
andtopics:

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 Managingfilesand records
 Operatinginputdevices
 Datastorage
 Manuals,and trainingbooklets
Thisguidewillalsoassistyoutoattainthelearningoutcomestatedinthecoverpage.Specifically,uponcomple
tionofthisLearning Guide,youwillbe ableto:

 Identify,open,generateoramendfilesaccordingtorganizationalrequirement
 Openinput devices accordingtoorganizationalrequirements
 Storedataappropriatelyandexit applicationswithoutdamage or loss of,data
 Usemanuals,trainingbookletsand/oronlinehelporhelp-
deskstoovercomebasicdifficultieswithapplications

 LearningInstructions:
1. Read thespecificobjectives of this LearningGuide.
2. Followtheinstructionsdescribedbelow3to6.
3. Read theinformationwrittenin theinformation “Sheet1,Sheet2,Sheet 3and Sheet4”.
4. Accomplishthe“Self-check1,Self-checkt2,Self-check 3andSelf-check4”in page-6,9,12
and14respectively.

1.1 Conceptsof Records

1. Document that memorializes and provides objective evidence of activities performed, eventsoccurred,
results achieved, or statements made. Records are created/received by an organizationin routine
transaction of its business or in pursuance of its legal obligations. A record may
consistoftwoormoredocuments.
2. All documented information, regardless of its characteristics, media, physical form, and themanner it
is recorded or stored. Records include accounts, agreements, books, drawings, letters,magnetic/optical
disks, memos, micrographics, etc. Generally speaking, records function
asevidenceofactivities,whereasdocuments functionasevidenceofintentions .
1.2 RecordsManagement
The records life-cycleconsists of discrete phases covering the life span of a record from its creation to its finaldisposition. In
thecreationphase,records growthisexpoundedby modern electronicsystems.
Recordswillcontinueto becreatedandcapturedbytheorganizationatanexplosiverateasitconducts the business of the
organization. Correspondence regarding a product failure is written forinternal leadership, financial statements and
reports are generated for public and regulatoryscrutiny,theoldcorporatelogoisretired,and anew one–
includingcolorschemeandapprovedcorporatefont–takes itsplaceintheorganization'shistory.

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Examplesof records phases include those for creation of a record, modification of arecord, movement of a record
through its different states while in existence, and destruction of arecord.

1.3. Characteristicsof records

Therearefour characteristics ofrecordsmakethemdifferentfromother types ofinformation.

1. Recordsareevidenceofactions andtransactions;
2. Recordsshouldsupportaccountability,whichistightlyconnectedtoevidencebutwhichallowsaccountability

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Recordsmustbepreserved,some for very short timeand some permanently.

InformationSheet-2 OperatingInput Devices

1.1 Conceptsofinputs
Whatisinput?
Input isaplacewhere,oradevice throughwhich,energyor informationentersasystem.

 Data
Unprocessedfacts,figures,andsymbols

 Instructions
– Programs
– Commands
– Userresponse
Whatisan inputdevice?
An input device is any hardware device that sends data to a computer, allowing you to interactwith and control
it. ... The most commonly used or primary input devices on a computer are thekeyboardandmouse.However,
therearedozensof other devicesthat canalsobeusedto inputdata intothecomputer.

TheKeyboard
Howisthekeyboarddivided?
• Typingarea
• Numerickeypad
• Functionkeys
Whatisanergonomickeyboard?

• Designedtominimizestrainonhandsandwrists.Ergonomicsincorporatescomfort,efficiency,andsafetyintodesi
gn ofitems inworkplace.
Mouse
Whatisamouse?
• Pointingdevicethatfitsunderpalmofhand
• Controlsmovementof pointer, also calledmouse pointer,onscreen
• Pointeronscreentakesseveral shapes
Whatarecommonmouseoperations?
• Point
• Click
• Right-click

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• Double-click
• Drag

• Rotatewheel
• Presswheel

Otherthanon theharddrive,datamayalsobestoredon:

 floppydisks:rememberthatalimitedamountofinformationcanbestoredhere,soitisagoodidea
tocompressthe filetoaccommodatelargeamountsof data

 CD-ROMs:suitableforlargeamounts ofdata

 back-upsystem:particularlyimportantincaseofcomputerfailuretosafeguardlargeamounts
ofinformation

 Externalharddrives

 Thumbdrives

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RetrievingDocuments

Lo3 :Maintaintechnology

InstructionSheet LG12:Maintaintechnology

This learning guide is developed to provide you the necessary information regarding
thefollowingcontentcoverage andtopics:

 Technologyconsumables
 Performing routinemaintenance
 Equipmentfaults
Thisguidewillalsoassistyoutoattainthelearningoutcomestatedinthecoverpage.Specifically,uponcomple
tionofthisLearning Guide,youwillbe ableto:


IdentifyandreplaceUsedtechnologyconsumablesinaccordancewithmanufacturer'sinstructionsandorg
anizationalrequirements
 Carriedoutand/
orarrangeroutinemaintenancetoensureequipmentismaintainedinaccordancewithmanufacturer'sinst
ructionsand organizationalrequirements
 Identify
Equipmentfaultsandtakeactioninaccordancewithmanufacturer'sinstructionsorreportfaulttodesignate
d person
 LearningInstructions:

1. Read thespecificobjectives of this LearningGuide.

2. Followtheinstructionsdescribedbelow3to6.
3. Readtheinformationwrittenintheinformation“Sheet1,Sheet2,Sheet3andSheet4”.
4. Accomplishthe“Self-check1,Self-checkt2,Self-check3andSelf-check4”inpag6,9, 12
and14respectively

1.1 Technologyconsumables

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Consumables (alsoknownas consumable goods,non-durablegoods,orsoftgoods)aregoods that are intended to

be consumed. ... Consumables are products that consumers
userecurrently,i.e.,itemswhich"getusedup"ordiscarded.

Replacing

ConsumablesPurchasingItems

Take into account:

 Qualityofproducts
 Qualityofservice
 Reliabilityofadvice
 Promptnessofdelivery
 Reasonablereturnservicewhengoodsdon‟twork

PurchasingGuidelines
 Whatemployeesare allowedtopurchase
 Whocan approvethepurchase
 Declarationbypurchaserofanydealings,connections/interests in chosensupplier
fairness

Technologyconsumablesmayinclude:

Back-up tapes
CD-ROM
Floppydisks
Printheads
Printer ribbons and cartridges
Tonercartridges
Zipdisks

1.1 Conceptsofroutinemaintenance
RoutineMaintenance
 „Preventivemaintenance‟–reducesthechance ofsomethinggoingwrong
 Equipment works moreoftenandworkers becomemoreproductive

Non-RoutineMaintenance

 Fixingsomethingafteritis brokenor notworkingproperly

 Themoreyoucarryoutroutinemaintenancethelesslikelyyouwillhavetocarryoutnon-routine
It is important that routine maintenance of business technology is carried out on a regularbasis to ensure
minimal breakdowns. Equipment should be cleaned regularly by using adamp clothor other approved
cleaning materials. Consumables should be checked tomonitor their rate of use, and replaced when needed.
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Regular servicing by qualified ormanufacturer-approved technicians will ensure that all equipment is in the
best conditionpossibletominimizebreakdowns.
All employees should receive training to solve common faults, like paper jams,
systemfailuresandlowinkortonercartridges.However,morecomplexproblemsshouldbereported immediately
to the person in charge of maintenance, to the manufacturer or to theservice company. A logbook of service
visits must be kept.It is a good idea to have allequipment checkedregularlyas part oftheOccupational
HealthandSafetyinspections.

Routinemaintenance mayinclude:

In-housecleaning andservicingof equipmentaccording tomanufacturer's guidelines

Periodicservicingby qualifiedormanufacturerapproved,technician

Regular checkingofequipment

Replacingconsumables

1.2 conceptsofequipmentfaults
Equipment failure refers to any event in which any equipment can not accomplish its intendedpurpose or task, it
may also mean that the equipment stopped working, is not performing asdesired, orisnotmeeting
targetexpectations.

Faults
 When an equipment fault is detected, read the manufacturer‟s manual to identify
thetypeoffaultandthestepsrequiredtofix it.

 Do not try to fix any fault where the manual specifies that the manufacturer must becontacted.
This mayvoidthewarranty ortheserviceagreement.

 Forminor faults,follow themanufacturer‟sinstructionsclosely tominimise furtherdamage to

the equipment.If you cannot fix a minor fault, follow the procedure for majorfaults.

 For major faults, complete an Equipment Fault Report. Submit the Equipment FaultReport
totheAdministration Officer whowill notifytherelevantequipment supplier.

 The Administration Officer will place an „Out of Order‟ sign on the equipment item,showing
when the fault will be rectified. The Administration Officer retains all
EquipmentFaultReportsasarecordofanitem‟sreliability.

Identifyingequipmentfaults mayinclude:
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Checking repairshavebeencarried out

Encouragingfeedbackfromworkcolleagues

Keepingalog bookof detectedfaults

Preparinga maintenanceprogram

Regularback-upsofdata

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Develop and Use a Savings Plan

BUF BAW2 09 0812
This unit describes the performance outcomes, skills and knowledge required to develop and
implement a savings plan to achieve identified goals, including identifying savings goals,
understanding the role of the savings plan, the risk/return relationship and how to determine
appropriate savings vehicles to maximize savings.
1. Discussing the Place of Saving and Investing Today
1.1 Discussing the Impact of Increasingly High Cost of Living in Society
use examples from the domestic environment
1.2 Discussing Increasing Levels of Consumer Debt in Ethiopia
with reference to relevant current issues
Consumer debt may refer to:

 credit card debt

 mobile telephone debt
 mortgages on residential and investment properties
 personal loans to purchase:

 motor vehicles
 travel
 domestic white goods

 store credit
 student loans including the Higher Education Contribution Scheme.
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1.3 Analyzing and Discussing the Importance of Setting Financial Goals and Developing a

Saving and Investment Plan at Different stages of an Individual's Life

Financial goals may include:

accumulating a set amount of money by a specified date in the future for the purposes of:

 purchasing assets
 financing holidays, educational expenses, home renovations and other known future
expenses
 establishing a deposit for an investment such as a home or investment property

 aiming to repay existing debts and be debt free

 establishing a regular savings plan
 handling income and expenditure responsibly and avoiding financial difficulties.You may
be asking yourself why is there so much pressure to save money. If you have enough to
pay for everything you need, why should you worry about putting any aside each month?
There are a variety of reasons to begin saving money. Different people save for different
reasons. Here are seven reasons that you may consider saving your money.

1. Save for Emergency FundsIt is important to have an emergency fund set aside to cover
unexpected expenses. This could cover an unexpected car repair, your emergency appendectomy
or a sudden job loss. Ideally your emergency fund should be about three to six months of your

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expenses. If you are just starting out you should put aside at least br.1000.00 for this. In addition
to your emergency fund you need to make sure you have a plan and good insurance in place to
help you survive the unexpected financial events in your life.

2. Save for Retirement

Another important reason to save money is your retirement. The sooner you start saving for
retirement, the less you will have to save in the future. You can put your money to work for you.
As you continue to contribute overtime you will be earning more interest on the money you
have, then you put in each month. You should at least be contributing up to your employer's
match and eventually you will want to contribute ten to fifteen percent of your gross income.

3. Save for a Down Payment for a House

A third reason to save money is for a down payment on a house. Your negotiating power goes a
lot farther when you have a significant down payment towards your home. You will receive
better interest rates, and be able to afford a bigger home. You can determine how much you save
towards this each month depending on your circumstances.

4. Save for Vacations and Other Luxury Items

A fourth reason to save money is to have fun. You can save up for your tour of Gonder or that
Tana Monarchy cruise. Your negotiating power is stronger if you have cash in hand on bigger
purchases. Even if you save up for your vacation, you should try save on your vacation expenses.

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5. Save for a New Car

A fifth reason is to purchase a car with cash. You will be amazed at how much money you can
free up in your budget if you do not always have a car payment. You can also negotiate the price
of the car much lower if you are willing to pay cash at the dealership.

6. Save for Sinking Funds

A sixth reason is to set up your sinking funds. A sinking fund is money you set aside for future
repairs or improvements on your car, home or other possessions. This planning can help you to
stop dipping into your emergency fund every time you need to fix your car.

7. Your Education

A seventh reason to begin saving money is for your future education. Each year more people
return to school to earn their masters or doctorate degrees. You may also consider saving for
your child's education when the time comes

1.3 Analyzing and Discussing Different Attitudes to Savings and Investment and
Exploring the Individual's Own Spending Habits

Attitudes to savings and investment differ and may encompass those who:

 believe it is essential in order to manage their money and achieve future financial
goals
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 lack interest in or the discipline to save and therefore live from one pay packet to the
next
 occasionally think about saving but who do not take active steps to save.

Talking About Money

Money is a common problem regardless of your income, age or education. Sometimes a lack of
income causes money hassles and arguments. More often inadequate discussion about money
and our feelings about money is the root of financial problems.

When household members have different attitudes about spending and saving money, or when
unrealistic goals are attempted, there is a potential for conflict. Preventing and overcoming
money problems takes honest and open communication. It also takes time and effort.

Be willing to arrange a specific time when all household members can talk about money. Choose
a location where you won’t be interrupted. Meet on a regular basis instead of waiting until
problems

When talking about money:

✓ Clearly identify the issue at hand.

✓ Recognize that whoever earns the money doesn’t also earn the right to dictate how it should
be spent.

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✓ Let each household member freely state wants, needs and personal feelings.

✓ Listen carefully.

Communication about money is critical for a spending/savings plan to work for the entire
household. When people don’t talk about money, even the most workable spending/savings plan
may face ruin.

2. Understanding Risk as It Relates to Saving and Investing

Risk refers to:
the level of uncertainty associated with a particular savings or investment product.
2.1 Explaining and Demonstrated the Concept of Risk and Risk Versus Return

The concept of risk versus return refers to the general truth that:

 the higher the risk of the investment, the higher the expected return
 the lower the risk of the investment, the lower the expected return.

2.2 Determining an Individual's Risk Profile Based on Current and Future Requirements
and the Individual's Level of Risk Aversion

Risk profile refers to:

the level of risk an individual is comfortable with when investing the money.
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2.3 Identifying, Assessing and Discussing the Impact of Inflation on the Earnings Power of
Money
Inflation refers to:

 the cost of living, indicated by the inflation rate

 the percentage change in the Consumer Price Index which is a quarterly survey of the
retail price of a basket of goods and services consumed by the general population.

3. Developing Your Own Savings Plan

3.1 Identifying and Quantifying Personal Savings Goals into Birr Amounts and
Arranging in Order of Priority

The first step of developing a spending/savings plan is to identify your goals. If your goals are
identified first, all your money won't be spent with little or none saved. By identifying goals first,
you will realize what you want to save toward and it will get you in the habit of saving. Goals
may include saving for emergencies, buying school clothes, paying off the balance on a credit
card, buying a new or used car, or saving for a child’s education.

Encourage each member in your household to think of goals, including short-term (less than 1
year), intermediate (1-5 years) and long-term (more than 5 years). List all the goals from each
person in the household in the "Identifying Goals Chart" below

Identifying Goals Chart

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During Step 2 of developing a spending/savings plan you'll be deciding on the goals you want to
save toward. Discuss the short-term, intermediate, and long-term financial goals listed on the
"Identifying Goals Chart”, on the above chart, with the members of your household. If all
household members agree on the financial goals, they will be more willing to work toward
reaching each goal. Ask them to state their most important short- term, intermediate and long
term goal. Agree on the goal(s) all of you will try to achieve. Be willing to listen and as a group
settle differences.

List the agreed upon priority goal(s) on the "Personal Budget plan" (UC 08). Set a date when
each goal will be reached (example: down payment for a car September 20 or build an
emergency fund). Determine the total birr amount for each goal. To get the approximate monthly
savings, count the number of months from now to the target date and then divide the total birr
amount by that number of months. You now know the approximate amount of money that is
needed to be saved each month in order to reach each goal.

Eventually you’ll be incorporating the priority goal(s), including building or maintaining an

emergency fund, into your spending/savings plan. An emergency fund is so important because
we never know when we’ll need money to pay an unexpected bill, buy tires for the car, etc. From
time to time, re-evaluate your goals to determine if they are still important and realistic. This will
renew your commitment to reaching them. Should you need more room, copy the Monthly
Savings Chart onto a separate piece of paper and be sure to include these amounts in the Total
Monthly Savings below.

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Goals need to be:

 specific
 measurable
 achievable
 realistic
 timely.

3.2 Developing a Personal Budget to Reveal Funds Available to Contribute Towards

Savings Goals
Investigating the Range of Financial Product Options Available to Maximize Earnings
on Savings
The range of financial product options available to maximize earnings on savings are
investigated and the most appropriate is selected according to own requirements

Product options may include:

 basic savings account

 cash management trusts
 fixed term deposits
 investments in debentures and secured and unsecured stock
 online bank accounts offering higher rates of return.

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Requirements to consider when selecting a financial product for savings or investment may
include:

 account keeping fees, ongoing fees and charges and other non-government
fees and charges
 additional services offered
 ease of access to funds
 level of risk involved
 locality of the institution
 minimum opening balance required
 potential tax implications
 rate of interest earned
 reputation of the financial institution
 term to maturity.

Types of Savings Accounts

Financial Institutions and Savings Accounts

The amount of interest your money earns in a savings account often depends on the type of
financial institution you have selected and the type of account. Banks and credit unions are
different animals. While banks are commercial businesses, credit unions are typically non-profit
cooperative organizations that are organized for specific groups of people. For example, state

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employees usually have access to a State Employees Credit Union. Typically, loans are less
expensive at credit unions, but interest rates may not always be as high as what you can get at a
bank. This isn't always the case, though. Currently, some credit union interest rates are higher
than what you will find at some banks. Sometimes credit unions also pay interest on accounts
that banks usually don't pay interest on, like checking accounts. But, you have to be a member in
order to open an account.

Banks usually offer two types of savings accounts: a basic savings account, and a money market
account.

 The basic savings account (sometimes called a passbook savings account) will usually
have either no minimum balance requirement or a low one, but will offer a very low
interest rate (meaning your money won't earn that much). In previous year, the average
interest rate at banks for basic savings accounts was three percent. A typical basic savings
account lets you withdraw your money whenever you want.
 Money Market accounts usually pay more money in interest, but will typically require
you to have more money in the account. You also may be limited to how many
withdrawals you can make in a month. Sometimes, in addition to the withdrawals, you
can also write up to the three checks on a money market account each month.

Costs Involved

Sometimes, but not always, banks charge fees for having a savings account. The fee may be low
-- like a birr a month -- or it may be higher or it could even be based on your balance. For this

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reason, you should always shop around and compare what different banks are offering. Things
you should look at include:

 Fees and services charges on the account

 Minimum balance requirements (Some banks charge a fee only if you don't keep a certain
amount of money in your account at all times.)
 Interest rate paid on your balance

Types of Bank Accounts

Depository institutions may offer a great variety of accounts, but they generally fall within one of
these five types of bank accounts:

Checking Accounts

A checking account is a type of bank account from which you use checks to withdraw your
money. You may use checks to pay your bills, purchase products and services (at businesses that
accept personal checks), send money to friends and family, and many other common uses. You
can also use checks to transfer money into accounts at other banks and financial institutions. You
have quick, convenient, and, if needed, frequent-access to your money. Typically, you can make
deposits into the checking account as often as you choose. Many banking institutions will enable
you to withdraw or deposit funds at an automated teller machine (ATM) or to pay for purchases
at stores with your ATM card.

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Some checking accounts pay interest; others do not. A regular checking account - frequently
called a demand deposit account - does not pay interest, while a negotiable order of withdrawal
(NOW) checking account does.

Banks and financial institutions may impose fees on checking accounts, besides a charge for the
checks you order. Fees vary among banks. Some institutions charge abank account maintenance
or flat monthly fee regardless of the balance in your checking account. Other institutions charge
a monthly fee if the minimum balance in your checking account drops below a certain amount
any day during the month or if the average balance for the month drops below the specified
amount. Some banks charge a fee for every transaction in your bank account, such as for each
check you write or for each withdrawal you make at an ATM. Many institutions impose a
combination of these banking fees.

Although a checking account that pays interest may appear more attractive than one that does
not, it is important to look at fees for both types of checking accounts. Often checking accounts
that pay interest charge higher bank fees than do regular checking accounts, so you could end up
paying more in fees than you earn in interest.

Money Market Accounts

Most banks and financial institutions offer a type of interest-bearing account that allows you to
write checks called a money market account. This type of bank account usually pays a higher
rate of interest than a checking or savings account does. Money market accounts often require a
higher minimum balance to start earning interest, but they frequently pay higher rates for higher

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balances. Withdrawing funds from a money market account may not be as convenient as doing
so from a checking account. With a money market account, each month, you are limited to some
transfers to another account or to other people, and only three of these transfers can be by check.
As they do with checking accounts, most banks and financial institutions impose fees on money
market accounts.
Savings Accounts
Another type of bank account, a savings account, allows you to make withdrawals, but without
the flexibility of using checks to do so. As with a money market account, the number of
withdrawals or transfers you can make on the savings account each month is limited.

Many banking institutions offer more than one type of savings account -- for example, passbook
savings and statement savings. With a passbook savings account you receive a record book in
which your deposits and withdrawals are entered to keep track of transactions in your savings
account; this record book must be presented when you make deposits and withdrawals. With a
statement savings account, the bank regularly mails you a statement that shows your withdrawals
and deposits for the savings account.
As with other types of bank accounts, a bank may assess various fees on savings accounts, such
as minimum balance fees.

Certificate of Deposit, CD, Time Deposits

Time deposits, often called certificates of deposits or CDs, are also among the various types of
bank accounts commonly offered. They usually provide a guaranteed rate of interest for a
specified term, such as one year. Banks and financial institutions offer certificates of deposit that

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allow you to choose the length of time, or term, that your money is on deposit. CD terms can
range from several days to several years. Once you have chosen the term you want, the bank will
generally require that you keep your money in the certificate of deposit account until the term
ends, that is, until "maturity". Some banks will allow you to withdraw the interest you earn even
though you may not be permitted to take out any of your initial deposit (the principal).

Because you agree to leave your funds for a specified period, the bank may pay you a higher rate
of interest than it would for a savings or other type of bank account. Typically, the longer the
term, the higher the annual percentage yield.
Sometimes a bank allows you to withdraw your principal funds before maturity, but a penalty is
frequently charged. Penalties vary among banks, and they can be hefty. The penalty could be
greater than the amount of interest earned, so you could lose some of your principal deposit.
A bank will notify you before the maturity date for most certificate of deposit accounts. Often
certificates of deposit renew automatically. Therefore, if you do not notify the bank at maturity
that you wish to take out your money, the certificate of deposit will roll over, or continue, for
another term.

Basic or No Frill Banking Accounts

Many institutions offer a type of bank account that provides you with a limited set of services for
a low price (often referred to as "basic" or "no frill" accounts). Basic accounts give you a
convenient way to pay bills and cash checks for less than you might pay without an account.
They are usually checking accounts, but they may limit the number of checks you can write and
the number of deposits and withdrawals you can make. Interest generally is not paid on basic

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accounts. Compare basic and regular checking accounts for the best deal in low fees or low
minimum balance requirements.

Credit Union Accounts

Credit unions offer accounts that are similar to accounts at other depository institutions, but have
different names. Credit union members have "share draft" accounts (rather than checking),
"share" accounts (rather than savings), and "share certificate" accounts (rather than certificate of
deposit).

Name:__________________________

Date:___________________________

Criteria for Choosing a Bank or Credit Union

When shopping for someplace to keep your money, it’s important to look for the one that fits
your needs the best. You’ve already located one bank and one credit union near where you live or
go to school, and you’ve accessed their websites. Use information from those websites to answer
the following questions. These will help guide you to choose thebest option.

Step 1:

Find information to match all six criteria

Criteria: Account Optionsyour ranking: _____

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What types of accounts are available? What other services do they offer that you would be
interested in?

Bank:_______________________________________________________________________

Credit Union:__________________________________________________________________

Criteria: Requirements to Open an Accountyour ranking:______

You have to be a member to open an account at a credit union – what are the requirements for
membership at the credit union you’ve chosen? What is the minimum birr amount you can open
a checking/shareaccount with at both the bank and credit union? What else is necessary to open
an account?

4. Implementing Your Own Savings Plan

4.1 Researching the Requirements to Open an Account and Provide Evidence of Personal
Identity
The Requirements to open an account and provide evidence of personal identity are researched
and steps taken to gather the necessary documentation
The requirements to open an account include providing personal identification from a range of
sources which may comprise but not limited to:

 Kebele/woreda ID cards;
 Farmers associations’ ID cards;
 Employment and pension ID cards;

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 School, college and university ID cards;

 Driver’s/operator’s licenses;
 Tax identification ID card;
 Passports;
 Work or residence permits; and
 Foreign-nationals-of-Ethiopian-origin ID card, together with a valid passport.
 Ethiopian Community ID.

4.1 Opening Relevant Savings Accounts or Other Investigated Financial Products

Relevant savings accounts or other investigated financial products are opened and the savings
plan implemented and monitored for a short period of time
Saving Account Opening Procedure
A. For Literate Customer
 Interview and identifying customer interview
 Customer fills in opening application form
 Customer must sign three identical signature on application form and on two specimen
cards
 Customer must present two recently taken picture of himself/herself and write the name ,
A/c number of the customer on the back of the photos
 Register name of customer on register book and assign an account number
 Telling customer to fill in deposit voucher by indicating account number
 Pass book is prepared in the name of the customer, address like kilil, zone, kebele, house
number should be filled,
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 Accept telephone fixed or mobile, neighbor or relatives,

 If ID of customer is not kebele type put the name of the organization/company in place of
occupation rather than specific jobs.
 Pass the document after finalizing to supervisors for checking and approval
 Upon approval, the documents are passed to PC operator for posting
 Distinguish on pass book if AND account, AND/OR account, For accounts and non-
interest bearing
 If non-interest bearing register on mandate file
 If the account is a joint fill our joint account declaration form
 After posting pass to internal auditors for checking
 After pass the pass book, ID’s and deposit voucher to receiving teller
 Application forms and specimen cards will be filed under supervision of auditor
B. For Illiterate Customers
 Same procedures can be applied for illiterate customer in addition to the following
 Illiterate person puts his right hand thumb on two signature cards, application should be
attested by rubber stamp bearing “signed before me”
 Attach one photograph on one specimen signature card and the other on the passbook
bearing seal of the branch usually crossing stamps
 Pass all documents to the supervisor for approval
 Pass to PC operator for posting
 After verifying initialing, the document are passed to the auditor
 Then pass the pass book, ID’s and deposit voucher to receiving tellers
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 One specimen signature card is forwarded to the auditors and the remaining will be kept
with signature verifier
C. For Blind Customer
 Same procedures used for opening an account for literate person also applied
 But, when a blind customer withdraw, two witness must be present, one from customer
side and other from bank side who must be senior staff
 The two witness should be witness the transaction and sign to the effect on the voucher
Withdrawals
a) For literate customer (no comment)
b) For illiterate customers
 Bank staff should fill the voucher and let him/her put his/her right hand thumb print
on the voucher
 Identify the customer against his/her photograph on the pass book and verify by
stamping on the voucher near his/her finger print “signed before me” stamp
 Forward the pass book and voucher to PC
 Then to auditors and paying tellers.
Loss of Pass Book
 Fill the declaration form
 Verify the customer against signature on specimen signature card
 Open a new saving account
 Transfer the outstanding balance of old account to the newly opened one
Show trainees application form of CBE and other foreign bank’s
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4.2 Making Adjustments to the Savings Goal

Adjustments to the Savings Goal are made where it is realized that the goal is unattainable

Critical aspects of Competence

Assessment requires evidence that the candidate:
 understand risk and return in relation to savings and investment
 set specific, measurable, realistic, and timely financial goals
 calculate amount needed to achieve identified financial goals
 develop a basic savings plan based on surplus income
 explain the differences between basic financial products used to
maximise savings

Develop and Use a Personal Budget

1. Analyzing and Discussing Budgeting as a Financial Tool

1.1 Analyzing and Discussing the Role of Budgeting in the lives of Different Groups and the
Importance of Budgeting Appropriately to Meet Expense and relating to Different Stages of
Life

The different groups who may budget may include:

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 families
 governments
 individuals:

 single
 married
 elderly
 students
 tourists, travelers.
Different stages of life may include:

 approaching and during retirement

 buying your first home
 moving out of home
 starting a family
 studying

Budgeting is the most basic and the most effective tool for managing your money. Yet, most
people avoid doing it because it is additional work, much like cutting your lawn or fixing the
roof. Budgeting also connotes that you have to give up and stop yourself from enjoying stuff.

What budgeting actually does is clearly show you how you allocate your money and present you
the choices on what stuff to enjoy – based on your financial limitations. It will save you the grief

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of overspending and being too much in debt. Budgeting does not stop you from enjoying stuff, it
ensures that you enjoy stuff when you want it.

Although budgeting is indeed more work, it pays off with many life-enhancing benefits:

Benefits of Budgeting

1. Gives you control over your money – A budget is a way of being intentional about the way
you spend and save your money. It is said that with budgeting, you control your money and not
your money controls you. Budgeting saves you the stress of suddenly having to adjust to lack of
funds because you did not initially plan how to spend them. It also helps you decide if you want
to sacrifice short term spending like buying coffee everyday in exchange for a long term benefit
like a cruise vacation

2. Keeps you focused on your money goals – You avoid spending unnecessarily on items and
services that do not contribute to attaining your financial goals. If you are working with limited
resources, budgeting makes it easier to make ends meet.

3. Makes you aware what is going on with your money – With budgeting, you are clear on
what money is coming in, how fast it goes out, and where it is going to. Budgeting saves you
from wondering every end of the month where your money went. A budget enables you to know
what you can afford, take advantage of buying and investing opportunities, and plan how to
lower your debt. It also tells you what is important to you based on how you allocate your funds,
how your money is working for you, and how far you are towards reaching your financial goals.

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4 Helps you organize your spending and savings – By dividing your money into categories of
expenditures and savings, a budget makes you aware which category of expenditure takes which
portion of your money. That way, it is easy for you to make adjustments. Budget also serves as
a reference for organizing your bills, receipts, and financial statements. When all of your
financial transactions are organized for tax time or creditor questions, you save time and effort.

5. Makes you decide in advance how your money will work for you.

6. Enables you to save for expected and unexpected costs – Budgeting allows you to plan to
set aside money for emergency costs.

7 Enables you to communicate with your significant others about money – If you share your
money with your spouse, family, or anyone, a budget can communicate how you use money as a
group. This promotes teamwork on working for common financial goals and prevents conflict
on how money is used. Creating a budget in tandem with your spouse will avoid conflicts and
resolve personal differences on how your money is spent. Budgeting teaches family members
spending responsibility and accountability.

8. Provides you with an early warning for potential problems – When you budget and take a
“big picture” view, you will see potential money problems in advance, and be able to make
adjustments before the problem appears.

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9. Helps you determine if you can take debt and how much – Taking debt is not necessarily a
bad thing if the debt is necessary or you can afford it. Budgeting shows you how much a debt
load you can realistically take without being stressed or if taking the debt load is worth it.

10. Enables you to produce extra money – In budgeting, you get to identify and eliminate
unnecessary spending like late fees, penalties and interests. These seemingly small saving can
add up over time.

1.2 Analyzing and Discussing the Importance of Setting Financial Goals

Financial goalsmay include:

 accumulating a set amount of money by a specified date in the future for the purposes of:

 purchasing assets
 financing holidays, educational expenses, home renovations and other known future
expenses
 establishing a deposit for an investment such as a home or investment property

 aiming to repay existing debts and be debt free

 establishing a regular savings plan
 handling income and expenditure responsibly and avoiding financial difficulties.

1.3 Analyzing and Discussing Obstacles that Might Prevent Financial Goals and
Exploring Type of Behaviors and Skills Required for Successful Budgeting

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Obstacles that might prevent financial goals being achieved may include:

 being unemployed, particularly long term unemployed

 insufficient income to afford items that are beyond the individual's means
 unexpected circumstances such as:

 losing a job
 falling ill
 not being able to work.
Behaviours and skills required for successful budgeting may include:

 controlled spending
 disciplined approach to money
 organisational skills
 record keeping skills.

2. Developing a personal budget

Budget refers to:

 a calculation of all projected income and expenditure for period of time (e.g. on a weekly or
monthly basis)
 showing all projections versus actual income and expenses for the period and monitoring
variances.

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2.1 Recording All income and Expenses for a Six Month Period to Assist in Estimating
Expenditure Requirements
2.2 Developing and Establishing a Spreadsheet for Recording All Budget Information to
Record Income and Expenditure for a Relevant Period of Time
A spreadsheet may:

 be simple or complex depending upon the extent of the individual's finances

 have one section for recording all money received as income and another section for
expenses both variable and fixed

 have a section to record the difference between income and expenses for the period,
this being the surplus or deficit financial situation for the period.
2.3 Identifying All Sources of IncomeandRegularFixed Expenses and Variable
ExpensesfortheSpecified Period and Listing in a Personal Budget Using the Budget
Spreadsheet
Sources of income may include

 interest on investments, dividends

 proceeds from sale of assets
 social security benefits, pensions, allowances, child assistance
 wages, commission, bonuses, tips.

Fixed expenses may include:

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 fees:

 school and university fees

 bank fees

 insurance
 loan repayments (if loan is based upon fixed interest rates) such as:

 personal loans
 car loans
 credit card debts
 Higher Education Contribution Scheme

 public transport
 rent
 subscriptions to:

 magazines
 newspapers
 clubs
 travel including public transport, petrol
Variable expenses may include:

 car maintenance

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 living expenses such as:

 food
 clothing
 medical

 loan repayments if loan is based upon variable interest rates

 miscellaneous expenses such as:

 gifts
 recreation
 entertainment
 fines

 mobile telephone
 mortgage repayments
 utilities such as:

 water
 gas
 electricity
 telephone.

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2.4 Subtracting Total Expenses Recorded from the Total Income to Determine a Surplus
or Deficit Budget for the Specified Period
2.5 Exploring Reasons for a Deficit Budget are Explored and Investigating ways to
Reduce Expenses or Increase Income
Ways to reduce expenses may include:

 comparing prices for essential items

 monitoring use of utilities such as electricity, gas and water
 moving back home
 reducing expenditure on discretionary items such as expensive clothing, magazines,
eating out
 share accommodation
 using cheaper modes of transport.

Ways to increase income may include:

 combining part-time work with studying

 investigating eligibility for student allowances or other relevant government benefits
 taking on a part-time job or holiday work.

2.6 Exploring Allocation of Surplus Funds Towards Saving and Meeting identified
Financial Goals
Tips to Develop a Budget

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1. Gather every financial statement you can. This includes bank statements, investment
accounts, recent utility bills and any information regarding a source of income or
expense. The key for this process is to create a monthly average so the more information
you can dig up the better.
2. Record all of your sources of income. If you are self-employed or have any outside
sources of income be sure to record these as well. If your income is in the form of a
regular paycheck where taxes are automatically deducted then using the net income, or
take home pay, amount is fine. Record this total income as a monthly amount.
3. Create a list of monthly expenses. Write down a list of all the expected expenses you
plan on incurring over the course of a month. This includes a mortgage payment, car
payments, auto insurance, groceries, utilities, entertainment, dry cleaning, auto insurance,
retirement or college savings and essentially everything you spend money on.
4. Break expenses into two categories: fixed and variable. Fixed expenses are those that
stay relatively the same each month and are required parts of your way of living. They
included expenses such as your mortgage or rent, car payments, cable and/or internet
service, trash pickup, credit card payments and so on. These expenses for the most part
are essential yet not likely to change in the budget.
Variable expenses are the type that will change from month to month and include items
such as groceries, gasoline, entertainment, eating out and gifts to name a few. This
category will be important when making adjustments.
5. Total your monthly income and monthly expenses. If your end result shows more
income than expenses you are off to a good start. This means you can prioritize this
excess to areas of your budget such as retirement savings or paying more on credit cards
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to eliminate that debt faster. If you are showing a higher expense column than income it
means some changes will have to be made.
6. Make adjustments to expenses. If you have accurately identified and listed all of your
expenses the ultimate goal would be to have your income and expense columns to be
equal. This means all of your income is accounted for and budgeted for a specific
expense.
If you are in a situation where expenses are higher than income you should look at your
variable expenses to find areas to cut. Since these expenses are typically essential it
should be easy to shave a few dollars in a few areas to bring you closer to your income.
7. Review your budget monthly. It is important to review your budget on a regular basis to
make sure you are staying on track. After the first month take a minute to sit down and
compare the actual expenses versus what you had created in the budget. This will show
you where you did well and where you may need to improve.

Sample List of Expenses

Category Possible Expenses

Home - Rent or mortgage

- Servant Wage

- Homeowner’s or renter’s insurance

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- Home maintenance/repairs

- Property taxes
- Car payment

- Fuel

Auto/Car - Auto insurance

- Tires and maintenance

- Renewal of licence
- Electric bill

- Water bill

- Gas bill
Utilities
- Phone bill/ Mobile card

- Internet service

- Cable or satellite service

Food - Food Items (Tef, shiro, berbere, etc)

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- Groceries

- Dining out
- Clothing

Personal - Hair care

- Medical expenses
- College/ university fee

- School bus service

Education - Book service

- Cost sharing
Activities/others - Gym membership

- Vacation

- Charitable giving

- Entertainment

- Gifts

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- Family deduction

- Others

Sample Low Income Budget

Monthly Income: Br. 2,000

Expenses Amount Total

Home

 Rent Br. 600 Br. 650

 Servant wage
Br. 50

Car

Br. 40
 Insurance
Br. 205
 Gas
Br. 80
 Maintenance
Br. 50
Utilities Br. 30 Br. 150

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 Electric bill Br. 15

 Water bill
 Cell phone bill Br. 45

 Cable/internet
Br. 60
Food
Br. 300
 Dinning out Br. 350
 Groceries Br. 50

Personal
Br. 60

 Clothes
Br. 30 Br. 140
 Hair Care
 Medical Br. 50

Other
Br. 50
 Gifts Br. 100
 Entertainment Br. 50

Total Br. 1,560

Income Br. 2,000

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- Expenses Br. 1,560

= Br. 440 Unbudgeted income

- Br. 200 contigent money (10% of Br. 2,000 monthly income)

- Br. 200 Savings (10% of Br. 2,000 monthly income)

= Br. 40 Surplus to spend as you wish

Downloaded from http://www.wikihow.com

Sample High Income Budget

Monthly Income: Br. 9,000

Expenses Amount Total

Home
Br. 1800

1. Mortgage
Br. 100 Br. 1950
2. Maintenance
3. Property taxes Br. 50

Car
Br. 400
Br. 725
1. Payment

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Br. 75
2. Insurance
3. Gas
Br. 150
4. Maintenance
Br. 100

Utilities Br. 150

1. Electric bill Br. 50

2. Water bill Br. 420
3. Cell phone bill Br. 100

4. Cable/internet
Br. 120

Food
Br. 600
1. Dinning out Br. 950
2. Groceries Br. 350

Personal
Br. 200

1. Clothes
Br. 150 Br. 450
2. Grooming
3. Medical Br. 100

Other Br. 150 Br. 1050

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1. Gifts Br. 200

2. Entertainment
Br. 200
3. Vacation
4. Charity Br. 500

Total Br. 5,545

Income Br. 9,000

- Expenses Br. 5,545

= Br. 3,455 Unbudgeted income

- Br. 1,350 Contingent money (15% of Br. 9,000 monthly income)

- Br. 1,800 Savings (20% of Br. 9,000 monthly income)

= Br. 305 Surplus to spend as you wish

Exercise 01
Exercise 02
Exercise 03

3. Implementing and Monitoring the Personal Budget

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3.1 Following the Budget According to Plan for a Period of Time

3.2 Recording Implemented Actual Expense and Income
Actual expenses and income for the period during which the budget is implemented are recorded
and compared to budgeted expenses and income with any differences in budgeted and actual
amounts looked at and the budget modified where necessary
Sample of monitoring personal budget.

Deductions Budget Actual Difference

0.00 0.00
Savings (to set aside) Br. 0.00
Br. Br.
0.00 0.00
Child Support, Alimony, etc. Br. 0.00
Br. Br.
0.00 0.00
Family Deduction Br. 0.00
Br. Br.
0.00 0.00
Total Br. 0.00
Br. Br.

Housing Budget Actual Difference

0.00 0.00
Rent or Mortgage Payment Br. 0.00
Br. Br.
0.00 0.00
Utilities Br. 0.00
Br. Br.

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Housing Budget Actual Difference

0.00 0.00
Home Insurance & Taxes Br. 0.00
Br. Br.
0.00 0.00
Home Repairs (to set aside) Br. 0.00
Br. Br.
0.00 0.00
Other Br. 0.00
Br. Br.
0.00 0.00
Total Br. 0.00
Br. Br.

Food Budget Actual Difference

Br. Br.
Groceries 0.00 0.00 Br. 0.00

Br. Br.
Eating Out 0.00 0.00 Br. 0.00

Br. Br.
Coffee & Bar 0.00 0.00 Br. 0.00

Other Br. Br. Br. 0.00

0.00 0.00

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Food Budget Actual Difference

0.00

Br. Br.
Total 0.00 0.00 Br. 0.00

Education Budget Actual Difference

Br. Br.
Tuition 0.00 0.00 Br. 0.00

Br. Br.
Books & Fees 0.00 0.00 Br. 0.00

Br. Br.
Supplies 0.00 0.00 Br. 0.00

Br. Br.
Other 0.00 0.00 Br. 0.00

Total Br. Br. Br. 0.00

0.00 0.00

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Education Budget Actual Difference

0.00 0.00

Exercise 04
Sample
Sample on spread sheet
Exercise 05 ( Again by trainees)
Exercise 06
Exercise 07

3.3 Discussing Handy Hints for Managing the Personal Budget

Handy hints may include discussing:

 how to avoid getting into financial difficulties

 how to minimise fees and charges imposed by financial institutions
 how to use credit card debt effectively
 the problems of impulsive buying, particularly when under peer pressure
 ways to cut back on spending or change negative spending habits.
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Tip to cut expense

1. Cut out coupons for the things you usually buy at the store, and not for the things
you do not need.
2. Write a grocery list, so you do not forget anything and it helps you stay on target and
not get sidetracked.
3. Buy non-name brand items or store brand items. These items are usually the same
quality as top brand names. You can save an average on thirty percent.
4. When on the highway use cruise control. You save fourteen percent on gas with an
average saving of seven percent. This would come out to about twenty cents discount on
each gallon.
5. Limit the amount of driving. You could carpool or catch a bus.
6. Combine trips, you could do several short trips in one longer trip. For example,
designate Thursday for errand day. Get everything done that day, than you will not have to
make wasted trips continuously throughout the week.
7. Stop wasting your money on lottery tickets. Lottery is just a tax on the poor and on
people who cannot do math. If everyone decided to save their two birr ( sometimes a lot
more than this amount is spent) every week, they would be saving one hundred and four
birr per year and one thousand and forty over ten years.
8. Do not dine out. A family of four eating at a fast food restaurant would cost somewhere
around twenty-five birr. If you take two trips per week, it would total to fifty birr. Over the
course of the year, you would spend about two thousand six hundred birr. If you were to

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dine out at let’s say “Tibs” it would cost you around forty birr, overall the course of the
year it would be four thousand birr. Instead, prepare meals at home to save money.
9. Don’t buy alcohol. You could save twenty percent on your bill.
10. Use coupons. Many restaurants offer coupons.
11. Know about breaks for kids. Kids eat free on some nights at certain restaurants. Check
with the restaurant before traveling, to ensure this is part of their policy.at leashree people.
12. Turn off the lights when you are not in the room. Being conservative with the
thermostat and air-drying clothes and dishes. Instead of regular lights, put in compact
florescent bulbs.
13. Keep your car well maintained. A well-tuned engine burns less gas. Get all the junk out
of the trunk. For every two hundred and fifty pounds your engine hauls, the car loses
about one mile per gallon.
14. Pay with cash. Sometimes the store may charge you more money, if you use a credit card.
Check the specific store before your visit, to ensure whether they charge or not is true.
15. Buy a fuel-efficient car.ting, low- flow faucets and shower heads.
16. Take a shower, instead of taking a bath. It uses less water, and thereby decreases the
amount of water that is used. And since water runs through a pump(that is powered by
electric), this will increase your electric bill.

3.4 Conducting Ongoing Review of the Budget

Ongoing review of the budget is conducted to ensure it remains relevant and to ensure updates
are incorporated if necessary

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Method of Revise a Budget

Sometimes it will be necessary to revise your budget because of unforeseen events. You may
lose your job, take a pay cut, or have an emergency where you need to spend more money that
you usually would for a given month. When this happens you will need to revise your budget to
meet your new income, even if it is just for a short period of time.

Discussion

1. te unforeseen expense that came up for the month

2. This will then give you your new budget amount

o You can now see how much you have to spend on miscellaneous things
Critical aspects of Competence
Assessment requires evidence that the candidate:
 explain the benefits and purposes of budgeting
 prepare a budget spreadsheet
 explain the difference between fixed and variable
expenses
 prepare and implement a personal budget.

KOOLLEJJII TULLUU DIIMTUU

TulluDimtu College ቱሉዲምቱኮሌጅ

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Level II

BUF BAW2 10
0812June2023
Develop Understanding of Debt and Consumer Credit
BUF BAW2 10 0812
This unit describes the performance outcomes, skills and knowledge required to understand the
functions and implications of different forms of credit and the strategies and methods to make
appropriate and effective decisions regarding the management of personal debt and the use of
credit facilities
1. Identifying and Discussing the Role of Credit in Society
1.1 Analyzing and Discussing the Concepts and Terminology of Credit Provided by a
Financial Institute and Debt Incurred by a Borrower

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Credit (from Latin credo transl. "I believe" ) is the trust which allows one party to provide
resources to another party where that second party does not reimburse the first party immediately
(thereby generating a debt), but instead arranges either to repay or return those resources (or
other materials of equal value) at a later date. The resources provided may be financial (e.g.
granting a loan), or they may consist of goods or services (e.g. consumer credit). Credit
encompasses any form of deferred payment. Credit is extended by a creditor, also known as a
lender, to a debtor, also known as a borrower.
Credit does not necessarily require money. The credit concept can be applied in barter economies
as well, based on the direct exchange of goods and services. However, in modern societies credit
is usually denominated by a unit of account. Unlike money, credit itself cannot act as a unit of
account.
Movements of financial capital are normally dependent on either credit or equity transfers. Credit
is in turn dependent on the reputation or creditworthiness of the entity which takes responsibility
for the funds. Credit is also traded in financial markets. The purest form is the credit default swap
market, which is essentially a traded market in credit insurance. A credit default swap represents
the price at which two parties exchange this risk – the protection "seller" takes the risk of default
of the credit in return for a payment, commonly denoted in basis points (one basis point is 1/100
of a percent) of the notional amount to be referenced, while the protection "buyer" pays this
premium and in the case of default of the underlying (a loan, bond or other receivable), delivers
this receivable to the protection seller and receives from the seller the par amount (that is, is
made whole).

Definition of 'Consumer Credit'

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 A debt that someone incurs for the purpose of purchasing a good or service. This includes
purchases made on credit cards, lines of credit and some loans.
 Also referred to as "consumer debt".
 Consumer credit is basically the amount of credit used by consumers to purchase non-
investment goods or services that are consumed and whose value depreciates quickly.
This includes automobiles, recreational vehicles, and education, but excludes debts taken
out to purchase real estate or margin on investment accounts. For example, a mortgage
for purchasing a house is not consumer credit.
 Credit granted to an individual especially to finance the purchase of consumer goods or
to defray personal expenses
 Short- and intermediate-term loans used to finance the purchase of commodities or
services for personal consumption. The loans may be supplied by lenders in the form of
cash loans or by sellers in the form of sales credit. Installment loans, such as automobile
loans and credit-card purchases, are paid back in two or more payments; noninstallment
loans, such as the service credit extended by utility companies, are paid back in a lump
sum. Consumer loans usually carry a higher rate of interest than business loans.
 Short-term loans made to enable people to purchase goods or services primarily for
personal, family, or household purposes.
 Consumer credit transactions can be classified into several different classes.Installment
credit involves credit that is repaid by the borrower in several periodic payments; loans
repaid in one lump sum are classified as noninstallment credit. Installment credit has
expanded in popularity, with an increasing number of consumers buying goods on credit

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in order to spread repayment of the purchase price and the interest owed on the principal
borrowed over an extended time.
 Credit extended to individuals for personal or household use, rather than businesses.
Broadly defined, consumer credit includes all forms of Installment Credit other than
loans secured by real estate (home mortgages, for instance) plus Open-End Credit such as
credit cards. New forms of credit, however, have blurred these distinctions; a Home
Equity Credit line is a revolving line of credit secured by real estate-a lien on the
borrower's home.
 Many traditional forms of consumer credit, such as auto loans, have standard monthly
payments-fixed repayment schedules of one to five years or more-and are made at either
fixed interest rates or variable rates that are based on an Index. Consumer loans fill a
variety of needs: financing the purchase of an automobile or household appliance, home
improvement, debt consolidation, and so on. These loans may be unsecured or secured by
an assignment of title, as in an auto loan, or money in a bank account. Consumer debt is
monitored by the Federal Reserve Board, and is one of the leading indicators of growth in
the economy

1.2 Identifying the Historical and Current Role of Consumer Credit within the Society
and Analyzing and Discussing Advantages and Disadvantages of Credit Use
The role of consumer credit includes:
 Enabling approved applicants the ability to purchase items (goods and/or services)
where the cost of the item exceeds current savings available.
Advantages and disadvantages of credit may include:

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1. Advantages:
 obtain and can use purchased item immediately
 minimizes the need to carry cash or write cheques
 allows for installment payments on expensive items
 convenient form of payment when travelling, especially overseas
2. Disadvantages:
 may increase cost of items purchased due to interest accrued
 usually attracts other fees such as account servicing fees
 can lead to compulsive buying habits
 creates a false sense of wealth.
History and System
Credit cards are sometimes referred to as “pay-later cards”. By using it, a customer can pay the
bills later. Users regard the trait which allows users to enjoy the duration when you should not
pay immediately without interest as the most important function of credit cards. Also, credit
cards allow customers to pay the bills which exceed their bank account. Through paying credit
card’s bills, users can acquire the rewards, such as points, which make customers get prizes if the
points reach a certain amount, frequent flyer miles.
The Other Payment System: Debit Card and Prepaid Card
Debit cards and prepaid cards have similar traits to credit cards. These are the substitutes for
cash. Debit cards are referred to as “Pay-now cards”. When a user uses it to pay the bills, he or
she withdraws money from his or her bank account in a few days or immediately. Prepaid cards
can be called “Pay-before cards”. To use them as a way to pay money, users need to deposit
money in them. In the U.S, debit cards are usually affiliated with the international credit card
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brands, such as VISA and MasterCard. Therefore, the users can use them at stores where credit
cards are mostly available.
Debit cards and prepaid cards limit the amount of money that customers use because the bills of
credit cards never exceed the money carried in the user's pocket. Some people cannot restrain the
use of credit cards and pay much money for the credit card’s bills. Therefore, some people
hesitate to have credit cards in order to do self-control.

Advantages and Disadvantages of Debit Cards

Credit cards have been in existence since the 50s while the debit cards came into being in the
70s. Basically, a debit card is linked to a bank account meaning that any money you spend gets
automatically deducted and doesn’t incur any interest or extra hidden charges. If you use your
debit card to pay for your daily expenses and bills, you will give yourself a precise picture of
how much you use monthly.

Useful Information on Debit Cards :

- Use your debit card only when it is within your sight because due to advancement in
technology, some electronic devices can capture your card information and use the details to
make purchases and before you notice you will have lost all money

- The highest liability for a stolen or lost debit card is br. _____, but it has to be reported two
days within the discovering of the loss

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- Never carry your PIN together with the card, just memorize it and if possible, destroy the Pin
slip. If the digits are hard to memorize, request your lender if you can change the number to one
that will be easy to remember. You should however avoid temptations of using digits that are
easy to figure out such as birthday, house address, anniversary, last four digits of your Social
Security No. etc..- Liability becomes unlimited if you don’t report to the bank of any suspicious
charged 60 days within receiving the bank statement. If you report within the agreed time frame,
the liability gets limited to br____.

- Always sign your debit card when you receive it

- Keep all debit card receipts and only destroy them after confirming that everything matches up

Did you know that if you use a debit card in place of a credit card you will end up saving a lot?
Here are the advantages and disadvantages of using a debit card :

Advantages- Most of these debit cards have the MasterCard or Visa logos hence are accepted
everywhere these logos are.

- Very convenient substitute to checks when shopping online. - Allows you stay within your
budget since you can only spend what is on the account. Be advised though that most lending
institutions have an ‘overdraft protection offer’ that allows consumers exceed the balance. There
is a catch though, you will pay an interest and perhaps some extra fees charged on the money
borrowed from the overdraft account.

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- It takes a shorter time to complete a purchase since one doesn’t have to wait for a check to get
approved. Further, you wouldn’t have to carry a checkbook, traveler’s check or worse still cash.

Disadvantages- You may incur bank fees like annual or sometimes even monthly service
charges, or sometimes dropping past your minimum acceptable balance. As such, you should
ensure you discuss all charges and possible fees with your lending bank

- If you are used to getting user rewards, forget them as they aren’t applicable with debit cards

- Note that the debit card doesn’t improve your credits core because it isn’t a credit card and is
never reported to credit reporting bureaus

- It is very hard to resolve disputed charges because unless you own a PIN-based direct debit
card, whoever knows your PIN can use the card

1.3 Analyzing and Discussing the Impact of Consumer Debt on the National Economy

2. Identifying and Discussing the Range of Credit Options Available

2.1 Analyzing and Comparing Types of Credit Facilities Used by Businesses

A credit facility is a type of loan or debt strategy that is often used in a business or corporate
setting. Often, this kind of credit is used as part of the overall process of arranging equity

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financing. Creditfacilities can involve several different forms of credit, ranging from revolving
credit to a line of credit that is available for the company as a source of standby funding.

While there are several reasons why a company would establish some type of credit facility, the
strategy is usually a means of creating a backup source of revenue for various projects. For
example, a corporation may choose to issue a bond as a means of raising money for a specific
project. Along with establishing the bond issue, the corporation arranges a standby line of credit
or possibly a term loan to function as a backup

There are several ways to structure a credit facility. The strategy can involve one loan, or include
a series of loans, all associated with the same facility. All loans involved in the process may be
short-term, meaning they are paid in full within one calendar year, or be structured for repayment
over a longer period of time. Depending on the financial stability of the company, it may be
possible to establish a line of credit as the credit facility, allowing the company to only draw on
the balance of that line of credit when and as needed. It is even possible to create a facility that
includes a combination of revolving credit solutions, short-term loans, and long-term loans.
One of the benefits of a credit facility is that it does not have to be associated with one project.
This type of financial arrangement can actually provide a steady flow of capital for multiple
projects, all of them with various completion dates. The projects may be related in some manner,
or have no connection at all. An umbrella approach of this type eliminates the need to obtain
financing for each project, and over time can help to minimize the amount of interest that is
repaid with the principle.

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Another advantage is that a credit facility can often allow the substitution for collateral if
necessary. This means that a business can sell property that is pledged as collateral on any of the
loans involved with the facility, provided they are able to pledge a different asset that meets the
approval of the lender. The ability to substitute collateral eliminates the need to rework the loan
contract, saving both the lender and the borrower a lot of time.
Flexibility is also a key advantage to a credit facility. Since the resources associated with the
facility can be used for anything the business desires, it is relatively easy to divert funds
wherever they are needed. Should the project that was originally undertaken become
unprofitable, the business can launch another project that shows more promise and divert the
resources to covering the expenses of the new project. There is no need to notify the lender of the
changes, since the facility is secured based on the credit-worthiness of the company, not on the
profitability of a given project.
Types

 Credit facilities may be either long-term or short-term. They may also be used either as a
single loan, or as an umbrella for multiple loans.

Function

 The purpose of a credit facility is to provide capital to the borrower for multiple purposes
and time frames without the need to structure a loan for each one.

Benefits

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 A credit facility generally permits the borrower to substitute collateral for the loans at the
lender's discretion without having to redo the loan contract. Thus, a business that uses a
warehouse for collateral, may sell that warehouse do to business need and substitute
another hard asset as collateral.

Considerations

 Credit facilities can be quite large and may encompass multiple terms, repayment
schedules, and interest rates, or a credit facility can provide a single large pool of capital
with one set of terms. A business should consider which provides the proper tools for
managing the business' credit. In other words, is maximum flexibility most important, or
is having known parameters for careful planning and budgeting more important.

Time Frame

 Credit facilities may be for any duration agreed upon by both lender and borrower. Some
credit facilities, particularly those tied to real estate, may have 30 year terms or longer,
while other facilities, generally those tied to operating expenses, may have much shorter
terms.

Warning

 Investors often react negatively to businesses when credit facilities come close to being
maxed out. This sometimes suggests trouble for the business and that the business is

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trying to make up for those issues by borrowingUnderstanding different types of credit

facilities: Own rights and legalresponsibilities

Bank Loans
Bank loans are usually determined by your salary and your bank history. Loans from banks
usually have standard terms in their contracts, but look out for “the small print”. Check the
admin charges, whether interest rates can be changed at any time, and any other conditions. You
might be forced to take out life insurance to get the loan – an added expense!
Depending on your circumstances, you might qualify for a longer-term loan, where you have to
make fixed repayments every month. The bank might ask you to provide something as security
for this loan, such as a piece of land. If you cannot repay the loan, the bank then has the right to
keep your asset that you offered for security.
Bank Overdraft
You can arrange a bank overdraft on your cheque account – usually the account your salary is
paid into. This means they will let your cheque account be overdrawn. The interest rate is a lot
higher than the prime interest rate. You do not have to repay the overdraft within a fixed time,
but the bank will review it at least once a year, and can withdraw it at any time.
Revolving Credit
This will be a fixed amount of money that the bank agrees to loan you. You don’t havetotake it
all at once, and as soon as you pay some back, you can re-borrow thatamount.This kind of loan is
flexible, but has a high interest rate.
Credit Cards

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If you have a good credit history and a regular income, you might qualify for a credit card at the
bank. The banks set a limit based on your circumstances. You can use your credit card to buy
goods in most places. If you don’t settle the amount in full at the end of the month, you will be
charged interest at fairly high rates. There are annual card charges and optional lost card
insurance charges.
Specialist Loan Companies
There are many loan companies around, encouraging you to buy your dream holiday, add on a
patio to your house, or fulfill other dreams now and pay later. But beware, they are expensive
and have hidden costs.
Hire-purchase Agreements
Some people buy cars, furniture or appliances, using an HPcontract. The seller arranges finance
for you from banks that specialize in this type of loan. You are usually required to pay a deposit
and sign an agreement where the loan is registered over the items that you buy. HP Contract is
expensive, and you usually end up paying more than double for the item. If you cannot pay for a
month or two, you run the risk of having the item repossessed. You will then have nothing to
show for all your months of repayments.
Vehicle Finance
Some banks have special divisions that only provide loans for motor vehicles. The interest rates
are more favorable than ordinary loans. If you have an accident or your car is stolen, you would
still need to repay the loan, unless you had insurance cover. If you stop paying your loan, your
car will be repossessed.
Home Loan or Bond

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Most people take out a home loan or mortgage bond to buy or build a house. This is a long-term
agreement between you and the bank, where the loan plus interest is repaid over 20 or 30 years.
The bond is legally registered over your property and if you can’t repay the loan, itacts as the
bank’s security. Usually the interest is one of the lowest rates that you will get, but it is linked to
the bank’s prime interest rates. If interest rates go up, you could fi nd yourself not able to pay the
higher repayment amount. In the late 1990s, home loan rates rose to 25%, making many people
unable to repay their home loan repayments. This meant that they lost their houses. You are also
usually expected to take out life insurance for the value of the bond.Paying extra into your home
loan each month, or paying it off sooner, dramatically saves you interest. It is a good idea to put
any extra bonuses or money into yourbond. Usually you can arrange with the bank to withdraw
any extra payments if you need it. In this way you can use your bond to keep your savings in.

Consumer credit facilities may include:

3. fixed:
 personal loans
 leases including mobile phones, cars, business premises, office equipment including
personal computers
 hire purchase
 'buy now, pay later' schemes
4. revolving:
 credit cards
 store cards
 Overdraft.
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2.2 Analyzing and Comparing Types of Credit Facilities Used by Individuals

2.3 Analyzing and DiscussingDifferences Between Unsecured and Secured loans
Differences between unsecured and secured loans include:
5. a secured loan is supported by an underlying asset while an unsecured loan is not
6. unsecured loans attract higher interest rates due to increased risk to the lending
institution.
2.4 Explaining Implications of Defaulton Secured Loans to the Client
Implications of default on secured loans include:
7. any shortfall in sale of repossessed asset against outstanding loan amount must be
paid by borrower
8. repossession of the underlying asset by the lending institution

3. Identifying and Discussing Costs of Using Credit

3.1 Analyzing and Comparing Fees and CostsAssociated with different types of credit
options
Fees and costs associated with different credit options may include:
9. account servicing fees
10. credit purchase fees
11. late payment fees
12. loan establishment fees

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13. withdrawing from a foreign Automatic Teller Machine (i.e. the ATM of a lending
institution other than your own).
Fees and costs may be analyzed and compared using:
14. manually, comparing fees and costs drawn from tables and charts provided by
financial institutions and analyzed using a calculator
15. online, web-based, calculation tools
 software applications such as spreadsheets.
Trade credit
The word credit is used in commercial trade in the term "trade credit" to refer to the approval for
delayed payments for purchased goods. Credit is sometimes not granted to a person who has
financial instability or difficulty. Companies frequently offer credit to their customers as part of
the terms of a purchase agreement. Organizations that offer credit to their customers frequently
employ a credit manager.
Consumer credit
Consumer debt can be defined as ‘money, goods or services provided to an individual in lieu of
payment.’ Common forms of consumer credit include credit cards, store cards, motor (auto)
finance, personal loans (installment loans), consumer lines of credit, retail loans (retail
installment loans) and mortgages. This is a broad definition of consumer credit and corresponds
with the Bank of England's definition of "Lending to individuals". Given the size and nature of
the mortgage market, many observers classify mortgage lending as a separate category of
personal borrowing, and consequently residential mortgages are excluded from some definitions
of consumer credit - such as the one adopted by the Federal Reserve in the US.

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The cost of credit is the additional amount, over and above the amount borrowed, that the
borrower has to pay. It includes interest, arrangement fees and any other charges. Some costs are
mandatory, required by the lender as an integral part of the credit agreement. Other costs, such as
those for credit insurance, may be optional. The borrower chooses whether or not they are
included as part of the agreement.
Interest and other charges are presented in a variety of different ways, but under many legislative
regimes lenders are required to quote all mandatory charges in the form of an annual percentage
rate (APR). The goal of the APR calculation is to promote ‘truth in lending’, to give potential
borrowers a clear measure of the true cost of borrowing and to allow a comparison to be made
between competing products. The APR is derived from the pattern of advances and repayments
made during the agreement. Optional charges are not included in the APR calculation.
3.2 Analyzing and Comparing the Features and Associated Risks of Fixed Versus Variable
Interest Rates
3.3 Analyzing and DiscussingWays to Compare Advertised Interest Ratesand the Effects of
Fees and Charges
Ways to compare advertised interest rates may include:
 informing the client of the 'comparison rate' which includes all associated fees and
charges.

4. Analyzing and Discuss the Effective Use of Consumer Credit

4.1 Analyzing and Discussing Ways to Avoid Excessive or Unmanageable Debt
4.2 Identified and Discussed Strategies to Minimize Fees on Credit

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Strategies to minimize fees on credit may include:

1. consolidating savings and credit facilities with the one institution where account
servicing fees can be cancelled out
2. knowing how many free transactions come with the card
3. paying the minimum monthly installment on time.
4.3 Analyzed and Discussed the Importance of Meeting Minimum Payments on Credit
Cards
4.4 Identified, Analyzing and DiscussingWays to Avoid Credit Card Fraud
Ways to avoid credit card fraud include:
4. not disclosing Personal Identification Number (PIN) to anyone
5. selecting a PIN only the card holder would know
6. signing the back of the credit card.

5. Managing Personal Credit Rating and History

5.1 Analyzing and Discussing the Role of Credit Reference Agencies
5.2 Analyzing and Discussing the Purpose and Use of Credit Reference Reports in
Assessing Loan Applications
Credit reference reports refers to:
Reports established and maintained by credit reference agencies which record all negative
events (i.e. defaults) listed by creditors against debtors.
5.3 Analyzing and DiscussingImplications of Establishing a Poor Credit History
Implications of establishing a poor credit history may include:
7.higher interest rate penalties
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8.inability to obtain finance in the future

9.may disadvantage applications for rental accommodation
10. Necessity to obtain guarantor in future loans.
5.4 Analyzing and Discussing the Right to Access and Methods of Obtaining Own credit
Reference Report
Methods of obtaining own credit reference file may include:
Writing, emailing or telephoning the relevant agency requesting a copy of your file, having
provided relevant details to identify self.

Critical aspects of Competence

Assessment requires evidence that the candidate:
 analyze and clearly explain the role of credit within the community
 analyze and clearly explain the different types of consumer credit
options currently available
 analyze and clearly explain the associated implications and risks of
the various credit schemes available, as well as the implication of
establishing a poor credit reference history.

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