Theory question 106
Financial Institutions(a) Define: (i) Building Society; (ii) Central Bank.
(b) Highlight any five instruments of the Central Bank in regulating the supply of money.
Show the model answer
Model answer
(a)(i) A building society is a financial institution that accepts savings from members/the public and gives long-term loans (mortgages) for buying or building houses.
(ii) A central bank is the apex financial institution of a country that issues currency, acts as banker to government and commercial banks, and controls money supply and credit.
(b) Any five: open market operations; bank rate/monetary policy rate; cash reserve ratio; liquidity ratio; special deposits; selective credit control; moral suasion; credit ceilings; direct directives.
Explanation
Instruments change the banks' ability to create credit.