Understanding Money: From Bartering to Electronic Transactions

1. Nature of MoneyLesson 1 – Barter system and Functions of Money

2. Monopoly Game • Have you played Monopoly Game before? • Before you start the game, you will be given some money. Can you tell me what’s the money for?

3. Monopoly Game • The money in the game is used for: • Purchasing of properties • Building houses • Paying for rent/penalty to other players • Others

4. Concept of Bartering • Before the invention of money, people bartered for goods and services they needed with others. • The traders must agree on a fair exchange which both parties accept.

5. Problems of the Barter System • Coincidence of wants: • It is a situation in which the goods or services that one party desires for is what another party is willing to give up. • Therefore, you have to find somebody who wants to trade the item that you want to get AND who also wants the item that you want to trade off.

6. Problems of the Barter System • With barter there will be less specialisation because it is not easy to have the coincidence of wants. • If you can't find someone to trade with, you will have to produce the thing you want. • Less specialisation means less output and more scarcity.

7. What is Money? • Money is a medium of exchange in transactions that can act as a unit of account and a store of value.

8. Unit of Account • Prices are quoted in dollars and cents. • We can set prices to represent the values of goods and services.

9. Store of Value • Money allows us to transfer purchasing power from present to future because we can save the money for future use. • The barter does not allow us to keep the goods which are perishable. • Money is most liquid (spendable) among all assets. • It is a convenient way to store wealth by means of saving.

10. Medium of Exchange • Nowadays, money is used as a medium of exchange for buying goods and services. • We can simply pay money in order to get what we want. • Money allows for greater specialisation and trade and productive efficiency as it is not necessary for you to find someone with coincidence of wants.

11. Two Kinds of Money – Tangible & Intangible • Money is a token that is widely accepted as a medium of exchange.  • The token can be tangible like a coin or note, cheque, or intangible like a bank deposit or electronic money.

12. Activity 1 • Let’s take a $10 note out and discuss the followings: • Who issue this $10 note? • Who govern the issue of this note? • Name all the coins/notes of HK which are in circulation at present. • Can you describe more about the note?

13. Activity 1 - Answers • Who govern the issue of this note? • Today the issue of Hong Kong dollar notes is governed by the Hong Kong Monetary Authority (HKMA), the governmental currency board of Hong Kong. • Who issue this $10 note? • Under licence from the HKMA, three commercial banks can issue their own banknotes for general circulation in HK, they are: • The Hongkong and Shanghai Banking Corporation Limited (HSBC) • Standard Chartered Bank • Bank of China (Hong Kong) Limited • Notes are also issued by the HKMA itself. • 10 dollar banknotes are currently the only denomination issued by the HKMA.

14. Activity 1 - Answers • Name all the coins/notes of HK which are in circulation at present. • Can you describe more about the note? • E.g. the issue date, the note number, the watermark, etc.

16. Nature of MoneyLesson 2 – Cheque and Electronic Money

17. Cheque • When will you use a cheque? • Sometimes you may have to pay a cheque to school for the purchase of textbooks or donations to some charitable organisations. • One of the reasons for using cheque is that it is safer for you to bring along with than cash especially when the amount of payment is quite large. Because the cheque is only available to be presented by the payee.

18. What is Cheque? • A cheque is a documentthat orders a payment of money from a bank account. • The person (drawer) writes various details on the cheque including the dollar value, date, in favour of a specified person or company (payee) and signs it, ordering the bank (drawee) to pay the amount of money stated.

19. Cheque (sample sourced from Wikipedia) Drawee (issuing bank) Crossing (if any) Date Payee Amount paid in number Amount paid in word Drawer Signature Cheque number Account number

20. Electronic Money • Electronic money is money that is traded and exchanged electronically. • This involves the use of computer networks, the Internet and digital stored value systems. • Examples of electronic money are octopus card, electronic payment services, paypal, credit cards, and digital currencies such as Bitcoin.

21. Octopus Card • The Octopus card is a reusable contactless stored value smart card for making electronic payments in online or offline systems in Hong Kong. • It is launched in September 1997 to collect fares for local transportations and eliminate the need for keeping the change.

22. Activity 1 • List FIVE usages of Octopus card in your daily live.

23. Activity 1 • Other than transportation, Octopus card can be used for making payment in many retail shops in Hong Kong like: • Convenience stores • Supermarkets • Fast-food restaurants • On-street parking meters • Car parks • Other point-of-sale applications such as service stations and vending machines.

24. Electronic Payment Services • Commonly known as EPS, is one of the largest electronic payment system in Hong Kong. • EPS entails the simple use of an ATM card for retail payment in Hong Kong, Macau and Shenzhen. • Users can simply pay by ATM card instead of cash when purchase, the amount will be deducted from their bank account accordingly.

25. Paypal • PayPal is an international e-commerce business allowing payments and money transfers to be made through the Internet. • “PayPal is the faster, safer way to pay and get paid online, via a mobile device and in store. The service gives people simpler ways to send money without sharing financial information, and with the flexibility to pay using their account balances, bank accounts, credit cards or promotional financing.” (source: paypal-media.com)

26. Credit Cards • A credit card offers a revolving line of credit to cardholders to pay for goods or services by means of electronic payment based on their credit limit (which is approved in advance) and settle the payment when it is due (usually 30 to 90 days after purchase). • There is no charge for the use of credit card. However, if the payment were not fully settled by the due date, interest will be charged for all outstanding transactions based on the original amount due. • Credit cards are not money, they are in fact short-term borrowings.

27. Activity 2 – Major Types of Credit Card in Hong Kong • Do you know how many types of credit cards are mostly used in HK?

28. Major Types of Credit Card in Hong Kong

29. Benefits to Customers by using Credit Cards • Convenience. • Cardholders can enjoy short-term interest-free loans for purchasing, provided the total spending does not exceed the credit limit and settle before the due date. • Many credit cards offer rewards and benefits packages, such as enhanced product warranties at no cost, • Credit cards also offer reward points which may be redeemed for cash, products, or airline tickets.

30. Drawbacks for Customers Using Credit Cards • High interest expense • If the customer did not settle the amount when it is due, a high interest will be charged which is around 20% to 60% interest rate per annum of the original amount due. • Merchants that accept credit cards must pay interchange fees to credit card issuer (i.e. the bank). In some cases merchants will transfer these fees to credit card holders.

32. Nature of MoneyLesson 3 – Foreign Currency

33. Travel Overseas • Do you have overseas travel experience? • Can you pay HK dollars during your travel? • If not, what can you do?

34. Foreign Currency • Those other than local currency are foreign currencies. • The local currency in Hong Kong is Hong Kong Dollar (HKD). • i.e. In HK, those currencies other than HKD are foreign currencies

35. Activity 1 – Can you tell which countries of the currency signs below belong to?

36. Activity 1 – Can you tell which countries of the currency signs below belong to? European Countries – Euro (EUR) China – Renminbi (RMB) UK – Great British Pound (GBP) Indian – Rupee (INR) Korea – Won (KRW) Japan – Yen (JYP)

37. Foreign Exchange • In order to get the foreign currency, we need to convert our local currency into the foreign currency. • This is called foreign exchange. • For example, you want to travel in United States, you need to convert your HKD into USD so you can use in America.

38. International Trade • International trade is the exchange of goods and services across countries. • Businesses in different countries buy/sell goods from/to each other. • They may have to settle the payment by using the selling party’s local currency. • E.g. a Hong Kong company buy goods from Korean supplier may need to pay in Korean Won. • If the Hong Kong company does not have sufficient Korean Won, it has to buy KRW by converting HKD to KRW in order to settle the payment.

39. International Trade • International trade is important to every country. • Without international trade, nations would be limited to the goods and services produced within their own borders. • i.e. a country can import goods that they do not have but can be produced at a lower cost in other countries. Import Export

40. Exchange Rate • An exchange rate between two currencies is the rate at which one currency will be exchanged for another. • It is also regarded as the value of one country’s currency in terms of another currency. • For example, the exchange rate for USD to HKD is 1:7.75 (i.e. USD1.00 can exchange for HKD7.75)

41. Exchange Rate Risk • When you have to exchange foreign currency, there will be an exchange rate risk. • For example, if you want to travel to Japan, you must have some JPY for you to spend there. Therefore, you need to convert your HKD into JPY through a foreign exchange service. If the exchange rate for JPY rises, i.e. you need to give up more HKD to have the same value of JPY, the cost of the trip will then be higher. • The same risk also exists in business when a company has to pay their overseas supplier in foreign currency or receive foreign currency from their overseas customer and then convert it into HKD.

42. Activity 2 • Translate the below foreign currencies into HKD.

43. Activity 2 – Solution • Translate the below foreign currencies into HKD.