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An economy is defined as a place or a country where resources are managed by a government to bring
about maximum benefits for the entire society.
Caribbean countries are characterized as developing economies. Developing economies are described as
those with their average income earned, rate of literacy and health services lower than
industrialized/developed nations. They are so characterized because they have a high potential for
growth and achieving the status of developed countries.
Early Caribbean economies dated from the Taino and Kalinago Indians who lived in simple villages.
These villages were ruled by a leader who organized all economic activities. They hunted, fished and
grew crops to provide the means of survival for their village. Present Caribbean economies are much
more sophisticated. For most Caribbean countries, it is consumer demand that drives the production
and distribution of goods and services.
Government manages the economy. They set the laws that govern households and businesses. They
provide the necessary services (road, water, transportation, communication etc,) so that businesses may
operate efficiently. Households and businesses must in turn pay their taxes.
Households consume the goods and services provided by firms. Households are known as consumers.
Firms produce commodities/goods and services that satisfy needs and wants for its market. They are
the producers in an economy. They obtain and maintain markets through consistent advertising and
sales promotion.
Business enterprises are legal entities operating in an economy to provide goods and services at a
profit. Profits are the excess of earnings/revenue over its costs. Profits are an incentive for businesses
to continue operating. Businesses will close down if they are making losses. This is an excess of cost over
revenue. If costs are greater than expenses then a business entity is making a loss.
Whether man lives in a simple economy or in a more sophisticated one he must survive. He is seen as an
economic animal as in order for survival he must be involved in economic activities such as production,
consumption and exchange. He either produces the good he consumes or he is involved with exchange
through barter or money purchases. If he produces his own goods and provides his own services, he is
involved with direct production. However, if he obtains goods by bartering or by purchasing them he is
involved in indirect production
Barter is the exchange of goods or services for other good or services. This system is rarely practiced in
modern economies, but still occurs. For example, a Caribbean Government agreeing to exchange its
countrys bauxite for cars manufactured by an industrialized country. In early economies individuals had
to barter goods and services to obtain those commodities that they did not produce for themselves.
Money did not exist and so barter was the only means of exchange.
There were several problems with the barter system:
1. A common measure of value did not exist. Therefore some persons felt cheated, as what is being
exchanged is more valuable than what is received.
2. A double coincidence of wants may not exist. The wants of both persons wishing to trade must
coincide with what is being offered by each other. That is, an individual may wish to exchange what he
produces (e.g. animal skins for another commodity such as clay pots). However, if the individual who
makes the clay pots does not want skins then no trade will occur. This individual will need to find
someone with clay pots who wishes to obtain skins.
Specialization is defined as the division of labour. This is used in production processes in both early and
modern economies to complete tasks more efficiently. In the Taino Indian village, the men would hunt
and the women would tend crops. This is an example of simple specialization. Complex specialization
involves the breaking down of tasks into minute tasks, and assigning each task to an individual or a unit
group. For example, in a garment factory, a single dress will be sewn by several persons, one person will
sew the sleeves, and another will sew the collar. Simple specialization in early economies resulted in the
barter system, as man needed to trade to obtain those goods and that he did not produce for himself.
The advantages of specialization include improved quality of output, and shorter production time,
because of the repletion of a single task. This results in increased efficiency, and reduced costs.
However, repletion of a small task may become boring and de-motivate employees to work efficiently.
Therefore quality may decline as well as output.
Instruments of Exchange
The problems of the barter system created the need for a medium that could be used to facilitate trade.
Money solved the problems of the barter system.
Money is anything that is acceptable for the purchase of goods and services. Presently it is in the form of
notes and coins. Early forms of money included shells, beads, precious metals and stones.
Functions of Money
1. It is a medium of exchange i.e. since money is acceptable by all, persons will not have difficulties to
trade
2. A measure of value the price of an item indicates its value
3. It is a store of wealth i.e. money can be easily stored/saved.
4. It is a standard for deferred payments. i.e. it can be used to repay debts over time.
Types of Money
1. Financial Independence
Some persons feel restricted financially with the income received from their job. Starting a business
would give them the opportunity to be a successful business person and achieve financial
independence.
2. Being your own boss
You are able to make decisions about the direction and operation of the business.
3. To use your skills and knowledge for yourself
The skills, knowledge and experience that you have acquired can be put to work for you.
4. Self-actualization/fulfillment
Owning and operating a successful business will give a feeling of accomplishment.
5. To create employment for relatives, friends and community members
Business can assist in providing jobs for persons in communities with high levels of unemployment.
Types of Partners
-Ordinary/General Partners: take an active part in the running of the business.
-Sleeping Partners: invest in the business but do not take an active part in the business.
-Limited Liability Partners: assets will not be lost if the business goes bankrupt.
Advantages
Since more than one person is involved more capital can be raised to inject into the business.
There is more expertise and work load is shared. The risk of the business operation is also
shared.
Disadvantages
All partners will be affected by the action of each partner since each person represents the
business.
Decision making may be very slow if partners are not in agreement. There are high risks for
partners who do not have limited liability.
Legally the private limited company can only have a minimum of two and a maximum of fifty persons to
join. Whereas the public limited liability company has a minimum of seven members and there is no
limit to the number of shareholders that can join.
The legal procedures for both these types of companies are lengthy as they must submit the several
documents.
The Companies Act contains the laws relating to companies. To comply with certain requirements which
were laid down by the Companies Act, the promoters of the company must present the following
documents:
-The Memorandum of Association
-The Articles of Association
-Statutory Declaration
-Certificate of Incorporation
-Certificate of Trading
The private limited company may begin trading after receiving the certificate of incorporation, but the
public limited company must issue a prospectus inviting the public to subscribe for shares before a
certificate of trading is issued.
A main advantage of limited liability companies is that
Their shareholders enjoy limited liability. This type of business is assured continuity of existence
as it has several members. Unlike the sole trading business that comes to an end if the owner
dies or is very ill. These firms can access capital for expansion by selling shares.
The disadvantages
They are not easy to start due to the number of legal procedures required.
For the private limited liability company, shares are not easily transferable as other members
must agree to have persons join the company. However, shareholders in public liability
companies are not restricted to sell their shares to whomever they wish to.
Multinationals
A multinational company is a global organization directed from a main centre or office. Examples of
Multinational companies in the Caribbean are Shell, Kentucky Fried chicken and Digicel.
Some of the benefits of multinationals to the Caribbean are that they provide employment, introduce
advanced technology and provide well needed goods and services.
However, there are disadvantages. Profits earned are repatriated to the main centre in their home
country. They may exploit the workers by paying low wages and having them work long hours. They
cause unemployment when they close down to take advantage of cheaper labour and lower operational
cost in another country.
Franchise
Some businesses begin by the owner acquiring a franchise to operate under an already existing business
name. A franchise is an agreement between a franchisee (the person requesting permission to set up
business) and the parent company to allow the franchisee to sell its products or services. Many
multinational companies expand into new regions through franchises.
The franchisee bears the name of the parent company. They must abide by all the rules and guidelines
outlined by the parent company to sell its products. It pays royalties (a fee) to the parent company to
operate under its business name.
Conglomerates
This is a group of unrelated companies (e.g. a restaurant, shoe store a travel agency etc,) under one
umbrella. A parent company owns a controlling stake in each company which conducts business
separately.
Nationalized Industries
Nationalized industries are government owned and controlled businesses. A chairman and board of
directors are appointed by the government to run them. Businesses run by the government in most
countries tend to be those that provide essential services such as water, electricity and
transportation. Nationalized industries are beneficial to a country as they provide essential goods and
services at very affordable cost or free. For example, water company providing standpipes to rural
communities. Although beneficial, they operate at high costs to the society as their operations tend to
be inefficient. They are supported by taxpayers money and do not operate on the basis of making
profits.
Cooperatives
They are business entities owned by their members who purchase shares to join them. They are usually
established because of a need existing among a number of persons who wish to acquire particular goods
and services at a reasonable cost. For example, members of a credit union purchase shares in these
entities in order to obtain loans at low interest rates.
There are several types of cooperative, for example, Retail/Consumer cooperatives and Producer
cooperatives. Shares invested in a retail cooperative are used to buy goods in bulk at a very low cost and
then resold to members. Producer cooperatives may include a group of farmers who will obtain raw
material at a low cost.
Profits are distributed to members based on the amount of goods that they buy and not on the amount
of investment that they make in the business. At the annual general meeting, shareholders elect their
management committees from among their members and vote on proposals put forward. Benefits of
being a part of a cooperative are therefore obtaining goods and services at low costs and a guaranteed
market as members are also customers. A disadvantage is that its management may be inexperienced as
they are chosen from their membership.
Government Departments
These include the government ministries e.g. the Ministries of Finance and Education. A minister is
appointed in charge of each ministry. These departments are very important to the running of
government.
Local and Municipal Authorities are government bodies which are run by elected local officials, e.g., the
Kingston and St. Andrew Corporation (K.S.A.C.) in Jamaica. These bodies fulfill local needs and allow for
more balanced local development. They carry out duties such as cleaning gullies and drains and fixing
community roads.
Economic Systems
Every economy is faced with a fundamental economic problem. In every economy, whether rich or poor,
there are limited resources and unlimited wants i.e., the resources of a country are not enough to satisfy
the wants of all its citizens. Since the resources of a country is limited and wants unlimited, choices will
have to be made. For example, the government may have to decide whether to spend more money on
schools, hospitals, transportation or on road work. The process of choice begins with a scale of
preference. This is a list of all options in order of preference. For example
Scale of Preference:
-hospitals
-transportation
-schools
-road work
The option to build hospitals being placed at the top of the scale of preference indicates that this choice
is most preferred as it yields the greatest satisfaction from the resources to be spent. Transportation is
the opportunity cost of this choice as it is the second most preferred option that had to be given up to
accommodate the building of hospitals. Opportunity cost is defined as the next best alternative
foregone as a result of making a choice.
Economic Systems
An economic system is a programme that a country uses to organize production and the distribution of
goods and services, to maximize the benefits to its society. Economic systems vary worldwide. In this
lesson we will discuss four types. These are the Subsistence, Free Market, Planned and Mixed economic
systems. Governments choose particular economic programmes that will effectively manage their
economies, bring about economic growth and improve the lifestyles of its citizens.
The following economic questions must be answered by managers of economies.
What to produce?
How much to produce?
What methods of production are to be used?
How will goods and services be distributed?
Answers to questions 1, 2, & 4 will depend on the economic system of each country.
Free Market Economic System also called Free Enterprise or Laissez Faire
Private individuals own the greater share of the property and capital resources that are used in the
production process. There is little or no government intervention in the economic activities of the
country. The government may provide essential services e.g. transportation and water. Therefore the
private sector provides the majority of goods and services.
Advantages
-Competition among business will result in increased quality of output and lower prices.
-Competition also leads to innovation i.e. newly invented goods, services and production
processes.
-Consumers are free to choose the goods and services that they wish to purchase and therefore
production is based on their demands.
Disadvantages
-Consumer exploitation by suppliers may go unchecked by government as there is little or no
government intervention.
-There is an unequal distribution of wealth as goods are purchased by only those who can afford
it.
-In the case of no government intervention public goods such as postal service, streetlights and
roads are not provided.
Employees
They are employed to carry out assigned tasks to achieve the companys objectives.
Role of Employees
Employees must work efficiently to accomplish tasks assigned.
Accomplishing tasks may require teamwork and therefore employees must have good
interpersonal skills.
Employees must adhere to the rules and relations of the company.
Customers
They are the supporters of businesses in the economy. They purchase goods and services to satisfy their
needs and wants.
Role of Customers
They assist businesses in identifying the goods and services to be produced based on their
demands.
They also help business to identify changing trends in the market and so prepare business
operators for future demands.
Society
Businesses must be aware of the society as a whole, how its activities affect it and not only those who
are customers.
Role of Society
The production process may cause air pollution and discharge of harmful waste into rivers and seas.
The society keeps businesses in check by making them aware of their impact on society.
They write letters to the company and the media and speak on talk shows.
Government
They are the managers of the economy within which the business operates.
Role of Government
Regulate business activities to protect consumers.
Government agencies ensure product standards as well as that various legislations are adhered
to ensure the protection of consumers rights.
Functions of a Business
The functions of a business are:
To produce high quality goods and services that will satisfy needs and wants.
Entrepreneurs enter business to make profits. They must be very keen in identifying those goods
and services that will create high demand make profits.
To create employment
Business will need all categories of workers to carry out the various tasks required to achieve its
goals. If the business is profitable and expands then more workers will be needed for its
operations.
To make a profit
The reason for the establishment of a business is to make profits. If businesses are not profitable, its
owners will not be encouraged to continue operating. Profits are used to reinvest in the business for its
expansion.
-Support for the community through community projects, sports and youth clubs.
-Being environmentally aware by reducing pollution
-Providing job opportunities for community members e.g. a holiday work programme
Unit 2
Functions of Management
Planning
All managers must plan, that is, setting out steps for the attainment of future organizational
objectives. It involves formulating the policies and programmes for the firm.
Organizing
Organization reduces cost, time, chaos and conflicts. Managers must obtain all the necessary tools,
machinery and personnel for each task and arrange all tasks so that they are done in the most efficient
manner.
Directing
Managers must guide subordinates by giving them instructions to perform the tasks assigned.
Delegating
Delegating duties involves giving others (e.g. supervisors) the authority to have specific tasks completed
through the management of others. Therefore, supervisors will ensure that workers complete tasks
assigned. Delegation reduces the workload of the manager.
Controlling
Managers must continually measure the activities of subordinates, ensuring that all activities conform to
plan.
Coordinating
Managers must bring together all the various organizational tasks so that the organization may function
harmoniously.
Motivating
Managers must inspire workers to perform their tasks well.
Responsibilities of Management
Management must be aware of their responsibilities to the various groups that they interact with for the
successful running of the business.
To employees Managers must pay adequate wages and provide good working conditions.
To customers Managers must ensure that products are of good quality and are reasonably
priced.
To the society Managers must find ways to reduce harmful air pollution and the
discharge of harmful waste created by the production process into rivers and seas.
Organizational Charts
An organizational chart is a diagram of the organization of an enterprise. Its pyramid shape illustrates
the hierarchy system that exists in the organization. The most senior position in the organization is
placed by itself at the apex. The pyramid gets wider towards the bottom depicting the greater number
of workers at its base.
Those who have the power to issue commands have authority in an organization. In the organization
chart above the sales manager has the authority in the Sales department. All persons with the same
level of authority are placed at the same level on the chart. For example the sales manager and the
accounts manager have the same level of authority in their various departments.
Responsibility is the capacity to accept duties and to carry out their tasks. Both sales supervisors are
responsible to the sales manager.
The chart shows the following:
-each persons position
-the number of levels of managers
-to whom each employee is responsible (reports) to
-the span of or (area) of control for senior staff members.
The Functional organizational chart combines the straight line of command of the line organization with
horizontal dotted diagonal lines representing functional authority. The dotted diagonal lines in the figure
above show the authority that the Human Resource Manager has over other departments. The Human
Resource Manager is allowed authority in these department over human resource matters only e.g. to
hire and fire workers. He therefore cannot give directives on production or marketing matters.
Committees are advisory bodies. They are usually appointed to advise organizations. Examples of
committees include; parent teachers associations and student councils which are committees within a
school organization. Committees usually delegate certain duties to sub-committees. For example, an
executive committee may appoint a finance committee to advise it on financial matters. Note that an
element of the line organization exists in the committee organization as all sub-committees are
responsible to the executive committee.
Integrity
It is important for a leader to posses this quality as it makes them trustworthy. They are perceived as
honest and therefore command the respect of their subordinates.
Good communication skills
Leaders should be able to communicate effectively with persons at all levels of the organization.
Manager must pass down directives as well as listen to workers opinions complaints and ideas. This will
foster good working relations among leader and followers.
Intelligent
This is a very important characteristic for leaders. It refers to being rational and having good judgment
when making decisions. Leaders are decision makers and therefore need to be intelligent. This
characteristic also refers to shrewdness and therefore describes someone who is smart, perceptive and
wise.
Leadership Styles
Autocratic
This type of leader makes all decisions and asks members only to be obedient in following orders. He
will give detailed instructions and closely supervise subordinates.
Advantage
Time is not wasted consulting with others to reach a decision.
Disadvantage
Workers must comply with directives given by the leader and therefore the organization will not benefit
from workers initiative and innovative ideas
Democratic
A democratic leader allows the participation of subordinates in decision making. The leader asks for
progress reports at intervals instead of continuous close supervision.
Advantage
Discussion between management and workers leads an improved relationship.
Disadvantage
The variety of opinions to consider may slow down the decision making process.
Laissez-Faire
This type of leader will give minimum directives and allow maximum freedom for workers to make
decisions about completing their tasks.
Advantage
The firm will benefit from the initiative and innovation of workers.
Disadvantage
It may lead to chaos in the organization. This type of style can only be used with persons that are very
self- motivated and disciplined.
Sources of Conflict within an Organization
Unfair treatment of workers
Unfair dismissal
Discrimination
Role of Teamwork
Many firms adopt a teamwork approach to complete tasks more efficiently. For example a major
Caribbean airline encourages its workers to work as a team to achieve the main task of having each
flight leave on time. Workers therefore move to various positions if needed, to have each flight leave on
time.
Benefits of Teamwork
It improves the working relationship among workers
It increases communication
Skills and knowledge are passed on through the interaction
It satisfies the social needs of workers
Groups are formed naturally by persons with similar interest, common goals and similar past
experiences in an organization. The establishment of various clubs, work socials and outings will
encourage greater interaction among workers, better relationships and a teamwork approach to
completing tasks.
Strategies for Effective Communication
Communication is defined as a two-way process which involves the conveying of information from
(sender) to (receiver). The need for effective communication is very important when dealing with the
human factor from recruitment to retirement in the organization.
For communication to be effective there must be feedback.
Means of Communication
Oral This includes all types of spoken communication, e.g. interviews and meetings.
Written This includes all things that are written, e.g. reports and letters.
Visual This includes all things which can be seen, e.g., posters and films.
The primary objective of communication in any organization is to get work done.
Types of communication
Formal Communication -These are official methods approved by management.
These includes meetings, announcement on notices boards, memoranda, messages over public address
systems, interviews, performance appraisals, company magazines. etc.
Informal Communication -These are unofficial methods of communication.
These include: rumours and the grapevine, secret signs and gestures as well as casual conversation
between employees.
Barriers to Communication
Distortion of messages e.g. rumours or the grapevine can easily distort messages.
Inappropriate forms of transmission e.g. a notice of a formal meeting must be conveyed in
writing and not by word of mouth. If this type of meeting is not conveyed in writing it may
seem casual and unimportant.
Physical barriers e.g. faulty telephone connections, defects in mechanical or electronic
equipment, and poor postal services.
(a)
(b) Line organizational chart
(c) The span of control of Vice principal is the head of departments for arts and science.
(d) Two persons at the same level of authority are the heads of department for arts and science.
Question 5
Show how two important characteristics of a good leader can improve the efficiency of a group.
Answer
Good communication skills will foster good working relationships between workers and managers.
Workers are more effective in a comfortable environment. This also encourages feedback from workers.
A devoted and committed manager will lead by example. His commitment to the tasks that are required
to achieve the organizations objectives will inspire subordinates to work hard.
Question 6
Give two differences between the autocratic and the democratic leadership styles.
Answer
An autocratic manager makes all decisions concerning the tasks to be performed by subordinates. All
directives handed down by him must be closely followed. He makes frequent checks on output of
workers. The democratic leader allows the participation of others in decision making. He allows workers
some latitude to work on their own initiative and periodically checks output from workers.
Question 7
Outline the steps for handling grievances in the organization.
Answer
The worker lodges a complaint with his or her immediate supervisor. If worker feels that the complaint
was not adequately dealt with then he may discuss the matter with the head of department. If the
worker is still not satisfied with how the matter is being dealt with, he along with the union
representative may discuss the matter with management. It may need to go a further stage where there
is mediation from Ministry of Labour or any independent body. The final stage is when the matter has to
be taken to court.
Question 8
Explain the purpose of the collective bargaining process.
Answer
The purpose of collective bargaining is a means to reach an amicable agreement between management
and workers. Workers bargain collectively through their union representative with management until an
agreement is reached.
Question 9
Discuss two ways in which teamwork can improve the efficiency of an organization.
Answer
Teamwork gives workers the opportunity to make collaborative decisions and support each other to
accomplish tasks more effectively.
Teamwork allows for specialization in various parts of a task based on the skill of each team member.
Specialization increases output.
Question 10
Discuss two benefits that a business will derive from using Management Information Systems.
Answer
It reduces labour costs as the computer compiles and analyses all the data. This increases the efficiency
of employees and reduces production costs. It provides timely information that helps the business. This
allows for better decision making as information is available when needed.
Unit 3
Establishing a Business
Role of an Entrepreneur
An entrepreneur is one who undertakes the risk of investment to create and market a good or service
for financial gains. He is very perceptive and takes advantage of business opportunities that will
generate high profits. Entrepreneurs can be sole traders, partners in a business or a group of
shareholders.
Entrepreneurs are of vital importance to an economy. They are motivated by their own self-interest to
make profits and in so doing provide employment, create goods and services and generate revenue
impacting on the economys level of national income and hence potential for economic growth.
The entrepreneur is a shrewd investor and takes calculated risks i.e. ones that minimize loss when
choosing investment opportunities. The entrepreneur is the conceptualizer of the initial business idea.
He must identify the best resources that suit the business operation and ensure the efficiency of each
resource employed. For example, training workers, using machinery to increase labour productivity,
maximizing the use of factory and shop space and borrowing money at low interest rates. The
entrepreneur must continuously evaluate the performance of his ventures. Information can be garnered
from the balance sheets and Management Information Systems.
Personal Qualities of an Entrepreneur
Entrepreneurship requires the following characteristics for success:
The creativity to innovate new product and ideas.
The drive and determination to be successful.
The ability to take calculated risks.
The flexibility to adapt to changes in the market and industry.
Very goal- oriented to purposely and aggressively accomplish task and meet objectives.
Concept of a Contract
A contract is an agreement that is enforceable by law. A contract therefore has legal implications for the
parties who enter into a contract. A mere agreement is not legally binding and therefore neither of the
parties is liable if anyone breaks the agreement.
What makes a contract different from an agreement?
A contract requires not only an agreement between parties but also something of value must be passed
from one party to the next to make the contract binding. For example, you offer to sell a friend your
used text books for $1000.00. After inspecting your textbooks the friend agrees and pays $1000.00. The
$1000.00 paid here is the consideration i.e. something of value that is passed from one party to the
next. Consideration is the price paid for a promise. You promised to let your friend have your textbooks
if he paid $1000.00. This $1000.00 makes the agreement binding. You are therefore obligated to deliver
the books to your friend and cannot decide to sell the books to someone else or to ask for a higher
price.
Your neighbour asks you to mow his lawn after which he will pay you $200.00. You accept this offer and
mow the lawn. The work done here is an act of forbearance. You are giving something of value to your
neighbour to receive payment for the job. The consideration in this case is the work done by you. It is
the price that you have paid for the promise to be paid money for the job. Consideration passes from
promise to promise.
Validity Of Contracts
Mr. Larry was delighted to see a 50% discount on his favourite brand of shoes at a shoe store 15 miles
away. He took some time off from work to travel to the store. When he arrived at the store he was told
that that the brand advertised was sold out but he could choose from other brands available. Mr. Larry
was very angry and requested that he be refunded his travelling expenses.
Is the owner of the store obligated to refund Mr. Larry his travelling expenses?
Answer
The advertisement appearing in the newspaper is not an offer by the store but an invitation to treat.
Therefore readers were being invited to make an offer for items advertised. The owners of the store are
therefore in no way obligated to Mr. Larry.
Hope stopped at a convenience store on her way home to purchase a few items. She handed the
cashier he credit card and was surprised when she was told that it declined. She apologized and
explained that she did not know why her card declined but she will call the bank in the morning. Susan
further explained that she had just enough cash with her to get home and so she could not pay for the
goods. The cashier was very angry and asked the manager to intervene. The manager insisted that she
pay for the goods.
Is Sandra obligated to pay for the goods?
Answer
Sandra has entered into a contract with the convenience store. She made the offer at the cashier
counter when she presented the goods to be cashed. The cashier accepted the offer by cashing the
goods. In this situation it is up to the manager of the convenience store to accept Hopes apology.
Terms 5% 30 days A Discount of 5% will be given if the customer pays within 30 days. E & OE means
errors and omissions, i.e. if any mistakes were made on the invoice the company will make the
correction.
(g) Pro forma Invoice is a temporary invoice. It is used in cases where funds are being borrowed
from financial institutions to purchase items. The institution may request a pro forma invoice as
proof of items to be purchased when the loan is disbursed. It may also be sent with goods not
ordered and in this instance is a form of advertising. If the customer is interested in the items
sent, an actual invoice is sent.
(h) Credit note is issued to a customer when there has been an overcharge on an invoice due to
faulty arithmetic, when goods have been returned because of damage or refunds requested for
goods not received. A credit note is printed in red.
Debit note is sent to a customer whenever there is an undercharge or omission on the invoice.
(j) Statement of Account is a document from a supplier to a customer outlining all the
transactions carried out over a particular period. A statement is usually sent monthly.
(k)A receipt is given for cash payment.
(l) Stock cards are used to keep a record of all stocks entering and leaving the stockroom. This
procedure ensures that stock level do not fall below a minimum resulting in the depletion of
stocks.
Instruments of Payment
The instrument used to make payments will depend on the sum of money being paid and whether the
transaction is a local or an external one.
Cheques
A cheque is an order to the bank to transfer payments from an individuals account (the
payers/drawers account) to credit another individuals account (the payees account) or to pay the
payee on presentation of that cheque.
Credit Transfer
A customer of a bank may use this system by instructing the bank to transfer money from his account to
an account at any other bank.
Standing Order/Bankers Order
This allows regular monthly payments to be made from a customers bank account to a named payee.
The customer must complete and sign a standing order form instructing the bank to make payments.
Insurance Principles
The purpose of insurance is to compensate persons insured who suffer loss. It is based on the principle
of indemnity, that is, to restore the insured to his original position before he suffered loss. Insurance
therefore as a principle neither makes the insured worse off or better off than before loss was
incurred. For example, if Mr. Green suffered damages valuing $500,000 subsequent to a fire at his
home, he will be compensated exactly $500,000 to repair his house.
Principles of Insurance
Indemnity-Restoring the insured to his original position
Insurable interestThe insured must have a vested interest in what is being insured. For
example, someone is not allowed to insure his neighbours house.
Utmost Good Faith -The insured must be truthful concerning the information pertaining to the
policy contract.
Proximate Cause - The damage caused must be close or proximate to the event insured
against. For example, if someone has an accident policy that includes death occurring as a result
of an accident, this person will not be compensated if death is caused by disease.
Contribution This principle prevents persons insuring identical risks on the same property
with several companies and thus profiting if they suffer loss. For example, an individual may
insure his car with three insurance companies hoping to be compensated by all three. He will
not succeed as the insurance companies will each only pay a portion of the claim.
Average Clause This clause sets a limit to the size of the compensation, which depends on the
proportion of the true value of the asset paid up by the insured. For example, a homeowner
insures his home for $100,000 which is half the true value of $200,000. His house was partially
destroyed by fire on the insurance company for $50,000 worth of damage. The insurance
company only paid him $25,000 as he was only insured for 50% of the true value of the house
presently.
Subrogation -This is an extension of the principle of indemnity, that is, the insured should be
reinstated to his exact position before the loss. For example, if a vehicle is totally wrecked and
the insurance company pays the insured the value of the car, the wrecked vehicle will be
claimed by insurance company.
How does insurance Work?
How are insurance companies able to pay its clients large sums of money to compensate them for loss?
They operate on the basis of risk pooling. Premiums from large numbers of persons with the same risks
are pooled and only those who suffer loss are compensated. The insurance company can predict the
percentage of losses based on past data. The premiums charged are based on the number of losses
predicted plus the cost to operate the business and profits to be realized. For example, a particular
insurance company may insure one thousand persons for risk against car theft. Only two percent of
those insured may suffer lass and therefore the insurance company can afford to assist those persons.
Production
Factors of Production
The term factors of production refers to the resources that are combined in the production process to
create goods and services.
These are:
Land - natural resource
Labour human resource
Capital man made resource
Entrepreneur human resource
Land includes all natural resources such as soil, seas, rivers, forests, minerals, vegetation etc.
Labour is categorized as skilled, semi-skilled, unskilled or professional workers
Capital includes assets such machinery, equipment and vehicle owned by the company. Capital also
includes raw materials, finished and semi-finished, goods, bank and cash balances.
The entrepreneur is the owner and risk taker in a business venture. He is responsible for combining all
the factors of production.
Effects Of Migration
Migration is the permanent movement of workers from one location to the next in search of better
opportunities.
Internal Migration
Migration within a country e.g rural urban migration. This is migration of persons from rural
communities to the city areas.
External Migration
Migration of persons from one country to another For example, the migration of Caribbean people to
developed countries such as the United States and England.
Effects of Migration
Internal (Rural Urban migration)
-The loss of persons from rural areas impacts on the level of output and development of these areas.
-It also impacts negatively on the level of commodities available for export form these regions.
-The influx of workers in urban areas increases competition for jobs, houses, health facilities, schools
etc.
External Migration (Caribbean to developed countries)
-Professional and skilled workers who migrate reduce the level of skills available in their countries
resulting in a brain drain effect. This will impact on growth and development.
-They increase competition for jobs, houses, health facilities and schools in their new territory.
-Money earned by Caribbean nations in foreign countries is sent home to support their families reducing
poverty and making foreign exchange available for their respective countries.
-Caribbean professional and skilled workers contribute to the growth of developed countries
Levels of Production
Subsistence
This is the lowest level of production. Subsistence productions refers to output from the production
process that is just enough for the survival. This amount of production is therefore not adequate to
meet all needs and wants of a family, community or a country. For example, subsistence farming
involves the production of crops to feed the family and for survival. Wealth is not created as whatever is
produced is consumed.
Domestic Production
Domestic production refers to production that is more than survival level. It provides output that is
enough to satisfy domestic needs and wants. Excess is not available for export. However, production is
adequate to supply local demand.
Surplus or Export
This level of production is adequate to supply local demand and for export. Large industries can
produce large quantities of output to satisfy local consumption and earn foreign exchange from export,
for example, the sugar and banana industries.
Types of Production
Primary Production
This includes all kinds of extractive industries such as agriculture, mining and fishing.
Secondary Production
This includes manufacturing such as assembling, refining and construction (building) industries.
Tertiary Production
This includes all kinds of service industries such as transportation, communication and tourism.
Cottage Industry
Cottage industry is a generic term for any type of homebased production business. The term is
specifically used to describe industries of a craft nature e.g. basket weaving, carving and pottery. This
type of homebased business is not difficult to start as it requires little capital to purchase tools and
employs family members. These small scale businesses are important to an economy. They utilize local
raw materials such as clay for pottery, wood for carving and straw for baskets. They earn foreign
exchange from selling to tourist at craft markets and fairs.
Linkage Industries
This refers to industries that are connected because they depend on each other to obtain or to sell raw
materials.
Forward Linkage
If the final product or finished products of one industry is used in another industry as its raw material
then a forward linkage occurs. For example, sugar produced from a sugar factory is used by a bakery to
make pastries. Sugar is therefore the end product of one industry and used as raw material in
another. Other examples include agriculture and canning, lumber and construction and cattle farming
and meat processing.
A backward linkage occurs when the demands of an industry leads to the establishment of other
industries to produce for the needs of this industry. For example, the establishment of several
multinational fast food restaurants in the Caribbean has led to new businesses being established to
supply these restaurants with raw materials (vegetables, ground provisions, meats and paper based
products).
Marketing
Difference between Market and Marketing
A market is any space within which trade takes place between buyers and sellers for a well-defined
product. This space can be a produce market, a shop, internationally between countries or over the
internet.
Marketing is all those activities that facilitate trade. These include activities that identify consumers
needs such as market research and those activities that satisfy consumers needs e.g., packaging and
distribution. Marketing activities therefore support the marketing of goods and services.
Marketing Activities
Market research the process of gathering information about potential customers.
Packaging creating a suitable package for product usage and for advertising
Branding - differentiating the product of a company from other brands and establishing loyal
customers.
Pricing - identifying the right price that will encourage sales
Advertising methods used such as the media to inform and encourage the purchase of goods
and services
Sales promotion short-term methods used to encourage consumers to buy during a specified
period
Distribution - methods used to make the product available to consumers. For example
wholesale, retail or internet.
The demand and supply curves are drawn from the demand and supply schedules. Price is measured on
the vertical axis and quantity on the horizontal axis. The demand curve slopes downwards from left to
right and the supply curve slopes upwards from left to right. The intersection of the two curves
indicates the equilibrium price and quantity.
represents the Nike brand. A branded product will increase the value of the product in the eye of the
consumer.
Techniques of Selling
These are methods used to sell products more effectively by focusing on each customers personal
needs. Selling techniques include:
Personal Selling
After-sale services such as warranty and installation
Merchandising
Good Customer Relations
Personal Selling
This is the use of sales persons to present and sell goods and services of a firm. Sales persons promote a
firms goods directly to a specific consumer. They locate new customers, provide display services,
demonstrate the use of products, deliver goods, collect payments and provide the firm with feedback
After Sales Services
Customers are entitled to these services once they have made a purchase. They include delivery,
installation and warranty. These services are free and therefore usually encourage consumers to buy.
Merchandizing
Merchandizing refers to self-service methods of sale. This is used in supermarkets and department
stores. It allows for a better display of goods and creates a more comfortable shopping environment.
Good Customer Relations
Building good relationships with customers ensures customer satisfaction, repeat customers and
recommendation to new customers. The sales staff must be trained in the principles of good customer
relations. This entails, listening to customers being helpful and polite.
Terms of Sale
A business establishment may offer its customers various terms to settle accounts.
Cash
This is preferable by most businesses and therefore customers are encouraged to make cash
payments. They are usually offered a lower payment amount for goods bought for cash.
Credit
Customers are allowed to pay at intervals over a short- term, usually one to three months to
settle outstanding balances.
Hire Purchase
Hire-purchase is a long term payment plan e.g. 24 36 months. Interest is charged to the
customer increasing the amount owed.
Cash Discount
A cash discount is a reduction in the price of a good that is paid for immediately or over a short
period of time by a customer. For example, if a an appliance store offers 5% discount on items
bought for cash then 5% of the sale price would be deducted from the actual bill
Trade Discount
A trade discount is the reduction in the price of a good given by a manufacturer or a wholesaler to a
retailer to allow the retailer to make a profit or to encourage bulk buying. Thus if an appliance
manufacturer offers 10% trade discount to retailers then 10% of the catalogue price or the quoted
price would be deducted from the retailers actual bill.
Consumer Organizations
Consumerism is defined as the education and the protection of consumers to prevent their exploitation.
Consumer exploitation includes:
-overcharging
-offering poor quality goods and services
-short measurements and weights
Consumerism is practised by various groups in the economy: the government, private institutions, and
private firms.
Consumerism practiced by the government
This is done through various government agencies. These include:
1. The Consumer Affairs Commission This institution was set up to disseminate information about
consumer rights and responsibilities as well as provide consumers with an avenue for redress if they are
exploited.
Consumer Rights
-The right to safety
-The right to be informed
-The right to choose
-The right to be heard
-The right to redress
-The right to consumer education
-The right to a healthy environment
Consumer Responsibility
-The responsibility to beware
-The responsibility to be aware
-The responsibility to think independently
-The responsibility to speak out
-The responsibility to complain
-The responsibility to be an ethical consumer
-The responsibility to respect the environment and avoid waste, littering and contributing to
pollution.
2. The Fair Trading Commission This agency was set up to administer the fair trading act. It is
concerned with matters such as; Tied selling (marrying of goods), misleading advertising (untruths about
goods and services presented for sale), untrue sale (an announced sale for which the price of items
remain the same).and the use of market dominance to squeeze firms out of the industry (For example,
large firms may drop the price of their goods so low that small firms are unable to compete with them.)
3. The Bureau of standards -The bureau carries out regular checks on business enterprises to ensure that
goods and services offered for sale meet the standards stipulated by this institution.
4. The Ombudsman
The Ombudsman is a government official who protects the rights of citizens who may suffer any kind of
injustice from dealing with a government agency or a government official. For example, the
Ombudsman will investigate the death of a loved one due to the negligence of a public hospital.
Consumerism practiced by private Institution
-Local consumer groups
-Radio talk show hosts listens to consumers complaints
Consumerisms practiced by private firms
-Offering warranty/guarantees on items sold
-Labels carry information on ingredients, nutritional content and health risks that may be
associated with the product.
Methods of Retailing
There are several methods by which retailers can offer items for sale.
Community Shops and Convenient Stores
These locations tend to serve a particular community. Opening hours include all weekend days, holidays
and very late in the evenings. Costs for some commodities that are not government controlled tend to
be higher than other types of retail outlets. Community shops in particular cut and shape products to
suit customers and offer credit.
Department Stores
These stores carry a several lines of goods under one roof. A department store may feature a clothing
department, household items, stationery, hardware etc. It provides convenience to customers who can
pick up several items in one place, and allows the businessman the cost effectiveness of operating
several business entities in one location.
Mail Order
Companies that retail through mail order benefit from reduced operational cost of location and staff.
Since display areas are not required only an office and storage facility are necessary for the operation of
this business. Orders are made from catalogues and goods are delivered by courier or mailed to
customers. This saves time and effort of consumers to visit shopping locations.
E-commerce
Orders are made by customers over the internet from the websites of businesses. Payments are also
made over the internet. Packages are delivered by mail or courier.
Tele- marketing
Tele marketers introduce the companys goods and try to obtain orders via the telephone.
Vending Machines
These self-service machines are placed at various locations by their owners. Customers are required to
place the required funds inside these machines and are then instructed on how to make their choice.
The machine then dispenses the product. This type of business is very cost effective as owners may only
pay a fee for locating the vending machine.
Forms of Transportation
Transportation is an integral part of the daily commercial and industrial activities of a country.
Transportation moves raw materials from source to manufacturers and finished goods to consumers. It
also makes possible overseas trade and thus foreign exchange earnings for an economy.
There are various modes/forms of transportation that can be used to transport goods. Commodities
may be transported by land, air, sea and pipeline. The mode of transportation will depend on weight
and size of the commodities being transported, as well as the urgency for delivery and the
transportation costs.
Modes/Forms of Transportation
-Land
->Road
->Rail
-Air
-Sea
-Pipeline
Land-Road
Types of transportation include trucks, vans, cars etc. It is the most popular mode of transport as all
types of goods can be transported by road. Road transport is affected by bad roads, traffic congestion
and challenging terrain. Lengthy delays can affect perishable goods such as farm produce being
transported from rural areas to cities.
Land-Rail
This is a cheap form of transportation over long distances. Trains are suitable for heavy and bulky things
such as bauxite. Trains are a very slow mode of transportation.
Air
Types of transportation include cargo planes and helicopters. Because of the high cost involved with air
transportation it is suitable for important documents and expensive items e.g. jewellery.
Sea
Cargo ships and barges are some of the types of transportation used for transporting goods by
sea. Goods such as oil, bauxite and cars are transported by sea.
Pipeline
Pipelines are used to transport commodities such as water and gas. High costs are involved in laying
pipes initially. However overtime it becomes very economical
Problems of Distribution
Distribution locally is challenged by poor road conditions and difficult terrain especially in the rural
areas. Spoilage of perishable goods is very costly and therefore types of transportation used must be
equipped to carry perishable goods.
Problems encountered in Overseas Transportation
The challenges faced in transporting goods internationally will impact foreign exchange earnings. These
challenges include:
-Misdirection of goods goods mistakenly sent to the wrong destination
-flight delays
-strikes by airport and ship port workers.
-narcotics found in containers
-Pilferage- goods stolen in transit.
Measures to mitigate problems of distribution
-careful checks before loading packages for shipment
-contingency plan when strikes occur
-public awareness on the consequences of narcotics found in containers
-making persons responsible for any goods lost in their care
Business Finance
Role of Commercial Banks
-Commercial bank accepts money deposits and therefore provides a safe place for saving money.
-Offering loans and overdraft to persons who need financial assistance.
-Assisting customers to easily make payments through standing orders, current accounts and debit
cards.
Services offered by Commercial banks
-Commercial banks provide advisory services to clients who wish to borrow a loan to make
investments and persons who wish to purchase securities.
-Safety deposit boxes at the bank are used to store safely items that individuals deem as highly
valuable.
-Selling travellers cheques.
-Credit cards allow persons to purchase items by using funds that the bank makes available.
There is a limit to how much the bank makes available to credit card holders.
Stock Market
The stock market facilitates the trading of stocks/shares between buyers and sellers. The Stock
Exchange is the governing body that overseas and regulates the activities of the stock market.
Companies that wish to obtain capital to expand may offer shares for sale on the stock market. It is
therefore essential to the expansion of businesses in an economy. It provides a form of investment for
persons who are very speculative and will buy stocks for resale at higher anticipated prices.
Types of speculators/stock market investors
Bears
These are speculators who sell securities because they expect the price to fall soon. A bear
market is a stock market that is slow moving i.e. investors are not keen on buying stocks.
Bulls
These are speculators who buy securities because they think the price will rise soon. A bull
market that is very active with high interest in the buying and selling shares.
Stags
Stags are short term speculators. They are also known as day traders. They carefully watch the
movement of stock prices and buy stocks with the intention of quick resale for profits.
Cross List
Cross listing occurs a company lists shares on more than one stock exchange. It not only lists stocks for
sale on the exchange in the country which it operates but also on other exchanges.
Stock Broker
This is someone who is authorized to buy and sell shares. Persons wishing to buy or sell shares must
contact a stock broker who will buy or sell shares on their behalf
Quiz
Question 1
Explain the importance of two functions of the commercial bank to business.
Answer
The commercial banks offer loans and overdrafts to the business sector. Loans are required for start-up
capital and for business expansion. Overdrafts assist business to bridge finance so that liquidity may be
maintained to continue operation.
Commercial banks also provide a safe place for business to keep money. A business only needs to keep
enough cash on location that is required for its daily operations.
Question 2
Explain the benefits of two services of commercial banks to customers.
Answer
It sells travellers cheques to customers who are travelling overseas. Travellers cheques are a safe way of
traveling with funds overseas. They give financial advice to customers. This advice will help customers to
make informed decisions concerning investment.
Question 3
Outline two functions of the central bank.
Answer
The Central Bank is a banker to other banks. All commercial banks must keep an account with the
Central Bank. These balances are used for cheque clearing purposes between banks. The Central Bank
can also demand commercial banks to deposit a certain percentage of their total deposits with the
central bank in order to control the money supply.
The Central Bank is responsible for designing printing and issuing the countrys currency. It has the sole
authority to issue notes and coins. Any other form of printing money is counterfeit money and illegal.
Question 4
Explain how government is able to control inflation through the Central Bank.
Answer
The government can control inflation through the Central Bank. When the money supply is too high
monetary policies such as high interest rates, selling certificates of deposits and treasury bills and
increasing the cash reserve ratio are used to discourage borrowing and spending.
Question 5
Explain the term money management.
Answer
Money management refers to methods used to efficiently manage ones income. Preparing a budget will
ensure that an individual lives within his means and save to achieve future goals.
Question 6
Give two reasons for drafting a budget.
Answer
A budget is outlines how much of an individuals personal income is to be allotted to various living
expenditures. It provides a record of past expenditures so that the individual can analyze his
expenditures and make more efficient spending decisions. It ensures that priorities are taken care of and
that a system for savings can be developed to meet future goals.
Question 7
Distinguish between long and short-term financing.
Answer
Short-term financing involves loans that require repayment up to five years. Short-term loans can be
accessed through commercial and merchant banks and credit unions. Long-term financing involves loans
that allow a longer payment period. Building societies and development banks require repayment of to
20 years.
Question 8
Distinguish between savings and investment.
Answer
Savings is defined as money set aside or not spent from ones personal income. However, investment is
defined as methods of increasing wealth. It differs from savings as it involves risks. Examples of
investments include, starting a business and purchasing shares.
Question 9
Discuss the importance of the stock market to an economy.
Answer
The stock market provides a means of financing for firms. Firms that need capital to expand may offer
shares for sale. The stock market also provides an opportunity for investment. Individuals who buy
shares may resell them when the stock prices rise.
Question 10
Differentiate between two types of investors on the stock market.
Answer
Bears are speculators who sell securities because they expect the price to fall soon. Bears wish to
prevent losses by selling their shares before prices fall. However, bulls are speculators who buy
securities because they think the price will rise soon. They purchase shares as they expect to make
profits as soon as stock prices increase.
Unit 8
Purpose of Taxation
Taxes are mainly used to finance the expenses incurred by government to manage an economy. These
expenses include: health care, education, garbage collection and operating government business
entities. Taxation is also used by government for several other purposes.
To reduce pollution by taxing offending firms
To discourage unhealthy lifestyle e.g. a tax on cigarettes
To protect local and infant industries by taxing imports
To achieve greater equality of wealth and income. Revenue from taxation is used to help the
very poor e.g. providing food stamps.
To improve the balance of payments (BOP) by increasing the duties charged on imported goods.
To control spending in an economy thus reduce inflation
National Income
The national income of a country is the total income earned by that country from the production of
goods and the provision of services in a given year after deducting depreciation. It therefore measures
the level of economic activity of a country within a year. Note depreciation of assets is taken into
account when measuring national income.
Gross Domestic Product (GDP)
GDP is the total money value of all output produced within a country over a year. The word
domestic refers to income earned from local production only.
Gross National Product (GNP)
GNP is the total money value of all output produced over one year, both within a country and
from its overseas investments.
Therefore GNP = GDP + overseas earnings by nationals
Net National Product (NNP) or National Income (NI)
NB: The definition for national income includes adjustments for depreciation.
National Income (NI) = GNP- depreciation
Since GNP figures do not accurately measure the standard of living, the following indices may be
used.
Per capita GNP
This is calculated by dividing a countrys GNP by its total population. That is,
GNP
Total population
Thus if a countrys GNP is $40,000,000 and its total population is 5,000, its per capita GNP would be
$8,000.
40,000,000 = 8,000
5000
Thus each citizen enjoys on an average $8,000 worth of goods and services.
International Trade
It is an advantage for countries to be self-sufficient, but there are reasons why trade must take place
between nations.
Reasons for International Trade
Lack of certain natural resources to produce essential goods. Oil which is important to economic
life must be imported into countries that do not possess that natural resource.
(b)Lack of capital, technology and specialist labour to manufacture certain goods on a large
scale. For example, Caribbean countries import machinery equipment and vehicle.
(c)Differences in climatic conditions, e.g. many tropical countries import grapes and
strawberries as these produce need cool climates to survive.
(d)Differences in the cost of production between countries. This reason is based on the
principle of comparative advantage which states that benefits will be gained from trade if
countries produce goods in which they have a relative advantage. Therefore, if two countries
both produce cars and coffee but each is more efficient at producing or produces either at a
lower opportunity cost either car or coffee, then trade can take place. The country that is more
efficient at producing coffee should put all its resources into coffee and import cars from the
other country that is efficient in producing cars.
Unit 10
Regional and Global Business Environment
Quiz
Question 1
List three objectives of CARICOM.
Answer
Three objectives of CARICOM are:
-joint negotiations internationally
-economic integration of the region
-improved standard of living for the region
Question 2
Explain how the CSME differs from CARICOM.
Answer
This transforms the common market into a single market and economy. It establishes a single currency
for the region and the free movement of human and capital resources throughout the region.
Question 3
Outline the main objective of the World Bank.
Answer
The World Bank provides long-term loan for developmental projects. Its main aim is the reduction of
poverty in worldwide. Loans are provided for purposes such as infrastructure and industry.
Question 4
(a) Identify two economic problems that affect Caribbean countries.
(b) Discuss one method that can be used to solve one of these problems.
Answer
(a) Two economic problems that affect Caribbean countries are unemployment and high debt burdens.
(b) High debt burdens can be reduced by methods that increase foreign exchange earnings and reduce
dependency on imports. Support for local industries in the form of tax holidays, duty free imports and
low interest loans will reduce cost of production and thus encourage output. Lower market prices will
encourage local consumption and increase the competitiveness of products on the international market.
Question 5
Explain the role of the Caribbean Development bank.
Answer
The Caribbean Development bank was set up to finances regional projects that contribute to the
economic growth and development of the region. For example: providing funds for roads, education and
business development.
Question 6
Give two methods that can be used to increase FDI.
Answer
Caribbean government can encourage FDI incentives with methods such as tax holidays, affordable
operating costs (labour and utility) and availability of human and natural resources.
Question 7
What is the role of the WTO?
Answer
The WTO was set up to monitor and regulate trade among nations of the world based on their collective
agreements.
Question 8
List three international trade agreements.
Answer
Three international trade agreements are:
-The Caribbean Basin Initiative (CBI)
-CARIBCAN
-North American Free Trade agreement (NAFTA)
Question 9
Outline one trade agreement that involve Caribbean countries and explain the long term benefits of
these agreements to the Caribbean.
Answer
CARIBCAN gives Caribbean countries duty free access to markets in Canada. It ensures a steady market
for Caribbean products and thus long-term development of local industries. Other benefits include:
employment and linkage industries.
Question 10
Write brief notes on ECLAC.
Answer
The ELAC is an organization of Latin American and Caribbean countries. They aim to reinforce economic
ties among the countries of Latin America and the Caribbean.