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SS2: COMMERCE - 2ND TERM

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  1. Marine Insurance | Week 1
    3 Topics
  2. Non-insurable Risks | Week 2
    4 Topics
  3. Banking - Central Bank of Nigeria | Week 3
    3 Topics
    |
    2 Quizzes
  4. Types of Account | Week 4
    4 Topics
    |
    2 Quizzes
  5. Warehousing | Week 5
    1 Topic
    |
    1 Quiz
  6. Capital | Week 6
    2 Topics
    |
    1 Quiz
  7. Credit | Week 7
    3 Topics
    |
    3 Quizzes
  8. Profit | Week 8
    2 Topics
  9. Turnover | Week 9
    3 Topics
    |
    2 Quizzes
  10. Business Law | Week 10
    8 Topics



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1. Development Banks:

These are financial institutions established specially to contribute to the development of specific sectors of the economy. One of the major characteristics is that development banks are not under the control and supervision of the central bank of Nigeria (CBN). Examples of these banks are Agricultural and Cooperative Bank (NACB), African Development Bank (ADB), Nigerian Bank for Commerce and Industry (NBCI), International Monetary Fund (IMF).

Functions

a. They provide both medium and long-term funds to specific sectors of the economy.

b. Development banks render assistance to would be investors in the area of technical support.

c. They are in a joint establishment with the government and its agencies to aid the establishment of other financial institutions with the sole aim of achieving some certain economic goals which are the main purpose of establishing them. 

d. They assist the government of a country to implement her financial policies especially policies that affect industrial development of the country.

e. They help to supervise the project that they sponsored in order to ensure that the project is carried out and also followed what they asked the contractor to do.

f. Development Banks promote the development of the Nigerian Capital market by encouraging their prospective borrowers especially those in need of expansion to list at the Nigerian stock exchange.

2. Mortgage Banks:

These banks make loans available to individuals and organizations to help them buy or build their own property. A minimum amount of money is required to be saved by those who may wish to request loans with the bank. The certificate of ownership of the house is kept by the bank as collateral all through the period of payment. The mortgage banks usually grant long term loans. These banks source their capital from customers deposit and funds from the government. 

Mortgage banks are known as building societies. They perform some of the functions of commercial banks example; acceptance of deposits in which interest is paid to the depositors.

3. Merchant Banks:

These are financial institutions which engage in wholesale banking, medium and long-term financing, equipment leasing, debt financing, investment management, issuance, and acceptance of bills. In 1970, there was the rapid development of merchant banking due to increased investment opportunities offered to treasury bills and treasury certificates and structural changes in the Nigerian economy.

Functions

1. Acceptance of Deposits: They accept large amounts of deposits from wealthy individuals and corporate bodies. The money attracts interest and is withdrawable with a certificate of deposits and not by cheque as is the case with commercial banks.

2. Provision of Investment and Financial Advisory Services: Advisory services are provided to their customers on debt financing, joint ventures, project financing, merger, and acquisition, etc.

3. Equipment Leasing: They are into contracts with their customers for the hiring of specific assets or equipment for a period of time between two and five years.

4. Granting Loans: They provide both medium and long-term loans to individual and corporate bodies. The maturity period of medium-term loans is between one and five years, whereas long term loans have a maturity period of five years and above.

5. Provision of Foreign Exchange: Merchant banks buy and sell foreign exchange for business, private or commercial purposes.

6. Project Financing: they also engage in financing the construction of new industrial and agricultural projects.

Evaluation Questions

1. Differentiate Mortgage Banks from Development Banks

2. Explain two functions of specialized banks.

3. Mention and describe three different types of accounts.

4. Differentiate between savings account and current account.

5. List and explain five methods used by the central bank to control the activities of the commercial banks. (WASSCE June 2005) View Answer

Responses

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Question 5

List and explain five methods used by the central bank to control the activities of the commercial banks. (WASSCE June, 2005)

Solution

Methods used by the Central Bank to control Commercial Banks;

  1. Open market operation
  2. Moral Suasion
  3. Special Deposits
  4. Cash reserve or ratio
  5. Bank rates

Open Market Operation: This entails buying and selling of securities from and to commercial banks so as to regulate the money in circulation. Central banks buy securities from commercial banks to increase the money in circulation and vice-versa.

Moral Suasion: The central bank can also appeal to commercial banks as regards the lending policy(ies) adopted by the commercial banks so as to regulate or stabilize the money in circulation.

Special Deposit: The central bank gives the commercial banks an instruction to keep a special deposit over and above the statutory required amount. This is done to reduce the power of the commercial banks in granting loans and advances

Cash Reserve or Ratio: This is the statutory required liquidity ratio that the commercial banks must keep with the central bank or their vaults in cash form. This ratio is increased or decreased by the central bank to stabilize the level of money in circulation.

Bank Rates: These are also called discount rates. A bank rate is the rate of interest at which the central bank lends money or discounts the bills of the commercial bank. This is also used to stabilize the money in the economy.

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