Financial transaction
Encyclopedia
A financial transaction is an event or condition under the contract between a buyer
and a seller to exchange an asset
for payment
. It involves a change in the status of the finances of two or more businesses or individuals.
, financial transactions have been established with precious metal
such as gold
and silver
. Fiat money
is presently developed with electronic money
.
, about $ billions per year.
The world
financial transactions have jumped from $ billions dollars in 2002 to $ billions dollars in 2008 : 95% of this global amount is only used for speculation
.
. This transaction results in a decrease in the finances of the purchaser and an increase in the benefits of the sellers. An example is a real estate transaction
.
.
is a business that is based almost entirely on financial transactions. In addition to acting as a lender for loans and mortgages, banks act as a borrower in a special type of loan called an account. The lender is known as a customer and gives unspecified amounts of money to the bank for unspecified amounts of time. The bank agrees to repay any amount in the account at any time and will pay small amounts of interest on the amount of money that the customer leaves in the account for a certain period of time. In addition, the bank guarantees that the money will not be stolen while it is in the account and will reimburse the customer if it is. In return, the bank gets to use the money for other financial transactions as long as they hold it.
. In this way, the buyer is paying with a loan from the credit card company, usually a bank. The bank or other financial institution
issues credit cards to buyers that allow any number of loans up to a certain cumulative amount. Repayment terms for credit card loans, or debt
s vary, but the interest is often extremely high
. An example of common repayment terms would be a minimum payment of the greater of $10 or 3% every month and a 15-20% interest charge for any unpaid loan amount. In addition to interest, buyers are sometimes charged a yearly fee to use the credit card.
In order to collect the money for their item, the seller must apply to the credit card company with a signed receipt
. Sellers usually apply for many payments at regular intervals. The seller is also charged a fee of normally 1-3% of the purchase price by the credit card company for the privilege of accepting that brand of credit card for purchases.
Thus, in a credit card purchase, the transfer of the item is immediate, but all payments are delayed. The credit card holder receives a monthly account of all transactions. The billing delay may be long enough to defer a purchase payment to the bill after the next one.
ed from the customer's account and credited to the account of the seller. This is possible even if the buyer or seller use different financial institutions. Currently, fees to both the buyer and seller for the use of debit cards are fairly low because the banks want to encourage the use of debit cards. The seller must have a card reader set up in order for such purchases to be made. Debit cards allow a buyer to have access to all the funds in his account without having to carry the money around. It is more difficult to steal such funds than cash, but it is still done. See also skimming and shoulder surfing
.
Buyer
When someone gets characterised by their role as buyer of certain assets, the term "buyer" gets new meaning:A "buyer" or merchandiser is a person who purchases finished goods, typically for resale, for a firm, government, or organization...
and a seller to exchange an asset
Asset
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
for payment
Payment
A payment is the transfer of wealth from one party to another. A payment is usually made in exchange for the provision of goods, services or both, or to fulfill a legal obligation....
. It involves a change in the status of the finances of two or more businesses or individuals.
History
After barterBarter
Barter is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. It is usually bilateral, but may be multilateral, and usually exists parallel to monetary systems in most developed countries, though to a...
, financial transactions have been established with precious metal
Precious metal
A precious metal is a rare, naturally occurring metallic chemical element of high economic value.Chemically, the precious metals are less reactive than most elements, have high lustre, are softer or more ductile, and have higher melting points than other metals...
such as gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
and silver
Silver
Silver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...
. Fiat money
Fiat money
Fiat money is money that has value only because of government regulation or law. The term derives from the Latin fiat, meaning "let it be done", as such money is established by government decree. Where fiat money is used as currency, the term fiat currency is used.Fiat money originated in 11th...
is presently developed with electronic money
Electronic money
Electronic money is money or scrip that is only exchanged electronically. Typically, this involves the use of computer networks, the internet and digital stored value systems...
.
Present situation
In 1997, $ billions were exchanged every day on Foreign exchange marketForeign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
, about $ billions per year.
The world
World
World is a common name for the whole of human civilization, specifically human experience, history, or the human condition in general, worldwide, i.e. anywhere on Earth....
financial transactions have jumped from $ billions dollars in 2002 to $ billions dollars in 2008 : 95% of this global amount is only used for speculation
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
.
Purchase
This is the most common type of financial transaction. An item or good is exchanged for moneyMoney
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
. This transaction results in a decrease in the finances of the purchaser and an increase in the benefits of the sellers. An example is a real estate transaction
Real estate transaction
A real estate transaction is the process whereby rights in a unit of property is transferred between two or more parties, e.g. in case of conveyance one party being the seller and the other being the buyer...
.
Loan
This is a slightly more complicated transaction in which the lender gives a single large amount of money to the borrower now in return for many smaller repayments of the borrower to the lender over time, usually on a fixed schedule. The smaller delayed repayments usually add up to more than the first large amount. The difference in payments is called interest. Here, money is given for not any specific reason.Mortgage
This is a combined loan and purchase in which a lender gives a large amount of money to a borrower for the specific purpose of purchasing a very expensive item (most often a house). As part of the transaction, the borrower usually agrees to give the item (or some other high value item) to the lender if the loan is not paid back on time. This guarantee of repayment is known as collateralCollateral (finance)
In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan.The collateral serves as protection for a lender against a borrower's default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation...
.
Bank account
A bankBank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
is a business that is based almost entirely on financial transactions. In addition to acting as a lender for loans and mortgages, banks act as a borrower in a special type of loan called an account. The lender is known as a customer and gives unspecified amounts of money to the bank for unspecified amounts of time. The bank agrees to repay any amount in the account at any time and will pay small amounts of interest on the amount of money that the customer leaves in the account for a certain period of time. In addition, the bank guarantees that the money will not be stolen while it is in the account and will reimburse the customer if it is. In return, the bank gets to use the money for other financial transactions as long as they hold it.
Credit-card
This is a special combination of a purchase and a loan. The seller gives the buyer the good or item as normal, but the buyer pays the seller using a credit cardCredit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
. In this way, the buyer is paying with a loan from the credit card company, usually a bank. The bank or other financial institution
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
issues credit cards to buyers that allow any number of loans up to a certain cumulative amount. Repayment terms for credit card loans, or debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
s vary, but the interest is often extremely high
Usury
Usury Originally, when the charging of interest was still banned by Christian churches, usury simply meant the charging of interest at any rate . In countries where the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law...
. An example of common repayment terms would be a minimum payment of the greater of $10 or 3% every month and a 15-20% interest charge for any unpaid loan amount. In addition to interest, buyers are sometimes charged a yearly fee to use the credit card.
In order to collect the money for their item, the seller must apply to the credit card company with a signed receipt
Receipt
A receipt is a written acknowledgment that a specified article or sum of money has been received as an exchange for goods or services. The receipt is evidence of purchase of the property or service obtained in the exchange.-Printed:...
. Sellers usually apply for many payments at regular intervals. The seller is also charged a fee of normally 1-3% of the purchase price by the credit card company for the privilege of accepting that brand of credit card for purchases.
Thus, in a credit card purchase, the transfer of the item is immediate, but all payments are delayed. The credit card holder receives a monthly account of all transactions. The billing delay may be long enough to defer a purchase payment to the bill after the next one.
Debit-card
This is a special type of purchase. The item or good is transferred as normal, but the purchaser uses a debit card instead of money to pay. A debit card contains an electronic record of the purchaser's account with a bank. Using this card, the seller is able to send an electronic signal to the buyer's bank for the amount of the purchase,and that amount of money is simultaneously debitDebit
Debit and credit are the two aspects of every financial transaction. Their use and implication is the fundamental concept in the double-entry bookkeeping system, in which every debit transaction must have a corresponding credit transaction and vice versa.Debits and credits are a system of notation...
ed from the customer's account and credited to the account of the seller. This is possible even if the buyer or seller use different financial institutions. Currently, fees to both the buyer and seller for the use of debit cards are fairly low because the banks want to encourage the use of debit cards. The seller must have a card reader set up in order for such purchases to be made. Debit cards allow a buyer to have access to all the funds in his account without having to carry the money around. It is more difficult to steal such funds than cash, but it is still done. See also skimming and shoulder surfing
Shoulder surfing
Shoulder surfing may refer to:* Shoulder surfing * Shoulder surfing...
.