Theory question 107
Financial Institutions(a) State any three instruments traded in the money market.
(b) With a relevant example each, explain the condition under which a manufacturer will seek for funds from the: (i) money market; (ii) capital market.
(c) Explain any three functions of Development banks.
Show the model answer
(a) Any three: treasury bills; treasury certificates; commercial papers; bills of exchange; call money; certificates of deposit; bankers' acceptances.
(b)(i) Money market – for short-term needs, e.g. to buy raw materials or pay wages for a few months (working capital) through an overdraft or commercial paper.
(ii) Capital market – for long-term needs, e.g. to build a new factory or buy machinery, by issuing shares or debentures or taking a long-term loan.
(c) Any three: provide medium- and long-term loans for agriculture, industry and other development projects; give technical and managerial advice to borrowers; help prepare feasibility studies; take equity stakes in new firms; promote small and medium enterprises; channel government and foreign funds to development.
Short-term needs: money market; long-term needs: capital market.