Clase digital 1. Dinero, divisas y finanzas (money, currency and finance)

Dinero, divisas y finanzas (money, currency and finance)

1. Fundamentación del tema

The present topic is part of the Business Communication Learning Unit (UDA, for its acronym in Spanish), which belongs to the sixth semester of the Licenciatura en Contador Público (Bachelor’s Degree in Public Accounting). It is important for the student to recognize the relationship between money, currencies, and finance in the business world. For this UDA it is necessary to have developed knowledge of English, since all the course materials will be in this language, which favors the development of entrepreneurs in a competitive global scenario. 

It is essential to be aware of these issues in different languages, in this case English, for several reasons, such as the globalized context of Mexico’s economic activities, the foreign entities that carry out activities in the national territory, the possibility of being able to practice in a place other than Mexico or simply having contact with foreign people when practicing our profession.

2. Objetivo didáctico

Define the concepts of money, currency, finance and business to increase the students’ theoretical knowledge and tools so that they can apply them to real life situations.

3. Contenido didáctico

Introducción

Hello there! Dear student, welcome to this topic about money, currency, and finance. In this resource you will learn the importance of money, currency and finances in business. We know that you have already taken other courses on these topics in Spanish. Nonetheless, your knowledge and English skills will be needed here to understand all the new information and talk about business beyond your country. We want you to become a successful businessperson and start your professional career with tools and a lot of useful information. In this lesson we will focus on the following contents:

1. Purpose and nature of business activity
   1. Money, currency and finance: concepts and examples
   2. Needs and wants
   3. Scarcity and opportunity cost
   4. Purpose of business activity
   5. Value added
      1. How companies increase value added.

Keep learning more about these topics with us. We are happy to have you here!

Desarrollo del tema

1. Purpose and nature of business activity

1.1 Money, currency and finance: concepts and examples

Money, currency and finance

Let’s start with the basics of business studies. There are plenty of factors and elements that constitute economic activities. Some of them can be managed by humans, e.g. capital, but others, such as natural disasters or pandemics like COVID-19, are beyond our control. In order for you to explore the purpose of the business activity, it is important to review some authors’ definitions of common terms, such as money, currency, and finance. First, let’s consider money:

• Money is not defined by the thing it is made of or associated with. Money can be made from all these things or none of them; it can merely be a record of money as in a bank account. Perhaps, then, money is defined by the form it takes regardless of the materials from which it is made: gold, silver, or base- metal coins with images, numbers, and words on them; special paper in the form of currency notes, specially shaped beads or stones

(Mellor, 2019). 

With this definition we can realize that money is not only paper or metal, as it has been represented by many other types of currencies. In the past, people used to manage seeds, animals, land, people, corn, and more valuables to exchange things, e.g. giving a certain amount of corn for a cow, or tomatoes for potatoes. Nowadays we change the currency but not the method, we still give some paper, coin or binary code for something else. For example, we can go to a mall or supermarket like Costco, take some fish, chips, candies, wine, a TV and then go to the line to pay for the things we chose. That’s when the cashier asks “What method of payment would you like to use: cash, debit card, or credit card?” At that moment you need to choose between paying with some coins and bills (cash) or paying with a plastic card that will transfer a binary code. This is amazing! 

Humanity continues developing new kinds of currencies that we can use to get something we want or need. In the past we used to exchange one thing for another; in the present, we use plastic cards with binary codes and machines that represent money.

Today currency is easier to understand as the exchange of money from different countries. People can do this exchange in their bank apps only using their cellphones, tablets, or computers. Now we don’t need to go to the bank and stand in a large line to get the currency we need at that very moment. You have all the information in your hand: we are talking about the e-business world and its many advantages today. 

Remember that the most important thing in business is to have the information at the moment. All these tools will help you to have a successful job or a company of your own whenever you want it.

Money and currency are closely related to finance. As you know, money is crucial in finance. When somebody tells you about “finance”, money is the first thing that you think about. Of course, this concept is important but finance is not only that, as we need to know math, statistics, globalization, how to make smart decisions, as well as many other skills we need to have.

We can find many definitions of finance. Many authors describe it as science, art, ability, and more, but what they have in common is that they relate finance to money. For example, this is a clear definition of it:

“Finance should be understood as the branch of economics that studies the way in which individuals allocate scarce resources over time” (Mellor, 2019). 

We can see that many people would like to understand finance, but not everyone has enough knowledge and ability to be good at it. For this, you need to read a lot of books about finance and money, because if you understand the essence of these concepts you will be able to become a very successful businessperson.

In this course we want you to understand clear definitions and we encourage you to look for more information to enrich your knowledge.

In addition, we invite you to watch the following video showing the most used and most valued currencies worldwide:

1.2 Needs and wants

The main purpose of business activity is to provide all consumers with goods and services that satisfy their needs and wants. But, what does a need or want mean and what are their differences? 

A need is any good or service that people must have in order to live. Clear examples of these are water, food, shelter, etc. On the other hand, a want is any good or service that people would like to have, but which is not essential for living. For example, a car, a mobile phone, vacations, etc.

We have to focus on the words “must have”, since this is the main difference that puts needs in the first place to be satisfied by consumers, although some of them prefer the other way around. Some people can’t afford their needs and others who can afford their needs can’t afford their wants, because wants are unlimited (after satisfying a want, you wish to satisfy another); a problem in both cases is that they don’t have enough money. However, it might not be the only problem.

1.3 Scarcity and opportunity cost

Money is not the only problem when we are talking about fulfilling people’s needs and unlimited wants. In turn, there are not enough goods or services to fulfill them. To understand this better we have to look at the factors of production.

In general, the production of good and services requires four factors of production:

• Land: natural resources such as minerals, ores, fields, oil, and forests.
• Labour: the number of people available for the work.
• Capital: machinery, equipment and finance needed for the production of goods and services.
• Enterprise: people willing to take the risk of setting up companies.

Nonetheless, there are not enough of these factors to produce the goods and services needed or wanted by people, i.e. the unlimited wants of consumers cannot be satisfied because the factors of production required to produce the goods and services that satisfy those wants are limited. This is the problem of scarcity (Fisher, Houghton & Jain, 2018).

The following web video shows more deeply the four factors of production, you get to this kind of topics in Microeconomics:

We have discussed that there are not enough resources to produce all the goods and services needed to satisfy consumers’ wants. This implies that decisions must be made. 

We all make choices every day. Do you choose to go to a sports game with your friends or spend an afternoon watching a movie with your partner? Perhaps you have enough money to buy a new cell phone with wonderful features, or you can save the money for a future vacation, or even pay for a course on a subject in your profession, e.g. social security. 

Whichever decision you make, you have to give up the possibility of taking the other path. When making your choices you need to make sure that the product or service you choose has more value to you than the one you are giving up. The next best alternative you have given up in making your decision is called the opportunity cost of your decision. 

Not only customers have to make decisions that involve an opportunity cost, but also companies and public administrations, because they have limited resources like us. For example, a company may spend resources on a marketing campaign or on a training issue for its employees, also the government may spend resources on building a school or a highway. The opportunity cost must be considered at the time we make decisions in business, and even in personal matters, such as a plan for the weekend, a professional career, a partner, etc.

If you want to learn more about opportunity cost, you can watch the following video:

1.4 Purpose of business activity

We have already learned that companies take scarce resources (factors of production) and use them to produce goods and services demanded by consumers. These goods and services can be classified into:

• Consumer goods. Goods which are sold to the public and that can be seen (physical goods) and touched (tangible goods). These can be divided into durable and non-durable consumer goods:
  • Durable consumer goods. Goods that can be used several times. For example, a cell phone, a car, a computer, etc.
  • Nondurable consumer goods. Goods that can only be used once, like food.
• Consumer services. Products that are also sold to the public too, but they cannot be seen or touched (intangible). For example, insurance, banking, transportation.
• Capital goods. Products sold to other companies to assist them in their production process. For example, machines, computers, delivery vehicles, etc.  

Fisher, Houghton & Jain (2018)

1.5 Value added

The last part of this lesson is about value added. Businesses will try to add value to the product or service in order to sell it to customers at a price higher than the cost of the raw materials used in its production. For this part of the lesson, we have made a presentation about value added and how companies add value.   

Tema 1. Dinero, divisas y finanzas (Money, currencies and finances) – Adding value

We hope you enjoyed this lesson and found it useful. See you soon in our next lesson!

Resumen e ideas relevantes

It is important that you keep in mind:

• Money is more than a piece of paper with famous faces from important people in our countries or around the world, but it is also the way human beings can get things or benefits and have what they want, whether it is food, education, traveling, fun or, of course, more money!
• Money is important in business because the main objective of almost every company in the world is to have a big amount of electronic money in a bank account or a lot of bills and coins in their pockets. As we can see, money is important in everyday life and in business.
• Currency is not just exchanging dollars for pesos, pesos for pounds, etc. For business it means having the freedom to make decisions without any problems. There are many tools that can help your business become one of the top 10. 
• The main purpose of business activity is to provide consumers with goods and services that satisfy their needs and wants.
• Needs are essential for living and wants are things you would like to have.
• For making goods and products there are four factors involved: land, labour, capital and enterprise.
• The next best alternative to a decision we make is called opportunity cost.
• Products and goods can be classified into consumer goods, consumer services and capital goods.
• Adding value is important to sell a product or service at a price higher than the cost of the raw materials to produce it.
• Companies use different strategies to add value, including branding, excellent service quality, product features and convenience.

Fuentes de consulta

• Fisher, M., Houghton, M. y Jain, V. (2018). Cambridge IGCSE® and O Level Business Studies Coursebook. Cambridge: Cambridge University Press [recurso privado].
• Mellor, M. (2019).  Money. Myths, truths, and alternatives. Bristol: Policy Press [recurso privado].
• Video en internet: General Knowledge. [General Knowledge]. (2021, Enero 22). Currencies Of Countries Around The World. Recuperado de URL: Currencies Of Countries Around The World