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2020 WAEC Commerce Theory (a) List six credit instruments used in business transactions (b) Mr. Sylva is considering hire purchase...

Commerce
WAEC 2020

(a) List six credit instruments used in business transactions

(b) Mr. Sylva is considering hire purchase as a source of finance for his business operations. State four advantages and three disadvantages of this source of finance.

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Explanation

(a) Credit instruments used in business transactions:

  1. Promissory note
  2.  Bill of exchange
  3.  Cheque
  4. Letter of credit
  5. Bond
  6. Bank draft
  7. Trade bill
  8. Accommodation Dill.

(b) The advantages of hire purchase as a source of finance for Mr. Sylva's business operations are:

i. Promotion of durable goods: It facilitates the promotion of durable goods.

ii. Increase in profit: The profit will increase as a result of the availability of hire purchase.

iii. Increase in turnover: It increases the rate of turnover.

iv. Large-scale production: It leads to large-scale production as a result of an increase in demand.

v. Opportunity to acquire expensive goods: It presents the opportunity to acquire expensive goods which he or she could not have been able to buy by cash

vi. Access to credit: He has access to credit which he could otherwise not have obtained from banks.

The disadvantages of hire purchase as a source of finance for Mr. Sylva's business operations are:

i. Additional costs: It usually brings additional costs as a result of court action for recovery of den

ii. Court action: It can lead to court action.

iii. Paying more than necessary: He will pay more than he Would pay under cash transactions.

iv. Payment of a high interest rate: He will be paying a high rate of interest

v. Inability to negotiate for better deals: He may not be able to negotiate for a better deal


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