MONEY AND BANKING.

MONEY
This refers to anything generally accepted as a medium of exchange for the purpose of settling
debts/obligations.

NB: For any anything to be generally acceptable by all, it to be enforced by law thus the term legal
tender.

Legal tender.
This is any means of payment that people are compelled by law to accept in settlement/discharge of any
obligation/debts.

NB:

i. All bank notes and coins are legal tender in their respective country of issue.
ii. Legal tender in one country is not the same in another for example a dollar is not a legal
tender in Uganda. Also a cheque is not a legal tender.

Fiduciary issue.
This is money which is not backed up gold reserves but by only government securities.

Barter trade/Exchange.
This is the exchange of goods for goods, services for services and goods for services.

Advantages of barter trade/Reasons why some countries still depend on barter trade.

1. Saves the problem of scarcity of foreign exchange.

2. Widens the market because of surplus goods not sold under monetary system.
3. Promotes good relationship between countries.
4. Eliminates imported inflation.
5. Eliminates the risks involved in carrying money.
6. Encourages high domestic production which leads to high demand for labor thus expansion
of employment opportunities.
7. Improves the country’s balance of payment by increasing the volume of exports.
8. Effects of price fluctuations are avoided because hard cash is not used.
9. Is not complicated by many documents used in today’s trade.

Problems/Demerits/Drawbacks/Shortcomings of barter trade.

1. Problem of double coincidence of wants. It is not easy to get someone who wants what are
offering and at the same time you want what he is offering.
2. Problem of measure of value. It is quite difficult to value a commodity in terms of another for
example how many eggs can you exchange for a goat.
3. Problem of storage. It is not possible to store perishable goods for example milk, vegetables etc.
for a long period to be used in future.
4. Problem of standard of deferred payment. Borrowing and lending is made in terms of goods. It
is difficult to determine whether the same value is returned or not.
 5. Problem of portability. Some bulky items are not easy to carry which creates a problem of
transportation for example carrying a sack of potatoes for long distance.

NB: The introduction of money solved all the problems of barter exchange.

Reasons why people have money.

1. Precautionary motive. This is when people hold money to enable them to overcome unseen
problems eg death, sickness, accidents etc.
2. Transaction motive. This is when people hold money for day to day activities for example paying
for goods and services needed on a daily basis.
3. Speculative motive. This is when people hold money/cash because they expect prices to fall or
rise in near future.

Qualities/Essentials /Properties of good money.

1. General acceptability. Money in circulation must be generally accepted as a medium of

exchange by the citizens, society, state and general public.

NB: This is a major quality of good money.

2. Portability. Money should be easy and light in weight to carry from one place to another and
must not be heavy in relation to its value.
3. Divisibility. Money should be capable of being divided into smaller amounts/denomination to
make it easy to pay for even the cheapest item.
4. Durability. Money last for a fairly long period of time ie it should not wear out quickly.
5. Stability. The value of money should not fluctuate rapidly ie they should be stable in value to
maintain its worth.
6. Homogeneity/Uniformity. Money of the same domination should look alike/identical and have
the same value ie money should be similar in color, shape and design.
7. Scarcity. Good money must be valuable and limited in supply so that people can work for it.
8. Cognisability. Good money material should not be easy to forge, copy, imitate or counterfeit.
9. Melleability. Good money should be convenient and cheap for the government to print.

Functions of money.

1. Medium of exchange. Money allows the exchange of goods and services without the physically
involving them for example money is used to possess other goods and services.
2. Measure of value. Money is used to determine the value of goods and services because prices
of different commodities are expressed in monetary terms.
3. Store of value. It is the most convenient way of storing value of perishable items since can be
kept for longer periods than real commodities.
4. Standard of deferred payment/Future payment. Money is used as a means of settling debts of
goods taken on credit, future payment agreements for example hire purchase etc.
5. Unit of account. Accounting transactions are recorded in terms of money which helps to show
the financial position at any given time.
 6. Transfer of immovable property. Money helps to move property from one place to another for
example if a person has a house in one city and wants to settle in another city, he can sell his
house and get money then construct a new house.

BANKING.

A bank is an institution that accept deposits, safeguards the money received, makes its availability to its
true owners (depositors), advance loans and perform other services.

Types of banks.

1. Commercial banks.
2. Central bank
3. Savings bank.
4. Development bank.
5. Merchant banks.
6. Specialized banks.

COMMERCIAL BANKS.

This is a financial institution set up to accept people’s deposits and advance loans to the public with an
aim of making profits.
OR.
This is a joint stock company which is established to undertake banking activities with the aim of making
profits.

Examples of commercial banks

1. Stanbic bank
2. Cairo bank
3. Centenary bank
4. DFCU bank
5. Standard chartered bank
6. DTB (Diamond Trust Bank)
7.

NB: They earn profits mainly through;

i. Interest on loans.
ii. Bank charges.
iii. Commissions for services rendered to customers.

Functions/services of commercial banks.

1. Accept and safeguard deposits from people, business on various accounts for example savings
and current accounts.
2. Provide excellent means of transferring money from one place/person to another by means of
cheques, bank drafts, standing orders.
3. Lend money inform of loans and bank overdrafts to those who need financial assistance.
 4. Assist traders in foreign trade by helping them to obtain foreign currency, insuring letters of
credit.
5. Operate forex bureau which exchanges currency for businessmen with approval from the
central bank.
6. Provides safe custody of important documents like business contracts, land titles, academic
documents.
7. Give advice on financial and investment matters like new areas of investment, purchase of
shares, taxation.
8. Discount bills of exchange and promisery notes for traders before the maturity date.
9. Help in supply of money ie bank notes and coins issued by the central bank and withdrawal and
replacement of worn out money.
10. Provides a means of making payment both in local and foreign currencies by use of traveler’s
cheques.
11. Help in implementing policies of the central bank and the government generally through credit
control.
12. Provide night safe facilities to customers who work beyond working hours and cannot use ATM
services.
13. Collect dividends on investments for their clients.

Methods /means of transferring money used in commercial banks.

OR.
Facilities provided by commercial banks for money transfer.

A. A cheque.
This is an unconditional order in writing by the account holder to his bank to pay a specified sum
of money to the person named on it/the bearer.
B. Standing order.
This is a written instruction by a bank customer to his bank to make regular periodic payments
of a specified amount to a named person/organization on his behalf.
C. Direct debit.
This is where each time a commercial bank is to make payment, it has to get instructions from
the customer to do so.
D. Credit transfer.
This is an arrangement in which a bank customer writes out one cheque to pay a number of
persons (employees) by simply instructing his bank to transfer money from his account to their
respective accounts.

NB: It is a system of payment mainly used by employers who have a number of employees to pay.

E. Bank draft/Bank cheques.

This is a cheque drawn by the bank on itself /by one bank to another to pay a specified amount
to a named person/organization on request by the account holder.

NB: The bank will issue a bank draft if a person (account holder) requesting it has either the amount
requested on his account or has paid the amount into the bank.
Importance of a bank draft.

1. It is more difficult to dishonor.

2. It is more readily accepted by the creditors because the bank guarantees payment.
3. It needs no clearance since the person requesting for it must first pay money to the bank before
it is issued.
4. It is more easily acceptable in foreign trade.
5. It is more difficult to forge.
6. It minimizes the risks of handling large sums of money.
7. It is commonly used if remittance is to be made to a distant tow urgently.

Differences between a cheque and a bank draft.

Cheque Bank draft

Drawn by an account holder (drawee) Drawn by the banker (drawer)
May be dishonored Payment is guaranteed.
Need to refer to the issuing bank before cashing No need to refer to the issuing bank
it

F. Traveler’s cheques.
These are cheques issued by the bank mainly in fixed denominations by persons who travel a lot
or travel to distant places.

Importance of traveler’s cheques.

1. Are useful to businessmen who travel a lot and have to pay strangers.
2. Save the traveler the burden of having to carry large sums of money with him on his journey.
3. Are safer to carry money because if they are stolen, the thief may not easily cash them since the
proof of identity is needed when paying traveler’s cheques by the bank.
4. Are essential when traveling to or from countries that impose restrictions on the export of their
currencies.
5. Are particularly useful when traveling abroad because they are accepted generally not only by
banks but also by hotels.
6. May be given in different denominations so that to soot the needs of different businessmen.
7. Can be issued in both home and foreign currency.

G. Credit card.
This issued mainly by the bank to approved persons and give the holder authority to buy goods
and services which he requires from shop/hotels/supermarkets/petrol stations chosen by the
issuing bank up to the agreed amount without paying cash.

NB: The supplier presents the bill to the banker that issued the credit card and is paid the amount due.

H. Telegraphic transfer.
 This is an order sent by the bank to its overseas bank or corresponding bank by telegram/telex
to pay money to a named overseas creditor.

NB: This is the safest and most convenient way to remit money overseas.

I. Mobile money.
This where a bank customer can deposit or withdraw money through his mobile phone if he is a
subscriber to mobile money.

Bank overdraft.
This is money lent out a bank customer in excess of what he/she has on the current account.

NB: It is a short-term loan offered to only current account holders and interest is charged by the bank on
the amount overdrawn.

Conditions/Actors considered before a bank overdraft is given out.

1. Type of the account held with the bank. A person must have a current account with the bank.
2. Amount of the overdraft. This depends on the customer’s deposit made on the account.
3. Repayment period. It should be repaid through the stipulated period.
4. Purpose of the overdraft. This depends on the proposed investments.

Bank loan
This is a large sum of money lent out by the bank to its customers for a fixed period at a fixed
rate of interest and usually backed up by collateral security.

NB: It may be a short-term (one year), medium term (1-10 years) and long-term (10 years and above).

Conditions/Factors considered by a bank manager before granting a loan.

1. Membership to the bank. The applicant should be a customer to the bank.

2. Personal integrity and credit worthiness of the borrower ie customer’s records at the bank
regarding his paying habits.
3. The objective of the loan. The purpose of the loan should be legal and profitable enough to
enable the borrower pay the loan without running into financial problems.
4. Operation of the customer’s account. The manager will examine the customer’s bank
statements with a view to analyze how often the customer deposits money into the bank.
5. The collateral security. This acts as a proof for the repayment of the loan and its value usually
higher than the amount of the loan required.
6. Financial status of the applicant/assets in relation to liabilities of the borrower thus the manager
will gauge his average income.
7. Nature/value and marketability of the collateral security. In most banks prefer land titles
because land gains value and doesn’t easily depreciate.
8. Competition from other borrowers. Where there are many borrowers requesting for loans, then
the chances of many of them being considered will be low.
9. Viability of the project for which the loan is requested. The manager will investigate the
applicants’ proof that he can use the loan profitability.
 10. The period/duration that the customer requires the loan (ie pay-back period).
11. The bank’s policy on lending. Different banks have different policies regarding loans ie some
banks give loans more easily than others.
12. The prevailing government policy on lending. The government controls the lending capacity of
commercial banks in order to improve the country’s economy.

CENTRAL BANK.

This a financial institution established by the government to control all monetary activities in the
country.
OR.
This is a government institution established to control, guide and assist commercial banks and other
financial institutions and provide banking services and financial advice to the government.

NB: It is a government owned and operated institution whose main function is to control the issue of
currency and implement monetary policies.

Uganda central Bank is called Bank of Uganda. It has the overall control over banking activities and it is
controlled by the government through the Ministry of Finance, planning and Economic Development.

Functions of the Central bank (Bank of Uganda).

1. Currency control. It has the sole authority to issue bank notes and coins and to withdraw them
from circulation when worn out.
2. Banker to the government. Manages government accounts that is to say receives all government
revenue and effects government expenditure.
3. Advisor to the government on financial matters such as management of public debts, methods
of raising money, methods of controlling inflation.
4. Banker to commercial banks and other financial intermediaries. All financial institutions hold
current accounts with the Central Bank.
5. Banker to international agencies. Provides banking facilities to international bodies like
International Monetary Fund (IMF), World Food Program (WFP), World Health Organization
(WHO).
6. Manages foreign exchange by keeping foreign exchange reserves and controlling foreign
exchange rates by regulating activities of forex bureaus.
7. Manages public debts both from internal and external creditors. It makes payment on behalf of
the government and advises the government on means of borrowing money.
8. Regulates the amount of money in circulation so as to control inflation.
9. Control of commercial banks. All commercial banks are required to submit periodic reports on
all their dealings and deposits held by them to the Central Bank for scrutiny.
10. Helps the government in raising short-term finance by acting as governing agents for raising
loans by selling government securities like treasury bills and bonds.
11. Lender of last resort. The central bank lends money to commercial banks and the government
when they are in temporary financial difficulty and have failed to raise funds from other sources.
Methods/measures of credit control/Tools of monetary policy.

These are measures taken by the government through the central bank to ensure that there is a
reasonable amount of money in circulation so as to maintain the value of its currency.

1. Bank rate.
This is the rate at which commercial banks are charged when they borrow money from the
central bank as a last resort. Raising the bank rate forces commercial banks raise their interest
rate. The lower the bank rate the lower the interest rate thereby encouraging borrowers.

2. Open Market operation (OMO).

This involves selling and buying of treasury bills and bonds to and from the public. Selling of
treasury bills and bonds to the public reduces the amount of money in circulation while buying
treasury bills and bonds from the public increases the amount of money in circulation.

3. Legal reserve requirement.

This refers to the proportion of the deposits in the commercial bank that is required by law to
keep with the central bank. An increase in the legal reserve requirement reduces the amount of
money available to be given out as loans by the commercial banks which reduces the amount of
money in circulation while reduction in legal reserve requirement leads to increase in the
amount of money in circulation.

4. Special deposit.
This refers to additional deposit that commercial banks are required to keep with the central
bank on the top of legal reserve requirement. If the special deposits are increased, money
supply reduces but if they are reduced, money supply increases.

5. Selective credit control.

This refers to directives by the central bank to commercial banks instructing them to give out
loans to only priority sectors/selected projects of the economy for example agricultural sector,
industrial sector and discourage lending to low priority sectors.

6. Cash ratio.
This is the fraction of the total deposits that must retained in cash form to meet daily needs of
customers. Increasing the cash ratio reduce on the loanable funds available while reducing the
cash ratio increase the loanable funds.

7. The marginal requirement.

This refers to the difference between the value of the collateral security from borrowers and the
value of the loan extended to him. An increase in the marginal requirement discourages
 borrowing which reduces the amount in circulation but a reduction in the marginal requirement
encourages borrowing which increase amount of money in circulation.

8. Moral suasion.
This involves persuasive instruction and discussions by the central bank with commercial banks
requesting for their cooperation to limit extension of loans so as to reduce money supply
especially in the periods of high rate of inflation.

9. Direct intervention in the activities of the commercial banks by the central bank. When the
central bank realizes that a given commercial bank is not following the guidelines put in place,
its officials temporary take over key positions in the commercial bank to ensure that the
guidelines are followed especially limiting giving out loans.

10. Currency reform.

This involves withdraw of a currency inform of paper notes and coins that has lost value and
replacing that currency with another of a higher value hence reducing the amount of money in
circulation.

Differences between commercial banks and central bank.

Central bank Commercial bank

Is owned exclusively by the government May be private or government owned.

Is aimed at serving the public interests and it is Aims at making profits for its shareholders
not profit oriented.

Has a right to issue bank notes and coins and has Has no right to issue bank notes and coins.
custody of government funds

Can formulate the monetary policies to be Implements the monetary policies set.
followed by the government.

Has direct control over the forex reserve and Has no direct control over the forex reserve.
responsibility of issuing it out to individual firms.

Is headed by a governor. Is headed by a manager.

Has the authority to publish bank notes and Doesn’t have the authority to publish bank notes
 coins. and coins.

Is the major bank of the nation Are minor banks of the nations

Has no direct contact with the public Deals with the public directly.

NOTE;

1. Clearing house.
This is a place where representatives of different commercial banks meet each other and clear
the amounts due to and from other commercial banks on various cheques.
OR
This is a place, usually in the central where representatives of different banks meet to settle
amounts that become payable to different customers’ transactions of different banks
2. Credit creation.
This is the process by which money/initial deposit lent out by commercial banks results into
greater volumes of credit or money supply than the amount originally lent out.
3. Savings banks.
These are banks whose main function is to encourage low income earners to save some of their
money thus promoting the habit of saving among individuals for example Post Banks in Uganda.
4. Merchant banks.
These specialize in accepting and discounting bills of exchange as well as assisting traders in
foreign trade.
5. Specialized banks.
These are financial institutions set up to carry out specific functions in addition to the normal
banking business.

NB: They finance risky investments and advance long-term loans for example exchange markets,
building societies like hosing finance company.

6. Development banks.
These are specialized banks formed to finance medium and long-term loans for development
purposes which commercial banks are not suited for for example Uganda Development Bank,
East African Development Bank.

TYPES OF ACCOUNTS OFFERED BY BANKS.

a. Current accounts.
b. Savings accounts.
 c. Fixed deposit accounts.
d. Joint accounts.

A. Current account.
This account is offered by commercial banks only and is suited the needs of the businessmen.

Features of current account.

1. Withdrawals must be made using a cheque signed by the account holder.

2. A pay-in-slip is used to deposit (pay in) money on this account.
3. Money can be paid to another person by writing a cheque.
4. The account holder can withdraw as much money as he/she wants providing there are sufficient
funds in the account.
5. The account holder does not have to maintain a minimum amount in the account.
6. Generally, no interest is paid on this account. Instead the bank may levy a small charge every
time a cheque is used.
7. The account holder is given a cheque book to use for making payments and withdrawing cash
from his/her account.
8. The account holder can arrange bank overdraft facilities with the bank.
9. Account holders are issued with bank statements at the end of every month.

Process of opening up a current account.

1. Fill in the forms provided by the bank stating his/her full names, address and occupation.
2. Give the names of two referees who should be the customers of that bank. These referees
give information regarding the financial position and trustworthiness of the person wishing
to open an account.
3. A signature card is issued on which the specimen signature is displayed. This signature must
be the one to appear on all documents that are signed by the account holder, and all
documents that are sent to him/her by the bank.
4. The applicant is then issued with an account number, and he/she is required to pay in an
initial deposit.
5. The applicant is issued with a cheque book.

Bank statement.
This is a statement that shows the financial position of the current account holder in bank’s books.

This a statement that shows financial transactions that took place on the depositor’s account that is to
say it shows various deposits, withdrawals, interest given and charged.

Features of a bank statement.

1. Balance at the beginning of the month.

2. Dates and reasons for debits that is to say payments on particular numbered dates.
3. Balance at the end of the month.
 B. Savings account.
This account offered by both commercial and savings bank for example the post office savings
bank.

It is operated by low income earners who do not withdraw frequently.

The main purpose of the account is to encourage savings among individuals.

Features of savings account.

1. Minimum initial deposit and balances are fixed.

2. No overdrafts facilities are allowed.
3. Account holder is issued with a bank passbook which he must present when
withdrawing/depositing money.
4. Bank offers interest on deposit held on savings account.
5. The balance on the savings account can be used as security for borrowing money from the bank.
6. Withdrawals may be restricted that is say they may be made within a given interval.
7. Some notice is required before large amount of money may be withdrawn.

C. Fixed deposit account/Time deposit account.

This is an account held for a specific period of time by individuals who have spared money do
not need it need it in the near future.

Features of fixed deposit accounts.

1. Deposits are for a definite period of time.

2. Withdrawals is only at the end of the deposit period and notice of withdraw must be given.
3. A deposit receipt is issued upon opening the account and it is used for withdrawal at the end of
the deposit period.
4. Interest is offered on deposits and it is higher than that of the savings account.
5. Money on a fixed deposit account can be used as security for securing a loan.
6. Involves large sums of money which the account holder doesn’t intend to use in the near future.
7. Deposits on the account can be used to advance loans to other people by the commercial bank.

D. Joint account.
This a bank account opened in names of two or more people.

NB: Any of these people can withdraw money from the account when all holders have signed on the
cheque/withdraw slip.

Factors considered before choosing a bank account.

 1. Interest offered. A fixed deposit account offers a high interest compared to savings and current
accounts.
2. Ease to withdraw. Current account is the best because money can be withdrawn without notice.
3. Need to save. Savings account promotes a habit of thrift among individuals because withdrawals
are restricted.
4. Ability to transfer money. Money transfers is very easy with a current account through a cheque
facility.
5. Security. It may not be possible to forge and withdraw money from a fixed deposit account since
withdrawals are restricted to a particular period which remains a secret to an account holder.
6. Possibility for loans. A current account holder can easily get loans from the bank because the
bank can easily monitor the transactions.
7. Initial deposit required. A savings account is the best for small servers because the initial
minimum deposit is always small.
8. Allowance of overdraft. One can withdraw more than what he/she has on current account than
savings and fixed deposit accounts.
9. Possibility of paying several people. A current account is the best through the credit transfer
system.

Run on the bank.

This is a situation where many bank customers rush to withdraw their money from their accounts.

This is due to;

i. Loss of confidence of customers in that particular bank

ii. People suspecting a closure of particular bank
iii. Great demand for money at a particular period for example when parents need money for
school fees or at big day.

CHEQUE.

This is an unconditional order in writing by the account holder to his bank to pay a specified sum of
money to a named person on it or to the bearer.

Parties to a cheque.

i. Drawer. This is a person who writes and signs a cheque ie the account holder.
ii. Drawee. This is bank which the cheque is written to.
iii. Payee. This is a person to whom money is to be paid by the drawer through the bank.

Note;

Cheque counter foil.

This is a tag from which a cheque leaf is torn.

NB: It remains in the cheque book to remind the account holder the people to whom cheques have
been issued, the date, the cheque number and amount issued out.
Cheque leaf.
This a piece of paper from a cheque book when one is settling a debt or paying a creditor by cheque to
presented to the bank.

Features on a cheque.

1. Cheque number that is to say it is useful incase the cheque is lost that is to say 055892.
2. Drawee bank/name of the bank ie DFCU Bank
Kampala Branch
3. The date ie the day the cheque was written ie 20 th .05.2020.
4. Payee/name of the person to be paid ie Mubiru Moses.
5. Amount to be paid both in words and figures ie 1000000.
6. Signature of the person who wrote a cheque/drawer ie Luminsa Ivan
7. Account number of the drawer ie 3200058
8. Two parallel lines crossing on the face of the cheque.

Endorsement.
This is the signature on the reserve side of a cheque when a cheque is transferred to another person.

If Mubiru Moses wishes to transfer the right to receive money against an order cheque he must endorse
ie sign it with a new payee’s name eg Wasswa at the back of the cheque.

Endorser.
This is a person/payee to whom the cheque has been written but countersigns it at the back to transfer
it to another person.

Endorsee.
This is person who finally receives the payment against the cheque that has been endorsed.

Types of cheques.

i. Open cheques.
ii. Crossed cheques
iii. Banker’s cheques
iv. Personal cheques
v. Travelers cheques.

A. Open cheques.
These are payable to anybody across the counter or named person or his order.

Forms of open cheques.

i. Bearer cheque (Don’t bear name of the payee).

Here the payee is not named on its face. It is payable to any person who presents it to the
bank.
A bearer cheque is addressed as pay cash or pay bearer.
 ii. Order cheque.
Here the payee is named its face.
Its payable to the person named on its face or to his order.
An order cheque may be addressed as Pay Mugerwa or his order.

Differences between a bearer cheque and an order cheque.

Bearer cheque Order cheque

Payable to any person who presents it at the Payable to a named person on its face/his order.
counter of the bank.

The bank doesn’t demand for identification from The bank demands identification from the payee.
the payee.

Doesn’t require to be endorsed Requires to be endorsed in case of new payee.

B. Crossed cheques.
These are cheques that bear two parallel lines drawn across its face with or without
additional words between them.

Note
A crossed cheque cannot be cashed at the counter but must be deposited by the payee in his own bank
so that payment is done through his account.

Crossing a cheque is the safest way of transferring money because even if it falls in the hands of an
imposter, he cannot present it for cash.

A crossed cheque can be made open by the drawer signing between the crossings thus it can be cashed
across the counter.

Types of crossed cheques.

1. General crossings.
These consists of two parallel lines across the face of the cheque with or without words
between them.

General crossings may take the following forms.

a. Not negotiable between the crossings.

It means that the payee named on a cheque cannot transfer the right to receive money against
it to another person (payee) by endorsement.
b. Account payee only between crossings.
 When the cheque has the words account payee only between the lines, then the payment
should be made through the bank account of the payee named on it.
c. And company between crossings.
This means that the cheque can only be paid into the account of their company.
d. Nothing (no words) between the crossings.
The mere presence of the lines indicates that payment is paid through the bank account in
addition to crossing.

2. Special crossings.
These are cheques that consist of two parallel lines with the name of the bank and the branch
between them.

Such a cheque can be presented for payment only through the bank and branch named between the
crossings.

The word not negotiable and account payee only may be added to special crossing to make it more
effective.

Sometimes the maximum amount to be paid may be included thus being the safest method of effecting
payment by cheque.

Advantages of crossed cheques over open cheques.

1. If a crossed cheque gets lost or misplaced by the payee, the amount cannot be withdrawn by
any other person because it cannot be presented for payment across the counter.
2. Provides greater safety if it sent through the post.
3. Crossed cheque must be deposited in the bank account thus enabling the drawer to trace the
payee.

Terminologies used in cheques.

i. Stale cheque.
This is a cheque that has stayed for over six months from the day it was written ie
expired/has become outdated.
ii. Postdated cheque.
This is a cheque which is presented to the bank for payment before its maturity date.
iii. Forged cheque.
This is a cheque which bears signatures which are forged or imitated.
iv. Blank cheque.
This is a cheque which is signed by the account holder, but does not indicate the amount to
be paid.
v. Stopped cheque.
This is a cheque for which payment has been stopped by the account holder.
vi. In house cheque.
This a cheque where both the drawer and the payee have got with the same bank.
 vii. Honored/cancelled cheque.
This is a cheque that has been accepted and payment has been done.
viii. Dishonored cheque.
This is a cheque which the bank has refused to accept/pay due to some reasons/errors.

Reasons for dishonoring a cheque.

1. If the drawer has insufficient funds on his/her amount with the accounts of the bank.
2. If the amount in figures and words do not agree.
3. If the cheque has an error on it for example an alteration on the payee’s name or date or
amount.
4. If the signature of the drawer differs from the signature held by the bank.
5. If the drawer is dead/becomes insane/declared bankrupt and the bank is aware of this.
6. If the drawer has closed his or her account with a drawer bank.
7. If the cheque is postdated ie presented before the date named on it.
8. When all signatures are not complete. This is the case with joint accounts where more than one
signature is required to make cheque valid.
9. If the bank suspects forgery in the cheque/when the signature is missing.
10. If the cheque is damaged/mutilated/worn out in any way to make contents vague.

Reasons for honoring a cheque.

1. If the drawer has an account with a drawee bank.

2. When all signatures are complete. This is common with joint accounts where more than one
signature is required to make cheque valid.
3. If the drawer is not dead/insane/declared bankrupt when the bank is aware of this.
4. If the cheque has a valid date on it.
5. If the drawer instructed the bank to honor the cheque.
6. If it has amounts in words matching with the one in figures.

Advantages of paying by cheques over paying by cash.

1. Convenience. It is more convenient and time saving to write a cheque for large sums than
counting a large number of currencies in coins and notes.
2. Cheques ensure occurance of payment because mistakes made can be solved compared to
mistakes made in counting large sums of money.
3. It is safe ie cash can be stolen and used readily by a thief than a cheque which can be made to
only a named person/to account especially crossed cheque.
4. Evidence payment itself. Once payment has been effected, the cheque is cancelled and sent
back to the drawer thus acts a receipt.
5. Acts as a record of payment. Details of payment are recorded in the cheque counterfoil which is
a record for future reference.
6. It is easy to carry as it is light ie cheque can carry large sums of money easily than cash which is
most bulky.
 7. Payment can be stopped where fraud is discovered by the drawer by simply instructing the bank
not pay.
8. Can be used for deferred/future payments by writing a postdated cheque ie payment can be
made later.
9. Crossed cheques can be sent by post safely compared to cash.
10. An employer can afford paying many people using one cheque by simply making a list of them
with their corresponding accounts and salaries.

Why cheques are not widely used in Uganda.

OR.
Limitations of paying through cheques.

1. Many people prefer savings account which do not use cheques.

2. Many people prefer to keep their money at home instead of banking thus making cheques
irrelevant.
3. Fear of cheques to be dishonored by banks.
4. A cheque is not a legal tender and may therefore not be readily used in settlement of
debts/obligations.
5. Cheques sometimes take long to mature and this may not favor transactions which need
immediate funding.
6. A person who receives crossed cheques must have bank accounts so people without bank
accounts will not receive cheque payment.
7. People have lost trust in banking because of closure of many banks due to inefficiency.
8. People are relaxant to receive cheques especially the postdated ones in that banks may close
before cashing.
9. Banking activities involve a lot of documents which may require one to fulfill for example
opening up an account involves many procedures.
10. Most banks are limited to urban centers ie not well distributed throughout the country.
11. Cheque books are paid for by the account holder ie a cheque book may cost 5000 with 25
leaflets thus the drawer incurs shs.200 extra for each cheque written out.
12. Most people are illiterate and ignorant and do not know how to use cheques.
13. Many people are engaged in small transactions so it will make use of cheques uneconomical.

Precautions/Measures to be taken to ensure safety and security of a cheque.

1. Making general crossings ie parallel lines drawn on a cheque and company, account payee only
to make it difficult to cash the cheque across the counter.
2. By making special crossings ie two parallel lines drawn across the cheque with the name of the
Bank and its branch so that cheque can be paid into the bank where the payee has his account
and his account and where he is personally known to the bank.
3. The cheque must be carefully written to make it difficult for an imposter to make changes on it
ie no space should be left between words and figures.
4. The drawer must keep the cheque secure and guard it against the risk of theft by keeping the
cheques book under look and avoid exposing the keys.
 5. The drawer should ensure that his signature is not easy to forge since an imposter can
counterfeit it and withdraw money from his account.
6. A special machine should be employed which cuts the words and figures onto the paper (cheque
leaf) in order to make alternations impossible.

Problems faced by commercial banks.

OR.
Factors that limit the efficiency of banks.

1. Illiteracy and ignorance of some people who don’t understand the importance of banking
facilities.
2. Low incomes and limited savings. Majority of Ugandans are peasants and poor who have little or
nothing to save.
3. High rates of robbery. Banks are sometimes robbed and most of people’s savings are taken
leading to losses to commercial banks.
4. Loss of confident from the public especially following the closure of some banks. As a result,
people are unwilling to keep their money with commercial banks.
5. Incompetent managers who corrupt money causing financial losses to banks.
6. Limited investment opportunities. Because of this few people ask for loans.
7. High rates of inflation which reduces the habit of saving.
8. Inadequate collateral security to secure loans from commercial banks.
9. High competition for business. Banks concentrate within urban areas and compete for business
over a small area.
10. The majority of people prefer consumption to saving ie a lot of money is wasted in leisure and
organizing parties.
11. High interest rates charged by commercial banks on loans thus discouraging people to take on
loans.

Guiding questions.
 COMMUNICATION.
This is the act of conveying information/ideas/messages between two or more parties orally or by
writing.
OR.
This is the exchange of information/ideas/messages through any natural/artificial means from one place
to another.

Communication process/elements of communication.

Communication process refers to the steps between the source and a receiver that results in the
transference and understanding of the message.

Communication process involves;

1. Source of communication ie the sender.

2. Contents of communication ie the message for example when you write, the writing message.
3. Process by which communication is produced ie natural or artificial.
4. The method by which communication is conveyed ie letter, oral, visual.
5. Agent involved in transmission of the communication eg post office.
6. Destination of the communication ie the receipient.
7. Understanding of the communication by the reciepient ie the feedback.

Types of communication.

a. Internal communication.
 This is concerned with the giving and receiving of information within the same organization for
example communication between the employer and employees, between the company
directors and its shareholders.
b. External communication.
This refers to communication between a company/business and its customers/supplies and the
general public.

Effective communication.
This takes place when both the sender and the receiver completely understand the information
exchanged.

Essential/Features of effective communication.

1. Completeness. The message includes all parts the receiver needs to know about the
communication.
2. Conciseness. The sender gives the message in a few words as much as possible ie the message
should not be too wordy to confuse the receiver.
3. Courteousness. The sender should be sincere when giving the message to avoid hurting the
receiver but doesn’t have to shy away from the truth.
4. Correctness. The message given should be okay and should not mislead in anyway.
5. Consideration. A sender should have the receiver in mind when sending the message ie positive
words are better than negative words.
6. Concreteness. The message should be quick to the point but not vague.

Roles of communication in business (How communication facilities trade).

1. It is possible to acquire information about goods and services for example prices, quality,
quantity.
2. Instructions concerning delivery, packaging can be sent to those concerned easily.
3. Facilitates making of inquiries, orders and preparations of other important trade documents like
quotations, invoices etc.
4. Written information provides permanent evidence, records about transactions and business
contracts.
5. Helps the producer/trader to cope up with competition since he is aware of the market
conditions.
6. Promotes good image and relationship between the buyer and a seller.
7. Creates and sustains interest for example through advertising.
8. Leads to improvement of business ie widens market prospects.
9. Facilitates formation of consumer associations which are used to channel complaints to
suppliers.
10. Act as a link between the suppliers and the business world.
11. Written communication acts as an evidence of contracts and agreement between traders.

Channels/modes of communication.
There basically three channels of communication.

a. Oral/verbal communication.
b. Written communication.
c. Visual communication.

A. Oral/verbal communication.
This is when people contact each other directly. Messages are passed between individuals
verbally through word of mouth (face to face).

Forms of oral communication.

1. Direct communication. This is face to face communication. This takes place through meetings
and conferences, interviews, conversations, joint consultations and training courses.
2. Indirect oral communication. This is where oral communication takes place but where there is
no direct face to face contact for example a conversation over the phone, teleconferencing.

Merits of oral communication.

1. Creates a direct contact between the buyer and the seller.

2. Detailed discussion about the goods can be made for example about the prices, terms of
payment, terms of delivery.
3. Saves time compared to written information because urgent inquires can be made, orders of
goods are placed there and then.
4. It is cheap especially for short distances.
5. Immediate feedback can be obtained.
6. Covers a wide area as one person can communicate to large audience.
7. Questions can be asked to clarity unclear points.

Demerits of oral communication.

1. Lack of evidence for agreement ie leaves no reference.

2. Costly to send the message over a long distance.
3. Errors may result from the misunderstandings of the speaker.
4. Absence of the reciepient makes communication difficult.
5. May not be taken seriously because of lack of written evidence and confirmation between the
parties involved.
6. Response may sometimes be given consideration of their implications.
7. May not be easy to control the confidentiality of spoken words.

Means of oral communication.

a. Telephone.
This is a form of oral communication where speak to one another via a telephone hand set. One may
speak to another through a switch board or calls can be made direct without going through a switch
board.

Subscriber truck dialing means that a person ca another person simply by dialing without having to go
through the main exchange.

Advantages of telephones.

1. It is a fast means of sending information and therefore suitable for urgent messages.
2. It eliminates physical movement of people from one place to another to convey information
thus time and money saving.
3. It is clear and allows for opportunity to ask and answer questions and use the voice to stress the
message.
4. Reply/feedback can be received immediately.
5. It is a relatively cheap means of communication especially for short distances.
6. It is possible to hide emotions on telephone since facial expressions and body language are not
seen unlike face to face conversation.

Disadvantages of telephones.

1. No perfect record of the information for future reference.

2. The telephone facility can be misused thus making it costly to maintain.
3. No physical contact between the two parties thus no opportunity to judge body language.
4. Illustrations, diagrams and pictures are impossible to send.
5. Lack of privacy when communicating by telephones.
6. It is more expensive than letters for long distances.
7. It is only the telephone service subscribers who benefit from the service.
8. The postal telephone facilities are few and some areas (rural areas) are deprived of the service.

b. Cellular phone services.

These are mobile phones that enable subscribers to make and receive messages anywhere at
any time provided there is network.

In Uganda, this service is provided by;

a. Airtel
b. MTN
c. Africell.

Radio call service.

This is a half-duplex transmission service where messages travel in one direction at a time ie the parties
take time talking so that when one person is speaking the other party only listens.

B. Written communication.
This may take any of the following forms;

i. Letters
ii. Telex
iii. Fax
iv. Electronic mail/Email
v. Telegrams
vi. Memorandums (memo)

Merits of written communication.

1. Provides a written record for future reference.

2. Details can be given especially with letters.
3. Cheap for long distances
4. Used to confirm oral communication.
5. Messages can be sent or received anytime of the day for example use of email, telex, fax.
6. Identical or similar copies can be sent to various departments.

Demerits of written communication.

1. Takes a lot of time and money to prepare written communication

2. Immediate feedback may not be possible.
3. Lack of direct contact between parties/parties involved.
4. Unclear details cannot be readily explained by the sender.
5. Letter communication benefits only those with post office boxes while telex, fax and email only
benefit those are subscribers.
6. Messages will take long to reach the receiver therefore not ideal for urgent messages

Forms of written communication.

1. Letters.
A letter can be personal, official or business letter and can be hand delivered or sent through the
post office.

Advantages of letters.

1. Are less costly than telephones over long distances.

2. Detailed information can be sent by letters eg illustrations, diagrams
3. Acts as a record for future reference
4. Confidentiality is maintained unless tampered with.
5. A number of copies can be sent.

Disadvantages of letters.

1. Immediate feedback cannot be received

 2. It is a slow mean of communication for urgent messages.
3. It is time consuming for busy businessmen.
4. Letters may be opened and read by unauthorized persons
5. The illiterates and the blind may not benefit from the use of letters.
6. Only subscribers to the post office box may benefit from letters.

Means of sending letters.

1. Ordinary letters/post.
This may be surface ail or air mail. Postage stamps are purchased from the post office and are
fixed in envelopes.

NB: Postal franking machines are used to print postage impression on the envelopes.

2. Registered letters.
In this case the post office undertakes to compensate the sender if the letter is lost.
3. Express and special delivery.
In this case letters are delivered to the address by the fastest means possible depending on the
distance of the mail.
4. Special post/expired mail service.
This service is available among main towns. Urgent letters and small packages and hand
delivered by the post office to the to the addressee on the same day (Within 24 hours).
5. Post Restante.
This service is provided by the post office to travelers who are likely to stay in particular town for
a few days but do not have post boxes.

NB: This letter may for instance be addressed as

Nantume Jane.
Post Restante
Kampala post office.

The addressee can collect his/her mail from the post office upon product of satisfactory identification.

6. Business reply post.

A license is obtained from the post office for this service to enable the business man or
organization receive replies without putting the addressee to a postage expense.

NB: A card/self-address address envelope is endorsed within a letter by the seller such that the
addressee can effect the reply using the card envelope.

7. Certificate of posting (Recorded delivery).

A latter sent under this service is recorded by the post office and the certificate is issued which
may be produced as evidence if need arises.

NB: It is used in sending official and important documents.

 8. Telegrams.
These are used to send to send very important and urgent messages.
A short message may be sent by filling in a special ie the cost depends on the numbers of words
used.
9. Telex service.
This provides a direct link to other users all over the world.

NB: Messages typed by the senders’ machine are automatically printed at the receiver’s side.

Advantages of telex.

1. Combines the speed of the telephone with advantages of the letter.

2. It can be used confidentiality in code language.
3. Telex messages are direct ie they do not need to go through a switch board.
4. Reserves a permanent record of the communication.

10. Fax.
This enables transmission of written of written information including diagrams, photographs,
maps, drawings etc.
11. Electronic mail/Email.
This is the transmission of electronic messages via a computer network such as internet.

NB: Each individual connected to the internet has a unique e-mail address that he/she uses.

This service has taken over telex, fax and telegrams.

Services provided by post office to facilitate trade.

1. Delivery for ordinary mails, letters.

2. Registered mail service for a special fee.
3. Expedited mail service which guarantee quick delivery.
4. Offers telecommunication services for example telex, telephone, telegrams etc.
5. Offer license for business reply services, franking machines.

Barriers to effective communication.

1. Language barrier. This may occur if the two parties speak different languages and could not
understand each other.
2. Noise and distraction. This can occur while the message is being transmitted for example people
taking, traffic, noisy machines, music.
3. Lack of interest. Once the receiver of the message has no interest in it or person communicating,
he will stubbornly refuse to get the message.
 4. Information overload. This may occur if the reciepient of the message receives too much
information which is technical.
5. Poor personality in terms of dressing f the communicator can distract effective communication.
6. Destruction of communication if the individual is well known for changing messages then he/she
will not be trusted.
7. Lack of planning ie where planning is not properly done on how to present the message.
8. Wrong address. A letter which is wrongly addressed will not reach its intended destination.
9. Contradictory non verbal messages. If the person sending a message says one thing but the
body language gestures something else.

Factors t be considered when choosing a means of communication.

1. Nature of the communication. An instruction from a manager to an employee may be given

verbally while a customer requesting details about a company’s product may be sent a letter of
introduction and a catalogue of products.
2. The number of people to receive the communication. A message to be sent to all staff about
changes planned within the company may be sent by email or communicated in a team briefing
while a request from a manager to a member of staff to do something may be addressed during
a meeting.
3. Urgency of the message. In an emergency, such as the break down of equipment or injury of a
member of staff, communication has to be instant and therefore direct contact by phone with
the desired person would be best while a request for information that is needed in a few weeks
can be sent by email, memo or letter.
4. Detail of the information/length of the message. Some information that needs to be
communicated may contain a lot of details, so in this case a written form of communication such
as letter or a report is required so that it can be referred to again as necessary.
5. Cost. Some communication methods such as sending letters and catalogues through the post
office can be expensive. If the company needs to cut costs it may consider cheaper alternative
such as sending a catalogue to customers by email.
6. Need to keep a record. Formal arrangements may be recorded in a written contract which is
signed by both parties to say the agree with the content.
7. Accuracy of the information. The writer can send more accurate messages in a letter than a
telegram.
8. Safety and security. The sender can send a letter through the registered post office.

C. Visual communication.
This involves presentation of information using diagrams, pictures signs, symbols without
the use of spoken words.

Forms of visual communication include;

i. Charts
ii. Graphs
iii. Tables
iv. Projectors
Guiding questions.

INSURANCE.
This is a contract where by one party (insured) agrees to pay a sum of money to another party (the
insurer) and the insurer agrees to compensate on the happening of an event.
OR.
This is an aid to trade whereby people contribute towards a common pool against various risks like fire,
accidents for compensation should the risk take place.

Examples of insurance companies in Uganda include;

i. National Insurance Company (NICO).

ii. Jubilee.
iii. Excel.

Basic terms used in insurance.

1. Pooling of risks.
This is where persons exposed to a common risk contribute small amounts (premiums) towards
a common pool from which those few who actually suffer losses as a result of risk insured are
compensated.
2. Premium.
This is the amount paid periodically by the insured to the insurer as a consideration for the
insurance cover provided by the insurer.
 3. Insurer.
This is the insurance company granting the insurance policy for example SWICO.
4. Insured.
This is the person / business firm which takes out insurance and is promised by the insurance
company to be compensated.
5. Risk.
This is the event against which insurance is taken out for example fire outbreak, theft, burglary,
accidents, bad debts, etc.

Risks are divided into two;

a. Insurable risks.
These are risks whose probability of occurrence can be statistically determined from past
experience for example fire outbreak, accidents etc.
b. Non insurance risks.
These are risks whose probability of occurrence cannot be accurately determined by the
statistical information ie records on which to carry out calculations are missing for example loss
as a result of change in fashion, earthquakes, war, etc.
6. Loss.
This is the occurrence of an event against which an insurance is taken out.

NB: If the entire property insured is destroyed, the loss is said to be total loss. However, a partial loss
occurs if only part of the property insured is destroyed.

7. Re-insurance.
This is when one insurance firm which insures another firm or person against a big loss, also
insures itself against such big claim with another insurance company.

This is because the risk is so heavy that one insurance company cannot cover the risk alone.

8. Co-insurance.
This is when a number of insurers are in direct contractual relationship with the insured for any
part of the same risk.
OR.
This is the spreading of similar risks by an insurance company among several insurers.

NB: The co-insurers share the proportions of the risks.

9. Sum insured.
This is the value of the property that is insured as stated by the owner at the time of applying for
insurance.
10. Over-insurance.
This occurs when the insured over declares the value of his / her property at the time of taking
out insurance.
NB: He / She will be required to pay a higher premium but in the event of total loss, he / she will be paid
only the correct value of the property.

11. Under insurance.

This occurs when the insured under declares the value of his/her property at the time of taking
out insurance.

NB: He/she is charged a lower premium but in the event of a total loss, he/she will be paid only the sum
insured. The part of the property not declared will be assumed to have been self-insured.

Example.

Joel insured his stock at sh. 60,000 but the correct value of the stock is sh. 80,000. Fire destroyed part of
his stock valued at a sum of sh. 50,000. How much will Joel claim from insurance company.

= Sum insured/Correct value × Value of destroyed property.

= 60,000/80,000 × 50,000

= sh. 37,500.

12. Actuary.
This is a professional person who calculates premiums basing on the available statistical
information.
13. An adjuster/Assessor.
This is a skilled person given the responsibility of calculating losses.

NB: He estimates the extent of the loss suffered by the insured when the claim is made.

14. Beneficiary.
This a person entitled to receive compensation from a certain insurance company.
15. Claim.
This is a demand for compensation submitted to the insurer by the insured after the occurrence
of the insured risk.
16. Insurance broker.
This a specialist in the insurance business who transacts insurance on behalf of an insurance
company.

NB: He connects an insurer to a person wanting to be insured and earns a commission.

17. Insurance underwriter.

This is an individual/institution who negotiates and enters into insurance contracts on his/her
own behalf.
NB: An underwriter is usually an official of an insurance company who is given authority to accept risks
on behalf of his office.

18. Surrender value.

This is money paid back to the insured when he/she decides to cease/cancel the insurance
agreement before the end of the period specified.
19. Renewal.
This means giving new life to an insurance contract so that it continues for a further period after
expiry of its current period.
20. No claims bonus.
This is a discount given to an insured who makes no claim against his/her policy. With time for
example careful drivers who do not always face accidents benefit from this.
21. Insurance agent.
This is a representative who is authorized by the insurance company to issue temporary cover
notes and accept premium from the insurance.
22. Settlement.
This is the amount paid to the insured by the insurance company to fulfill the claim after
incurring the loss.
23. Average clause.
A clause in the contract which requires the insurance company to pay only for a proportion of
the damage.

24. Subject matter.

This refers to an item/property in which the insured has insurable interest.
25. Terminating a policy.
This is the bringing of an insurance contract between the insured and the insurer to an end.

DOCTRINES/PRINCIPLES/ESSENTIALS OF INSURANCE.

1. Utmost good faith (Uberrima fides).

This requires a person applying for insurance to disclose all other relevant and material facts
about property/life being insured.

NB: The importance of this principle is that it assists the insurance company to assess the suitability of
the insurance and calculate premiums correctly.

2. Insurable interest.
This states that a person can only insure that property whose destruction could result into a
financial loss to him/herself.

The importance of this principle is to limit people to insure only their properties. If they are allowed to
ensure other people’s property, they would be in temptation to destroy them so that they can gain from
the destruction.

3. Proximate cause.
 This states that there must be a close connection between the cause of the loss and the risk
insured against for one to claim compensation.

NB: The importance of this principle is to honor claims where the insured risk is the cause of the
loss/damage.

4. Indemnity.
This aims at restoring the insured to his/her original financial status he/she was in before the
occurrence of the loss.

NB: The importance of this principle is that the insured doesn’t make any profit for his/her policy
otherwise he/she could be tempted to bring about losses so as to gain.

5. Subrogation.
This states that, in the event of total loss after an insurer has fully settled the claim, the insurer
assumes the right that the insured had in the property destroyed.

NB: The importance of this principle is to restore the insured to his original position before the loss
occurred. If any gain can be made out of the loss then such a gain belongs to the insurer.

6. Contribution.
This prevents an insured from insuring against the same risk with more than one insurance
company and in the event of the loss, claiming full compensation from each company.

NB: The importance of this principle is that when the risk against which the property is insured occurs,
each insurer will make contribution towards settling the total claim.

Note: The first five are the basic principles of insurance.

INSURANCE AND GAMBLING.

Insurance is an aid to trade thus not gambling.

Gambling is a risky matter/act where people work on probability.

Similarities between insurance and gambling.

1. Both have participants contributing money to a common pool.

2. Both are based on the elements of probability.
3. In both, membership is voluntary and out of free consent.
4. In both, at least two parties are involved who must agree on principles/regulations to guide
them in the conduct of the business.

Differences between insurance and gambling.

Insurance Gambling
 One doesn’t gain anything ie all that a person can One must gain and others lose ie the financial
expect is to be restored to the financial position position of a gambler improves after winning.
he was in before the loss.

Events insured against may never happen Events speculated must happen to decide the
winner.

It is legal and recognized by the legal authority Is sometimes illegal if the act engaged in is
and business community. unlawful.

One must have insurable interests in the property Insurance interests is not a condition.
insured.

There is neither a winner nor a loser. When a There a winner and a loser. When one lays a bet,
person pays premium, he doesn’t lose but gets he either gains/losses.
protection in return.

One who receives the money is one who has One who receives the money is one who has not
suffered a financial loss. suffered the financial loss.

TYPES OF INSURANCE.

Insurance in East Africa offer two classes of insurance.

a. Life Assurance/Insurance.
b. General property/Non-life insurance.

A. Life assurance/insurance.
This covers the insurance of human life.

A person can insure life in which he has got an insurable interest for example his own life, life of a
spouse, business partner’s life.

NB: Life insurance is referred to as life assurance because the word assurance confirms that the event
insured against must take place and then the only uncertainty is when it will happen.

Forms/Types of life assurance policies.

 1. Endowment policy.
This requires payment of premium for a specified period and claims are made at the expiry of
such a period or at death which-ever comes first.

NB: This policy serves as a savings scheme which benefits the insured at retirement during old age/he
can invest it in some profitable business.

2. Whole life policy.

This requires payment of premium throughout the life of the assured or for a specific period
until an agreed age but claims are made after death of the assured.

NB: This type of policy is meant to provide money to the beneficiaries/dependants when the bread
winner dies.

3. Life annuity.
Under this policy the insurance company on receiving the agreed amount arranges to pay fixed
regular amounts during the life time of annuitant (assured).
4. Group life policy.
It is arranged by the employers who may not afford a pension scheme for their employees with
the insurance company thus their employees can demand for compensation during old age.
5. Sickness policy.
This may be arranged for a specific disease such that it caters for the medical bills of the insured
individuals.

Importance of life assurance.

1. Helps to promote critical hardships such as serious illness and death of the family bread winner.
2. Endowment policy serves as a savings scheme which benefits the assured at retirement/old age.
3. May be used as security to obtain a loan from financial institutions.

B. General insurance/Non-life insurance.

This covers events that may not happen. It covers insurance of properties.

General insurance is divided into three sections;

i. Accident department.
ii. Fire department.
iii. Marine department.

i. Accident department/insurance.
The policies undertaken to recover risks in accident department are;
a. Motor insurance policy.
 This covers risks that may occur to motorcycles, vehicles, especially damage or loss due to
crashing or over turning.

It may be third party policy or comprehensive policy.

 Third party policy.

This is a compulsory to all motor vehicle owners and only the loss inflicted upon the third party
is covered.
 Comprehensive policy.
Covers vehicles against all possible types of risks such as accidents, fire, third party etc.
b. Personal accident policy.
Covers an individual against injury resulting from an accident if the insured is hospitalized. He is
paid an equivalent of his salary for the days he is the hospital.

The medical bill is also paid by the insurer.

c. Fidelity guarantee.
Covers risks of losses to the employers as a result of dishonesty and embezzlement of funds by
particular employees.
d. Employer’s liability/workmen’s compensation policy.
Covers employers against their liability for injuries sustained by their workers while performing
their duties.
e. Public liability policy.
Covers against injury to members of the public as a result of factory operations or faulty goods
sold by the producer.
f. Aviation hall.
Covers against loss/damage to an aircraft (person and cargo) due to aircraft accidents.
g. Machinery breakdown and consequential loss policy.
This covers damages to machines (machine breakdown) and a machine consequential policy will
cover later losses as repairs are being done on machines.
h. Bad debts policy.
Covers a loss arising from bad debts as a result of customers failing to pay.
i. Cash in transit policy.
Covers loss of money in the course of being moved to or from the factory.

j. Goods in transit.
Covers loss or damage of goods in the course of being moved to or from business
organization/factory.

Risks and their policies under the accident department.

Risks Policies
 Road users injured by cars. Third party policy

Personal injury/accident sustained Personal accident policy

Dishonesty of employees Fidelity guarantee

Injuries to the public caused by factory activities Public liability policy

Accidental damages to aircraft Aviation hall

Machine break down Machinery breakdown policy

Loss of earning due to damage property Consequential policy

Bad debts Bad debts policy

Loss in cash in transit Cash in transit policy

Loss in goods in transit Goods in transit policy

Injuries inflicted by owners, road users and to all Comprehensive motor insurance
occupants.

Thieves and robbers Theft ang burglary policy

FIRE DEPARTMENT.
This involves policies that undertake to safeguard properties against fire.

It involves the following;

1. Theft and burglary.

Covers losses against forceful breakage into premises and the theft of goods.
2. Fire and lightning.
This protects property against losses caused by fire and lightning strikes.
3. Consequential loss policy.
Covers losses as repairs are being done to fire damaged properties.
4. All risks on office equipment policy.
Covers all office equipment and machinery for example computers, cash, safes, printers etc.
against fire at the premises.
5. All risks on household property policy.
 Covers household property against damage/loss for example household furniture, kitchen
utensils, washing machines etc.

Risks an owner of a factory is likely to insure against.

1. Loss/damage to goods in transit. Businessmen transport large amounts of goods of high value
and are not certain of arriving to their destination safely since they are exposed to many risks
like accident, theft etc.
2. Loss of cash in transit. Cash may be lost in the course of being moved from or to the factory.
3. Embezzlement of funds especially by dishonest employees in accounts/finance section of the
factory.
4. Fire outbreak and consequential loss.
5. Theft and burglary.
6. Machine breakdown and consequential policy.
7. Bad debts as a result of customers failing to pay their debts.
8. Injuries to workers at work. Employees may sustain injuries/get hurt while performing their
duties.
9. Injuries to the members of the public due to factory operations.

MARINE DEPARTMENT.
This is mainly divided into two sections namely;

a. Marine hull section.

This deals exclusively with the insurance of ships.
b. Marine cargo system.
This offers policies covering goods in ships/ports.

Main policies under marine department.

1. Time policy.
This covers loss that may be incurred within a specified period for example from May to
September for one year.
2. Voyage policy.
This is where a ship/cargo is insured for a particular journey against damage/loss for example
from Kampala to Mombasa and back only.
3. Open policy.
The owner of the vessel/cargo insures it against any risk which may occur on any journey and at
any time.
4. Mixed policy.
This combines both the journey and time for example Nairobi to Canada in 3months ie January
to March.
5. Floating policy.
This covers loss on a particular route for a particular period of time.

Loss in Marine department.

There may be total loss or partial loss.

1. Total loss.
This results to claims of 100% loss of the ship cargo.

It can be actual total loss or constructive total loss.

a. Actual total loss.

It occurs if the ship/cargo is lost at the sea or if the cargo is completely destroyed.
b. Constructive total loss.
The damage to ship or cargo may be repairable or recovered.
2. Partial loss.
This occurs when a ship/cargo suffers only partial damages.

When this happens, the term average is used thus there is general average and particular average.

a. General average.
This relates to losses arising from deliberate action to protect the ship and its cargo from
destruction.

NB: The owner(s) of the ship and cargo are liable to contribute towards the losses sustained where part
of the ship has been sacrificed deliberately for the general goods of all parties.

b. Particular average loss.

This is loss or damage that is caused to a particular cargo.

NB: It relates to losses arising from damage to the ship/cargo which do not affect all parties.

Note: The process of throwing heavy items fast into water to save the lighter goods and lives of other
people is called Jetthisoning.

Differences between insurance and assurance.

Insurance Assurance

Covers events that may not happen Covers events that are bound to happen. The
uncertainty being time only
 Implies indemnity against the loss which can be Denotes that the loss cannot be estimated in
calculated. advance.

Procedures/Step taken and Documents involved when taking out an insurance.

Step 1.
An intending applicant makes an inquiry either directly or indirectly through an insurance broker/agent
on how to get cover for a risk.

Step 2.
Filling in a proposal form. This constitutes an application for insurance and it signifies the willingness of
the applicant to pay the premium.
NB: He/she should disclose all material facts about the property to be insured.

Step 3.
Calculation of premium. The insurance company or its agents determines the premium basing on a
statistical figure/property.
NB: If found necessary by the them, they may arrange to inspect the property before accepting the
premium.

Step 4.
Issuing the cover note. A cover note is a proof that premiums have been paid to and accepted by the
insurance company/its agents who now undertake to indemnify the insured.
NB: a cover note is valid for a period of 30 days only during which a policy must be insured.

Step 5.
Issuing of an insurance policy. A policy is the main document of insurance and constitutes a contract
between the insured and the insurer.

Step 6.
Filling a claim form. If the event insured against happens, the insured has to inform the insurer and fill in
a claim form to claim compensation.
NB: Full details of the loss must be given and no information concealed/falsified.

Step 7.
The insurance company will arrange to survey the damaged property to assess the extent of the loss and
on receipt of the survey report due compensation is paid to the insured.

Steps involved in taking up an insurance policy.

Step;

1. Inquiry from insurance company/insurance agent/broker.

 2. Filling in a proposal form by the applicant.
3. Calculation of premium.
4. Issuing of a cover note.
5. Issuing of an insurance policy.

Procedure of claiming compensation from an insurance company.

Step;

1. Notify the police for the police report.

2. Notify the insurer for the report.
3. Fill in a claim form showing the full details of the loss.
4. The insurer sends the assessor to determine the extent of the loss of the insured.
5. On receipt of the survey report, the insurer pays due compensation to the insured.

Factors to be considered by the insurer in determining the premium to be paid.

1. Age of the applicant.

Older people pay higher premiums than the young people because of the life expectancy factor.
2. Age of the property.
Higher premiums are paid for old property compared to the new property.
3. Precautions taken to reduce the risk.
Lower premiums are paid if measures are taken to prevent the occurrence and reduce the risks
of the events insured against for example installation of fire extinguishers on building, CCTV
cameras.
4. Nature of the property insured.
Delicate, fragile and flammable property in handling pays more premium for example in case of
fire accidents petrol stations are charged a higher premium.
5. Number of applicants.
The more the people applying for the same policy the lower the premium because the risk is
spread to a larger number.
6. Value of the property insured.
The higher the sum insured, the higher the premium charged.
7. Probability of the risk occurrence.
The higher the probability of the risk occurring the higher the premiums.
8. Profit margin of the insurer.
If the insurer aims at making high profits then he will charge high premiums.
9. Operating expenses of the insurer.
High administrative costs and high rates of claims for compensation call for high premiums
charged.

Functions/Role of insurance companies in the development of an economy.

1. Provide employment opportunities to the people who work for them for example insurance
brokers/agents, assessors.
 2. Pay taxes to the government thus a source of revenue to finance developmental activities.
3. Contributes towards the country’s invisible exports thus a source of foreign exchange.
4. Businessmen can use insurance policies as security for loans from financial institutions.
5. Compensation in case of a loss thus encouraging investment confidence to undertake risky
ventures.
6. Acts as trustees for the businessmen ie are entrusted with property of traders to manage them
when they die.
7. Traders are able to import and export without fear of loss.
8. The working population/traders feel a sense of security if there is an insurance policy of them
for example workmen’s compensation policy.
9. Conducts other functions which are educational in nature for example campaigns on safety and
health care.
10. Compensation in case of sickness/loss of life leads to reduction of social costs to the government
because funds are provided by the insurers to assist the victims.
11. Compensation in case of sickness/loss of life to the employees leads to reduction of costs to
businessmen.
12. Enhances the habit of saving among people/traders especially in life assurance like endowment
policy.
13. Contributes to the growth of the economy through pooled resources which are invested in
infrastructure like roads and development projects like factories/buildings.

Limitations of insurance.

1. Insurance doesn’t cover all risks. It categorizes certain risks as non-insurable ie natural
calamities like earthquakes.
2. Insurance stresses on insurance interests ie direct link between the property and the insured
person. This hinders a rich person from helping his poor neighbors.
3. They insist that the risk must be reasonably be unexpected yet the insured pays premium and
no refund is made.
4. They stress that losses must be purely accidents. If there is any slight link of the insured
contributing to the loss even un consciously they will not compensate.

Disadvantages of insurance.

1. It is not guaranteed that the sum insured will be paid when the risk occurs. One can either lose
all the money or get compensated.
2. Insurance doesn’t cover all risks ie some risks are considered to be non-insurable for example
loss as a result of war, change in fashion.
3. Compensation is not obtained immediately. There may be delays in settling payment arising out
of difficulty in assessing the loss or because of disputes with the insurers.
4. The principle of insurable interest limits the scope of items to be insured.
5. The legal jargons of insurance are confusing for example proximate cause, etc.

Problems facing insurance companies in Uganda.

 1. Many people are not well sensitized about insurance business thus many think people that
insurance is a means of taking their wealth.
2. Loss of confidence in insurance companies by many people because of reluctancy to
compensate in case of loss.
3. High rates of inflation in the country reduces the value of money over time making indemnity
useless.
4. The scope of insurance business is narrow ie insurance policies offered are mainly general.
5. Poor performance of the economy ie the agricultural economy with a small industrial sector.
6. Insufficient capital by insurance over big risks.
7. Limited market for insurance policies due to wide spread poverty in the country.
8. Getting an insurance policy has many complications with many confusing legal jargons like
subrogation.
9. The benefits of insurance are invisible ie can only be realized when there is a loss.

Reasons why insurance services are not commonly used by business community.

1. Insurance services/benefits are invisible and can only be realized when a loss occurs.
2. Getting an insurance policy is complicated ie the principles are not easily understood.
3. Insurance services in Uganda are not widely spread ie they are limited to urban areas.
4. There is little awareness ie the would be customers are ignorant about insurance services.
5. The insurance industry is misunderstood as a gamble and a curse to the society thus has limited
market.
6. People lack huge variable assets worth insuring due to poverty.
7. Insurance contracts are considered as an additional expense which increases the cost of running
the business.
8. Loss of confidence in insurance by many people because of reluctancy to compensate in case of
loss.

Guiding questions.

SALES PROMOTION.
This is an inducement/incentive to encourage more sales of a product.
OR.
An intensive campaign aimed at boosting the sales of the products.

Forms of sales promotion in Uganda.

1. Advertising. This is aimed at making potential customers aware of the existence of

goods/services a firm has to offer.
2. Personal selling. This involves having face to face meeting with public. This may be through
public shows, trade fairs or done by salesmen.
3. Discounts/Price reductions. This is a deliberate attempt by a producer/seller to slightly lower
prices so as to boost their sales.
4. Offering free gifts. This is granted to customers who buy more firm’s products at a certain value.
Gifts can be in form of T-shirts, calendars, detergents.
5. Giving credit facilities. Traders may offer credit sales, hire purchase, deferred payment skills to
their trustworthy customers who will buy in greater quantities.
6. Market research. Is the collection of information about a product on market to enable a
producer to make decisions.
7. Offering free samples. Sellers give free samples to prospective buyer to induce them to buy. This
is usually done when introducing a new product on the market.
8. Politeness. The language and the general approach of the salesman will attract or repel
customers. The business may lose customers if it is controlled by rude salesmen.
9. Branding. This involves use of attractive trade marks and names to win customers’ loyalty.
10. Offering prizes. This is where the producer encloses prizes and prize-winning coupons within the
product which encourages the public to buy more of the particular products even after the
competition.
11. Loss leader policy. Here some low-priced goods encourage people to enter the shop and also
end up buying items from the same shop.
12. Convenient packaging. Beautiful/attractive materials should be used which customers can put to
other uses for example jerrycans, attractive bottles etc.
13. Provision of after sales services. This is in form of free transport, technical advice on use of a
product, repair and maintenance, installation etc.

ADVERTISING.
This is an aid to trade which makes potential customers aware of the existence of goods and services a
firm has to offer with an aim of increasing sales.

Functions/Importance of advertising.

1. Bridges the gap between customers and producers ie the producer establishes contact with his
ultimate customers.
2. Enables customers to know the availability of different products in the market for proper choice
making.
3. Provides necessary information on salient features of different products for example size,
quality, price etc.
 4. Helps to increase the producers’ sales by creating demand/market for goods and services to
generate more profits.
5. Encourages competition leading to better quality goods at reasonable prices.
6. Enables introduction of new products on sale in the market.
7. Helps consumers to know technical use of products and their applications.
8. Helps producers to retain market of goods and services to avoid a take over of the market by a
new product.
9. Helps to protect the image/reputation of the producer by enabling him to keep his promise as
being reliable/high quality producer.

NB: The major advantage is to create market/increase the volume of sales.

Objectives/Reasons for advertising.

1. To bridge the gap between customers and producers.

2. To enable consumers to know the availability of different products in the market for proper
choice making.
3. To provide the necessary information on salient features of different products for example size,
quality, price.
4. To increase the producers’ sales by creating demand/market for goods and services to generate
more profits.
5. To encourage competition leading to better quality goods at reasonable prices.
6. To enable introducing the new products on sale in the market.
7. To help consumers know the technical use of products and their applications.
8. To help producers retain market of goods and services to avoid a take over of the market by a
new product.
9. To protect the image/reputation of the producer by enabling him to keep his promise as being
reliable/high quality producer.

Types of advertisement.

a. Informative advertisement.
This provides information by simply stating facts and opinions of goods and services for example
sign posts.

NB: It does not influence choice but educates the customers about the products.

b. Persuasive/Competitive advertisement.
It induces consumers to buy a product and continue buying it.

NB: It is aimed at convincing the customers that a particular product is better than others by use of
appealing words, praises, slogans etc.

c. Direct advertising.
 This occurs when a product/service advertised appeals to a specific audience.
d. Indirect advertising.
This doesn’t appeal to any specific group of individuals but is open to all for example advertising
by posters, banners, bill boards.
e. Institutional advertising.
This attempts to promote the awareness and goodwill towards the firm.
f. General/Mass advertising.
This is where producers in the same industry combine and advertise their products as one group
instead of each firm advertising its own products for example Uganda Manufacturer’s
Association.

ADVERTISING MEDIUM.
This refers to the channel used to convey the messages to unintended audience of customers.

The most common media used today are radios, televisions, the press, posters, point of sale display.

A. Radios.
This is where advertisements are broadcasted from a radio station to the public.

Merits of using a radio as a medium of advertising.

1. The message reaches many people.

2. Advertisements can be presented in different languages.
3. Information is disseminated instantly and very fast.
4. It is cheaper and easier to prepare the messages.
5. Messages tend to be repetitive thus having a lasting effect.
6. Music in the background of the advertisements give a positive impression about the product.
7. Many people can afford to advertise through a radio compared a television, press etc.
8. The blind people are catered for because a radio doesn’t involve watching but listening.

Demerits of using a radio.

1. The information cannot be stored for future reference.

2. Lack illustrations and pictures ie not suitable for products that need to be demonstrated visually.
3. Not all people can afford to buy radios thus people without radio miss regular advertisements.
4. The costs may be high due to repetition ie relatively expensive compared to posters.
5. There is no immediate feedback.
6. Messages are aired out for a very/limited time.
7. Some people are not interested to listening to radios adverts for example youth tend to tune in
to other stations in search for music.
8. Some radio adverts tend to exaggerate the advert information ie their aim is to persuade people
to buy.
9. May not benefit the deaf since they cannot be able to listen to the adverts.
 B. Television.
This is used to show slides/short films about the product being advertised.

Merits of television.

1. It is every effective for technical items that require demonstration, visualization and explanation
for example machines, toys and other industrial products.
2. Use of colors makes the message to appear attractive.
3. There is immediate reception of the message when they are sent.
4. Messages are presented both visually and audially which makes them clear to the audience.
5. Televisions cover relatively large areas ie all those with transmission waves.

Demerits of televisions.

1. Televisions take long to be prepared and altered.

2. Television advertisements are costly.
3. It has limited audience because it is only a few rich individuals who can afford to buy television
sets.
4. Television adverts leave no reference ie once a message is received on television, it is forgotten
after sometime.
5. The information on television is not detailed enough compared to newspapers.
6. Television adverts do not benefit the blind.
7. Transmissions on televisions is limited to a particular geographical distance ie most areas
especially in hilly areas are not reached.

C. The Press.
This involves advertising through newspapers, magazines, journals, brochures, circulars etc.

i. Newspapers.
The messages are published daily, weekly, monthly etc. in;
 The New Vision.
 The Daily Monitor.
 Bukedde.

Advantages of newspapers.

1. Cover a wider fraction of the population thus effective for consumer goods.
2. Allow the inclusion of necessary details, pictures and illustrations of the product.
3. Provides permanency of information for reference purposes.
4. The advert messages can be repeated in some daily newspapers.
5. Suitable for urgent information because are published daily.
6. Can allow a limited use of colors. This makes the message more attractive.
7. Give classified messages interesting to the reader for example sports, etc.
8. Are easily circulated ie a newspaper bought by one person can be read by many people and sent
to distant places.
Demerits of newspapers.

1. Newspapers are exclusively for those who can read yet many Ugandans are illiterate.
2. Advertising in newspapers is quite expensive which makes the cost of advertising to be
recouped from higher prices charged to customers.
3. They have a short life span since each day they are thrown away or used for other purposes for
example wrapping books.
4. Are mainly designed in limited languages which are considered to be with a big following.
5. Very few people can afford to buy newspapers since it requires one to buy a newspaper daily
which is quite expensive.
6. It doesn’t benefit the blind.

ii. Magazines.
These are mainly published weekly or monthly and contain a wide range of information.

Advantages of magazines.

1. Provides permanency of information thus reference is possible.

2. Have both domestic and international circulation thus wide coverage.
3. Have a relatively longer life span compared to newspapers.
4. Allow the inclusion of necessary details and illustrations about the product.
5. Permit the use of colors which makes the product more attractive.

Demerits of magazines.

1. Mainly target particular classes of people thus lack general coverage.

2. Are more expensive than newspapers.
3. Most magazines are written in English.
4. Tend to be more persuasive than informative.
5. Are not suitable for urgent information because they are published periodically.
6. Some magazines carry immoral pictures which may spoil children.

D. Outdoor advertising.
This involves all advertisements displayed in open places for everyone to see. For-example
outside stadiums, on tree trunks, on the streets.

Outdoor advertising takes the following forms;

 Sign posts.
 Neon signs.
 Bill boards.
 Posters.
 Banners.
 i. Posters.
This involves displaying written information on walls/public buildings.

Characteristics of posters.

 They are attractively designed which encourages people to read them.

 They are suitable for items/services that require a big audience to attend.
 They have a wider coverage but they are affected by weather especially rainfall.

ii. Sign posts.

These are permanent in nature and are designed on wooden or metallic materials and
displayed in strategic places alongside roads.
iii. Banners.
These are pieces of cloth on which advertising information is printed. They are displayed
in strategic places for the public road.

NB: However, they are vandalized by people who want to use them as bedsheets or curtains.

iv. Neon signs.

These are installed o major buildings/shops and have light in them which enables the
public to read the message day and night.

Advantages of outdoor advertising.

1. The message can be placed in strategic points where the intended audience can easily read the
message for example banners.
2. They cost little and their lifespan is long for example sign posts.
3. Posters have a wide spread coverage.
4. Posters have a high degree of flexibility in placement ie they can be placed anywhere.
5. The message is received for 24 hours for example the neon signs.

Disadvantages of outdoor advertising.

1. The message can only be seen for a brief moment by the people including motorists.
2. They are limited to a particular geographical area.
3. It is very expensive to install and buy neon signs and to maintain.
4. Can be vandalized/destroyed by rain and some people who use them as beds sheets and
firewood.
5. They do not favor the illiterate people who cannot read.
6. The advertiser cannot select the type of audience and the messages cannot be changed as easily
as possible compared to radio advertising.
 E. Window display.
This is the attractive arrangement of goods in glass windows of shops in such a way that it will
attract passerby customers who may stop, look and buy.

NB: Neatly arranged goods create a powerful impact on a customer’s mind which accounts for impulse
buying ie buying goods you didn’t intend to buy.

Merits of window display.

1. Leads to window shopping that impresses and influences the buyer’s mind to buy items.
2. It is not costly to arrange goods on display in the shop.

Demerits.

1. Prospective customers are not in position to see the advertised products physically.
2. Window glasses are expensive to buy and install.
3. The blind people do not benefit from this from this form of advertisement.

F. Direct mail advertising.

This involves the use of catalogues, circulars, pamphlets and post cards, brochures to convey the
advertising messages to a particular audience.
G. Film side/cinemas.
This involves recording the advertisement on short films/slides that are then projected to the
targeted audience like teenagers, house wives (17-35) years and it is mainly done in urban areas.
H. Specialty advertising.
This is where business firms offer special articles to customers with their trade mark, name and
symbols. Such articles include cups, t-shirts, calendars etc.

I. Trade fairs and exhibitions.

This is where many producers gather together to display their different products to prospective
few buyers for example Annual International Trade Fair organized by UMA at Lugogo show
grounds, Art Exhibitions, Jinja agricultural show grounds by farmers.

Differences between a trade fair and exhibition.

Trade fair Exhibition

Held once/twice a year by numerous Held more frequently by few traders for example
traders/producers. Art exhibition.

Covers a variety of goods and services. Concentrates on only few goods and services.

Organized on national/international business. May not be international in nature.

 Traders are allowed to sell and goods are Traders are not allowed to sell but should make
normally sold at factory prices business contacts with prospective buyers.

Merits of trade fairs and exhibitions.

To consumers/public.

1. Local consumers will be able to see a great variety of new products.

2. Consumers can look at, touch products, ask questions and get advice on how a particular
product is used.
3. Consumers may be given a chance to buy products at a lower factory price.
4. Information regarding distribution of goods is given to the public.
5. Save the public from walking long distances to different shopping centers looking for different
products.

To producers.

1. The producer can make his/her products known to many people.

2. They can get a chance to see other’s products and exchange ideas.
3. Creates a great awareness thus high turnover for the producer.
4. Trade fair is one way of carrying out market research thus enabling producers assess the
demand of their products.
5. New products can be launched on the market by producers.
6. Producers come into physical contact with prospective buyers thus people can express their
complaints.

Factors considered when selecting an advertising medium.

1. Cost of the medium.

More expensive goods can be advertised through expensive media for example televisions,
press while cheap goods can be advertised by posters, direct mail etc.

2. Social class to which the medium appeals.

Local newspapers are effective for ordinary people/road dwellers while magazines appeal to the
elite class.

3. The geographical area covered by the medium.

Newspapers, radios and televisions have a wide country appeal while posters and cinemas have
more local appeal/cover a small area.

4. Age group to which the medium appeals.

Magazines, television and cinemas appeal to teenagers but radios and newspapers appeal to the
mature class.
 5. The economic group to which the medium appeals.
The product to be demanded by rich people, one can use televisions, magazines and journals
but with low income earners sign posts, local newspapers, radios can work best.

6. Speed and urgency.

If goods are required in the market as soon as possible then televisions and daily newspapers
are very good for speed. Others like magazines, trade fairs take long.

7. The purpose of advertising campaign.

If the aim is to explain the use of a technical product, televisions or cinemas are the best.

8. Number of people received by the medium.

Newspapers reach more people than magazines yet radios reach more people than televisions.

9. Nature of product being advertised.

A product for general consumption is being advertised by radios and newspapers while when a
product for a special type of consumers is best advertised by a catalogue and a journal.

Advantages of advertising.

To the producer.

1. Informs the new customers the availability of his products.

2. Persuades customers to buy his products instead of other producer’s products.
3. Retains his market so that he doesn’t lose some of the customers to another manufacturer.
4. Creates brand preference and loyalty leading to increase in sales and profits.
5. Constantly reminds the consumers of the availability of the products thus increasing sales in
areas of low demand.
6. Gives the product publicity which helps the producer to outcompete other rivals.
7. The producer can inform his customers the use, price and special offers of his products thus
gains reputation.

To consumers.

1. Enables consumers to know the available goods on the market for proper choice making.
2. Consumers enjoy high quality goods and services as a result of competition among producers
and low prices re charged to the consumers.
3. Provides necessary information on the salient features of different products foe example size,
quality, design which enables the consumers to compare different products.
4. Helps consumers to know the technical use of products and their application.
5. Helps consumers to quickly identify what he requires and enables him to buy it quickly.
Disadvantages of advertising.

To the consumer.

1. The cost of advertising may increase the final prices of goods.

2. Consumers may be tempted to make unplanned purchases due to persuasive advertising.
3. A consumer may be misled through false advertising as producers may exaggerate the utility of
their products.
4. Persuasive advertising may make choice difficult to consumers.
5. Advertising may lead to brand loyalty which may result into exploitation of consumers.
6. Intensive advertisements create monopoly situations leading to consumer exploitation in form
of poor-quality goods and high prices.
7. Advertising points out only the positive aspects of the product and the negative ones are left
out.
8. Some advertisements may have negative effects on morals of the society for example
advertisements in certain areas stress the role of sex in life.
9. Many businessmen deceive the public by advertising price discounts/reductions when in actual
sense they have increases the prices.

To the producer.

1. Advertising may be too expensive for a producer to afford especially screen media/cinemas,
televisions and printing media (newspapers and magazines).
2. Advertising can make stronger firms to outcompete others thus weak firms are pushed out of
the production and this leads to unemployment.
3. Consumers may be tempted to make unplanned purchases due to persuasive advertisements.

ADVERTISING AGENCIES/FIRMS.

An advertising agency is a specialized firm in the fields of advertising that undertakes designing events,
selecting the media to use and carrying out promotional campaigns for other companies.

Services offered by advertising agencies.

1. Offer export advice on the media to be used.

2. Arrange for the publication/broadcast of the advertisements at very short notice through their
contacts with the media venders.
3. Design and make short cinema and television slides to show short films about the product.
4. Have art section that designs the advertising materials used in newspapers, brochures,
catalogues.
5. Have contacts with printing presses and arrange for printing of posters and leaflets.
6. Arrange for installation of neon signs, sign posts and bill boards.
 7. Handle all the arrangements for sales promotion campaigns, checking entries, receive and
dispatching prizes.

Types of information a businessman should give the advertising agent to enable the designing of a
suitable advertisement.

1. Name of the product.

2. Nature/Composition of the product.
3. Strength of the product.
4. Weakness of the product.
5. The targeted market for the product.
6. Pricing of the product.
7. Name of the business.
8. Uses of the product.
9. Location of business.
10. Amount the advertiser is prepared to spend.

Guiding questions.
 WAREHOUSING.
This is storage of goods/raw materials while waiting for demand, sale, clearance or processing.

NB: It is essentially the provision of storage facilities for the goods on their way from producers to
consumers.

Roles of warehousing in trade/business.

1. Provision of storage facilities for goods to protect them against loss, damage and pilferage.
2. Enables the stabilization of prices by checking on the supply of goods otherwise excess supply
would push them down.
3. Enables steady supply of goods throughout the year because if all stock is sold off within a short
period, traders will be out of the business.
4. Reduces on operational expenses of the trader by the way of saving on transport costs.
5. Facilitates payment of duties/taxes. A trader may look for funds to pay taxes while the goods are
in the warehouse.
6. A trader may look for the market of the goods while goods are still in the warehouse.
7. Preparation of goods for sale. Goods can be graded, branded, packed and processed while still in
the warehouse.
8. Stocking in anticipation of demand. The trader may expect future demand for the goods so he
prepares himself for the market by stocking before-hand.
9. Facilitates entrepot trade because goods are kept in preparation for re-export.
10. Gives room for further production because producers are given chance to produce more since
whatever is produced is disposed off.
11. Reduces congestion at the terminals. Goods are easily removed from the terminal to the stores
to create space.

Types of warehouses.

a. Private warehouse.
b. Public warehouse.
c. Bonded warehouse.

A. Private warehouses.
These are warehouses which are owned by producers, retailers and wholesalers individually.

i. Producer’s warehouse.
This is owned and operated by a manufacturer to store goods and raw materials.

NB: It may be located near the factory, market or at any convenient point of distribution.
It is not very large because wholesalers normally collect finished goods immediately they are produced.

ii. Wholesaler’s warehouse.

Are owned privately by wholesalers who handle large stock. They own these
warehouses to ensure steady flow of goods.
iii. Retailer’s warehouse.
Are owned by retailers and are normally located near the premises of the retailer.

They are relatively small compared to wholesaler’s warehouse.

iv. Agent’s warehouse.

This is owned by agents. Agents are people or organizations which are given authority to
sell goods on behalf of the owner.
v. Giant bins/silos.
These are warehouses used by farmers to store agricultural products. They are usually
located near farmers’ fields.
B. Public warehouse.
This is a warehouse established and its primary activity is to provide storage and related
distribution facilities on a rental basis.

It is open to the public for hiring/renting. They are often found near terminals like seaports, airports and
railway stations for use by traders who do not have storage facilities for their own.

Benefits of public warehouse.

1. Provides temporary accommodation of goods for businessmen with no sufficient room of their
own.
2. Reserves supply thus saving large quantities of goods which would otherwise be wasted by bad
weather.
3. While in warehouses, goods can be prepared for sale ie weighed and packed.
4. The warehouse provides protection by insuring against loss by fire, theft etc.
5. Distribution costs are kept low by use of public warehouse.
6. Enables the stabilization of prices.
7. Facilitates stocking in anticipation of demand.

C. Bonded warehouse.
This is a type of warehouse that stores taxable/dutiable goods ie goods which tax is to be
levied/imposed/charged.

NB;

i. They are often found at customs clearance points.

ii. Goods in a bonded warehouse are said to be under bond/in bond.
iii. They are managed by government officials.
Importance of bonded warehouse.

To the importer/trader.

1. Gives the importer time to look for money to pay the duties.
2. The importer can look for the market while goods are in bond.
3. Lower duty is paid as a result of some goods losing weight while in bond.
4. Gods can be advertised and prepacked for sale while in bond for example branding, sorting,
packaging.
5. If the importer sells goods while in bond, the liability for customs duty passes onto the buyer.
6. If the importer decides to re-export the goods, he doesn’t pay the customs duty but pays only
storage charges.

To the government.

1. Enables the government to check on the balance of payment position of the country through
data provided by the customs authority.
2. It cannot be easy to evade/dodge taxes since the goods cannot be released before clearing the
import duty.
3. Smuggling can be checked by the customs authority.
4. The government is able to collect revenue by taxing the goods in bond.
5. The government can identify harmful/demerit/dangerous goods imported in the country.

ORGANIATION OF THE WAREHOUSE.

Administration department.
This department is divided into two;

i. Secretary’s department.
This is headed by a company secretary or legal office. It is mainly concerned with records and
communication of the warehouse and handles all legal procedures and documents of the
warehouse.

Responsibilities/roles of a company secretary.

1. To make contact with parties involved.

2. To keep records of the company by opening up the necessary files.
3. To improve working conditions and general welfare at the warehouse.
4. To be responsible for the legal formalities of the warehouses as a company ie making sure that
the company be registered and is given the necessary documents.
5. Responsible for recruiting, training, promoting, demoting and dismissal of workers.
 ii. Finance/Accounts department.
It is in charge of accounting issues and is headed by a chief accountant/Finance manager.

Responsibilities/roles of accounts department.

1. Recording, classifying, summarizing, interpreting and reporting business transactions of the

warehouse.
2. Preparation of invoices and statements of account to customers.
3. Receiving payments from customers on behalf of the warehouse.
4. Making payments to supplies.
5. Preparation of budgets and planning the activities of the warehouse.
6. Preparation of final accounts at the end of the financial period for example income statements
and balance sheet.
7. Preparation of payroll for the organization/warehouse.
8. Controlling the amount of money within the organization and ensuring that reasonable profits
are made.

Merchandize (Specialist) department.

This department is broadly divided two sections;

i. Purchasing department.
This does the procurement and restocking of goods that are required.

Responsibilities.

1. Buying, transporting and receiving of goods.

2. Controls stock.
3. Identifies suppliers.
4. Places orders on behalf of the organization.

ii. Sales department.

This is in charge of selling the organization’s products and it is headed by the
sales/marketing manager.

Responsibilities.

1. Publicity/advertising the goods ie handling all arrangements for sales promotion.

2. Dealing with inquiries and complaints from customers.
3. Receiving orders from customers.
4. Processing the orders and arranging for delivery of goods to customers.
5. Keeping up to date records of customers

Illustration.

Characteristics/Essentials of a good warehouse.

 1. Should be in a good location. A warehouse must be conveniently located near the area where
goods it holds are produced.
2. Should be spacious. The warehouse must be of large size to allow room for expansion.
3. Should have proper handling equipment/facilities. A warehouse must be fully equipped and has
all necessary facilities for long-term storage facilities to handle perishable goods like milk and
fish for a long time.
4. Should have efficient staff. The efficiency of a warehouse depends largely on the commitment
and skills of its staff.
5. Should have appropriate and speedy transport system to ease movement of goods to and from
the warehouse.
6. Should be safe and free from rodents and destructive insects particularly for agricultural
products.
7. Should have both loading and offloading equipment.
8. Should have good protection, such as fire extinguishers and insurance policies that will cover
any damages and losses should the goods be destroyed while goods are in it.
9. Should have tight security so that the risks of theft, burglary etc. are minimized.
10. Should have a good and sound inventory system to minimize the incidence of loss resulting from
either carrying too much or too little stock.

Guiding questions.
 MARKET RESEARCH.
This is a process of investigating a potential or existing market in order to obtain useful information,
analyze it and then formulate strategic policies for business’s success.

Objectives of market research.

1. To find out tastes and preferences of consumers.

2. To find potential markets.
3. To know the required quantities.
4. To identify the needs f different groups of people.
5. To identify the right channels of distribution.
6. To find out the best methods of adverting a given product.
7. To gauge the levels of competition.

Importance of market research.

1. Helps entrepreneurs to make goods decisions. This is possible because from the data collected,
they can identify means of improving their products and thereby improving their products and
thereby their business.
2. Helps businessmen predict the future of their products. For example, they forecast demand for
a new product.
3. Enables businessmen to properly monitor their business operations in order to maintain or
improve performance.
4. Forms a basis of marketing. The business’s marketing decisions need to be supported by
research in order to meet customer’s need and outsell competition.
5. Eads to new inventions. Through continued research, businessmen become innovative in order
to produce goods that are needed by customers.

Methods of carrying out market research.

1. Observation.
This involves watching certain factors in a given market. With this research method,
manufacturers simply watch and make conclusions without asking any question. Areas of
interest while observing include; people’s choices, demand, source of supply, price, consumer’s
complaints, effectiveness of labels and packaging materials.
2. Internal research.
This involves keeping of customers, suppliers and produce financial statements at the end of
every trading period by businesses. From these records sales’ trends can be identified and
analyzed.
3. Pilot study.
 Sometimes a manufacturer produces a limited amount of a new product. The manufacturer
selects a small defined area in which samples are sold.

4. Consumer surveys.
This involves interviewing different customers who are chosen at random from different
sections of the society.
5. Questionnaires.
Here organization prepares short and clear questions to be answered. The answers may be
written or oral.

Steps involved in market research.

1. Define the problem. This means that the manufacturer has to clearly state what he wants to find
out.
2. Design/plan the research. This involves identifying different tools and methods that are to be
used in collecting information.
3. Collection of data. Using the defined tools, the researcher collects primary or secondary data.

NB: primary data is information that is gathered by means of questionnaires, samples etc.
Secondary data is that which obtained from internal record and data previously collected.

4. Compiling the collected data. Data is compiled in such away that it can be analyzed to find out
whether the intended results have been obtained.
5. Interpreting the results. The data collected is analyzed, interpreted and expressed in economic
terms. This is presented to the user in the form of a report.

Problems involved in market research.

1. It is expensive because expert researchers have to be employed, and materials used may be
expensive.
2. If the number of people interviewed is small or if the area from which the data collected is
limited, results will be biased leading to wrong decision making.
3. Poor transport and communication network. For the producer to capture a good market share
for his/her products, he/she needs to know the needs of most consumers who may be different
areas. However, it is difficult to reach them if communication and road network is poor.
4. Lack of sufficient funds. Many traders fail to carryout research because they cannot afford it.
5. Language barriers. Different languages are spoken in different areas. In such a case, if one is to
use different researchers’ information, he/she has to use different researchers who are fluent in
the respective languages. This adds to the cost of marketing.

Guiding questions.
 TRANSPORT.
This is the physical movement of people and goods from one place to another.

Roles/importance of transport in commerce.

1. Promotes production because it enables continuous supply of raw materials and steady supply
of finished goods.
2. Promotes specialization and exchange because producers in different parts of the country/world
can concentrate on a particular activity and later exchange.
3. Widens the market of goods and services by facilitating sale of goods in distant places.
4. Makes it possible to transfer surplus goods from areas of plenty to areas of scarcity thus
stabilizing prices.
5. Avails customers with a variety of commodities which gives them chance to exercise choice.
6. Increases the mobility of factors of production especially labor and capital for example workers
can move to and from the places of work.
7. Makes it easy to exploit new, redundant and distant resources for example the construction of a
new road will lead to exploitation of forests, minerals oil etc.
8. Facilitates international trade since goods are produced and sold in different parts of the world.
9. Facilitates communication which is vital in commerce for example the post office uses transport
to carry letters from one place to another.
10. Increases the value of goods when they are taken to places where the demand for them is high.

Elements of transport.

These are basic requirements for transport to exist and they include;

1. The way.
This is the surface on which people and goods move for example sea, air, land, bridges etc.

2. The unit of carriage.

This is the instrument for carrying both people and goods for example vehicles, ships,
aeroplanes, trains, boats, railway wagons etc.

3. Method of propulsion.
Refers to the force/power which drives the unit of carriage for example petrol engine, human
energy, electric motor etc.

4. The terminal.
This is a point where goods are loaded and offloaded for example stations, airports, taxi parks,
etc.
Types/forms of transport.

a. Road transport.
b. Water transport.
c. Air transport.
d. Railway transport.
e. Pipeline transport.

A. ROAD TRANSPORT.
This involves the movement of unit of carriage on a dry surface on earth.

Merits of road transport.

1. It is flexible. Roads can deliver goods from door to door and also switching from one route to
another is possible.
2. Goods can be sold on the way.
3. It is suitable and economical for small consignments.
4. Much less capital is required to set up road transport than air and railway transport.
5. It involves minimal handling and damage to goods.
6. It is much cheaper and faster than railway over short distances.
7. It is not restricted t a regular time table thus no delays.
8. It facilitates advertising because goods can be advertised on the trucks.
9. It is more readily available/reliable than other forms of transport.
10. Co-ordinates other forms of transport because it is a feeder to and from major terminals.
11. Can serve both rural and urban areas unlike railway which only serves areas with railway
stations.
12. It involves lower insurance costs than other modes of transport.
13. Suitable for delivery of perishable and urgently required goods for example flowers, drugs,
newspapers over short distances.

Note: The major function of road transport is flexibility.

Disadvantages of road transport.

1. Can handle limited loads due to the smaller carriage capacity thus not effective for bulky
consignments for example iron core, coal etc.
2. It is often not easy to organize a return journey because of lack of fixed timetable schedules
which turns out to be wasteful.
3. It is slow compared to air, railway transport thus not suitable for perishable goods for example
flowers over long distances.
 4. It is affected with a problem of highway robbers where goods and money in transit are stolen
especially in insecure areas like Mabira.
5. It is expensive over long distance due to fuel prices thus railway and air are cheaper.
6. Costs of road repair and maintenance is high for example filling potholes, installing road signs
and traffic lights.
7. Large/heavy trucks are unsuitable for some routes because they can cause serious damage for
example cracks on road surface.
8. Road accidents are very common causing heavy losses.
9. It faces problem of traffic congestion especially during busy hours leading to delays in delivering
of goods and passengers.
10. It may not be used during bad weather on marram roads in rural areas.

Problems faced by business community when using road transport.

1. Poor roads especially marram roads which are easily damaged by heavy rains.
2. High costs of operating transport business due to high prices of fuel and other expenses like
UTODA’s fees, drivers’ fees, high taxes, insurance premiums mainly for third party policies.
3. Highway robbers/insecurity where goods and money in transit are stolen.
4. Road accidents are at high rates in Uganda causing heavy losses to the business community.
5. Faces problems of traffic congestion leading to delays in delivery of goods.
6. Damages made on goods in transit may occur due to poor handling.

B. RAILWAY TRANSPORT.
This involves carrying of goods and passengers by trains.

In Uganda, the railway lines connect major towns such as Kasese, Kampala, Jinja.

Merits of railway transport.

1. Convenient and suitable for carrying heavy and bulky goods over long distances.
2. It is not much affected by weather conditions unlike road transport.
3. Because of regular timetable, return journeys can be arranged and traders can plan in advance
how to transport their goods.
4. Special/containers have been built capable of transit by railway trucks which reduces risks of
damage.
5. Cheap for transporting of goods over long distances.
6. The rate/cases of accidents are lower compared to road transport thus sales movement of
goods and passengers.
7. No traffic congestion on railway lines because the routes are clear.
8. Can carry amorphous and awkward shaped goods because of the large space.
9. In Uganda, it is not profit motivated thus cheaper for consumers.

Demerits of railway transport.

 1. Relatively slower than road transport thus not suitable for urgently needed and perishable
goods.
2. Serves only those towns that have railway stations. People who live away from railway lines may
not use railway transport.
3. It is not flexible. Routes are fixed and so there will be a need for an additional form of transport
to and from the railway terminal which could lead delays.
4. It has a fixed schedule (timetable). At times trains are timetabled and so companies using them
are limited by these schedules. And the set timetables are difficult to adjust and hence cause
inconveniences and delays.
5. Initial cost of setting it up are quite high. It is expensive to construct railway lines, to provide
trains, to build railway stations and to acquire trucks lifters like cranes.
6. Railway transport substances are usually substandard. In some countries, railway services are in
the hands of the government and therefore, the aim is to serve the public and not to make
profits.
7. It is expensive for short runs and small consignments.

Types of trains.

i. Cargo train.
This is specially designed to carry goods from one terminal to another.
ii. Passenger train.
This is a train designed to carry passengers.

C. WATER TRANSPORT.
This involves the movement of goods and passengers by water.

Vessels used in water transport.

1. Bulk carriers.
These are vessels purposely built and designed for transporting specific products, such as crude
oil which is transported in tankers, or perishable goods on refrigerated ships, or cars on specially
designed car carrier ships.
2. Tramp ships (chartered).
These are vessels hired by companies to carry goods and materials on a charter basis. They carry
goods to any place according to the contracts they make with clients. They do not have a fixed
timetable and they do not follow particular routes.
3. Liners.
These are vessels which have a dual purpose, carrying passengers for tourism purposes and
cargo but mainly they carry passengers.
4. OBO ship.
This is an ore/bulk/oil carrier which uses different holds to transport a mixed cargo at the same
time.
5. Container ship.
This is built to carry large but standard-sized containers.
Advantages of water transport.

1. The way is free ie there is no payment for using a water body

2. It is suitable for carrying bulky goods over long distances.
3. Special ships can be constructed for transportation of specific cargo for example oil tanks.
4. It is a cheaper form of transport over long distances.
5. Sea transport has a large carrying capacity ie very large ships may be built to increase to tonnage
which reduces carriage costs.
6. There are less accidents/risks compared to other forms of transport since the way is wide.
7. There is no traffic congestion on water transport since the way is wide.
8. A return journey can be arranged for a ship because it follows a timetable.

Demerits of water transport.

1. It is limited to particular countries which have access to waterbodies.

2. It is expensive to construct and maintain harbors and ships.
3. Congestion at ports may lead to delays in delivery of goods.
4. Accidents on waterbodies may lead to total loss as compared to other means.
5. It is not flexible because goods cannot be delivered to their final destination.
6. It can easily be affected by weather conditions like storms, fog, water disturbances.
7. Insurance premiums are higher since goods are transported for a long time.
8. It is very slow thus not suitable for perishable and urgently required goods.

Documents used in water transport.

1. Charter party.
This refers to the agreement between company and the sender of the goods to carry goods to a
specified destination.
2. Freight note.
This is a document drawn up by a shipping company indicating charges for shipping the goods.
3. Dock warrant.
This is a document which is a given to the owner of the goods stored at the dock warehouse.
4. Bill of lading.
This is the most important export document used whenever goods are send by water. It is
prepared and issued by the shipping company.

Functions of the bill of lading.

1. It acts as evidence indicating the quality and description of goods sent on a named ship.
2. It acts as evidence of a contract of a contract of carriage between the shipper and the ship
owner.
3. It is a document of title to the goods mentioned therein.
4. It informs the customs authority of the goods being imported or exported and the country of
destination respectively.
 5. It is receipt for goods in good condition on board and incase of any damage this is noted on the
bill.
6. It enables the holders to negotiate for better terms of credit from bank since it is a document of
title.
7. In the event that goods mentioned therein get damaged in transit, the holder can use the bill to
make an insurance claim, hence receiving compensation, thus reducing the trader’s risk of the
loss.
D. AIR TRANSPORT.
This involves the movement of cargo and passengers by means of aircraft/cargo planes.

Merits of air transport.

1. It is the fastest mode of transport thus suitable for transporting perishable/delicate and urgent
needed goods over long distances for example flowers, drugs, vegetables etc.
2. It is suitable for transporting cargo of high value but of low weight for example gold, diamond,
jewellery.
3. No traffic jam because the way is wide and can be used by many planes at ago.
4. Customers receive goods in steady supply within a short time after ordering them thus air
transport provides customer care.
5. Damage to cargo is reduced in air transport due to special handling equipment at the airport for
loading and offloading.
6. Aircrafts move on scheduled timetable making it possible for a trader to plan his journey.
7. Offers comfort to passengers during travelling.

Demerits of air transport.

1. It is most expensive for both movement of goods and passengers therefore not suitable for
small businesses with small capital.
2. There are relatively high risks of crashing and high jerks have become a problem.
3. Sometimes, scheduled flights delay and they inconvenience traders who may be in a hurry.
4. It is not ideal for certain types of goods for example flammable goods like fuel, explosive
chemicals and amorphous.
5. Bad weather conditions may cause delays due to interruptions in the flights.
6. Many formalities are involved before travelling by air ie one has to secure documents like
passports, visas.
7. The construction and maintenance of aircrafts and air fields is expensive.
8. It is not flexible ie doesn’t deliver goods and passengers to final destination.
9. Incase of an accident, the chances of surviving and saving of cargo and people’s lives is low.

E. Pipeline transport.
This is a mode of transport where pipes are used to carry gases, water, oil and other liquids.

Uganda National Water and Sewage Corporation employ this method to transport water and sewage to
disposal.
Merits of pipeline transport.

1. After construction, pipelines are very cheap to maintain.

2. Labor saving because the product just flows through pipes from one point to another with
minimal assistance.
3. It is suitable for carrying products over rough lands where roads and railway services would be
difficult to operate.
4. Pipelines are flexible because extensions can be made to serve many areas with fewer risks of
pilferage.
5. Large volumes can be transported easily in a short period.
6. No accidents, stop overs and handling inconveniences.
7. It is reliable because the product always reaches the destination.
8. It is a very safe and convenient method of transporting highly risky products like petroleum.

Demerits of pipeline transport.

1. Requires heavy initial capital for construction and installation of pipelines especially with long
distances.
2. It is used for only liquids and gasses but not solid items.
3. Incase of leakage of the pipe, items being transported will be lost.
4. It may be wasteful if not used to full or near capacity ie the transportation cost per unit of the
commodity must be low.
5. Pipes may contaminate the products due to rusting.
6. Natural disturbances like earthquakes, volcanic eruption can break the pipes.
7. Repairs and maintenance are costly and difficult to locate when pipes burst.

CONTAINERISATION.

This is the transportation of cargo in standardized containers that may be metallic/wooden and sealed
by the exporter/his agent and sent to the importer.

NB: Automatic cranes are used to do the loading and offloading of goods.

Terms used in containerization.

a. Full container load.

The whole container carries goods of one firm ie the shipper loads the container with cargo
destined for one consignee which then is delivered intact to the importer.
b. Less than full container load.
The goods of different exporters are put in the same container and on reaching the port of
destination, the container is opened then cargo is deconsolidated and delivered for different
consignees.

Advantages of containerization.
 1. Enables the use of modern cargo handling machines thus saving time and labor that would
be involved in loading small packages onto trucks.
2. Containers are better designed and suitable for large consignments which increases the
volume of freight.
3. Theft is minimized as containers are sealed as their contents are not exposed.
4. Minimizes damage and contamination since goods are not handled by many people.
5. Special containers may be built to handle special types of goods for example fuel, chemicals,
food stuffs.
6. Takes up small space as compared to space taken by small packages of different sizes not in
containers.
7. Insurance premiums are lower on containerized cargo because of fewer risks.
8. Movement of the containers in the seaports is comparatively simple and cheap because
containers are fitted with devices that assist in the movement.
9. It minimizes the need to construct large warehouses for keeping goods since goods are
safely kept in the containers.
10. Containers can be put to other purposes after goods have been removed for example retail
shops.

Disadvantages of containerization.

1. Not suitable for small quantities which cannot fill the container. This may result in loss and
damage as the container has to be filled with other exporters’ goods.
2. Requires special machinery which may be expensive to construct and maintain.
3. Increases the costs of goods to the importer.
4. Unsuitable for some goods for example delicate, perishable and awkwardly shaped goods.
5. The use of containerization results into unemployment since special equipment is designed to
handle the containers and goods instead of human labor.
6. Special machines meant to load and offload machines may not be used for other purposes.

Terminologies used in transport.

a. Dry port.
This is an inland container terminal where containers are packed and sealed ready for market.
b. Common carriers.
These are organizations/individuals that make business out of carrying other people’s goods
from one place to another.

NB: There may be local or universal carriers.

i. Local carriers.
These operate on fixed routes and accept goods for only those destinations that are served
by their routes.

ii. Universal carriers.

These operate on a much wider scale and accept goods for any destination within a country.
 c. Charter party.
This is an agreement of hire between the owner of the ship and the hirer (trader) of the ship
that gives hirer absolute control over the vessel for the period of contract.
d. Demurrage.
This is a free charge on a trader due to delayed removal of cargo from the transporting firm.

e. Liner conferences.
These are associations formed by the liner companies to regulate the rates charged to
customers in a bid to withstand unfair competition from tramps.
f. Airway bill.
This is a contract of carriage between the air line company and the exporter showing the details
of goods and terms and conditions of carriage.

Factors considered when choosing means of transport.

1. Nature/kind of goods.
Fragile and perishable goods need special handling and special care thus air transport is the best
mode for such goods.
2. Weight/volume of goods.
Heavy goods may be economically sent through slower means of transport thus railway and
water are the best modes.
3. Speed and urgency.
Goods required urgently may be sent by road in preference on rail or by air in preference to
water.
4. Costs of transport. There should bear a reasonable proportion to the value of goods. Air
transport though very expensive is considerate in transporting valuable goods like gold,
diamond, jewellery.
5. Distance to cover.
For short distances, road transport is the best, for longer distances, railway transport may be
advisable and for very long distances, sea and air transport may suit most.
6. Terminals.
If goods are to be sent by air or sea there must be appropriate points near both loading and
offloading areas.
7. Flexibility of the means of transport.
Where sales are to be made on the way and where switching off from one point to another is to
be done, road transport is the most convenient.
8. Availability of the mode of transport system/means.
Road transport is more readily availability than other modes of transport.
9. Risks involved in the means of transport.
Water transport has less risks compared to air transport.

Problems that face transport industry in Uganda.

1. High construction and management costs. There are many lakes, rivers, hills and mountain, this
makes road construction expensive because valleys need to be filled, hills levelled, swamps
reclaimed, which all adds to initial cost.
2. Weather. Roads are also affected/damaged by heavy rains experienced in some areas. This
means that repair work has to be done after heavy rains.
3. Inadequate technical skills. This is in form of few engineers who are qualified to work on
construction and maintaining roads.
4. Corruption. Some of the available engineers are corrupt and do not use all the money budgeted
for road construction. This makes the roads they construct deteriorate within a short period.
5. Highway robbery. Sometimes, thugs waylay travelers and rob them of their belongings.
6. Limited network. People who live in remote areas may not be able to use air transport because
they live too far away from the nearest airfields and airport.
7. Congestion. There are few roads especially in Uganda and those available are not well planned.
This leads to congestion which causes traffic jams especially in urban areas during rush hours.