MONEY AND BANKING

Question 1

What is the Barter System?

Answer 1

The barter system is the exchange of goods for goods and services for services. Difficulties include the double coincidence of want, divisibility, storability, and cumbersomeness

Question 2

Explain ‘Double Coincidence of Want’.

Answer 2

This is a difficulty in the barter system where there must be an agreement on the type and quantity of products to be exchanged. One person must want what the other has, and vice versa

Question 3

What is Commodity Money?

Answer 3

Commodity money has a commodity value in addition to its value as money. Examples include barley (the shekel), shell money, and precious metals like gold and silver

Question 4

What is Money?

Answer 4

Money includes coins and banknotes, but bank money (anything for which you can write a cheque) accounts for the greatest proportion by value. Other forms include I.O.U.s, credit cards, and gold. More broadly, money is any good widely used and accepted in transactions, or any object or record generally accepted as payment for goods and services and repayment of debts.

Question 5

Describe Representative Money.

Answer 5

Representative money evolved from commodity money. Merchants or banks issued receipts for deposited commodities like gold and silver, and these receipts became accepted as a means of payment

Question 6

What is Fiat Currency?

Answer 6

Fiat currencies are not backed by a physical commodity like gold but are legal tender by government decree. After 1971, most world currencies became unbacked fiat currencies.

Question 7

List the key Characteristics of Money.

Answer 7

Acceptability: must be accepted for goods and services

Homogeneity: must be the same in form

Stable in Value: relatively stable over time

Divisibility: divisible into smaller units

Portability: easy to carry around

Relative Scarcity: limited in supply to maintain value

Question 8

What are the primary Functions of Money?

Answer 8

Medium of exchange: facilitates transactions

Store of value: allows for saving wealth

Unit of account: provides a standard for measuring prices

Standard of deferred payments: enables lending and borrowing

Question 9

Describe Legal Tender.

Answer 9

Legal tender is a commodity that a country legislates as generally acceptable for transactions and payment of debt. Confidence in its value is also importan

Question 10

———– are funds held in a bank current account that can be accessed and used for payment through cheques

Answer 10

Demand deposits

Question 11

What is Token Money?

Answer 11

Token money derives its value from being used as money and has no significant commodity value of its own. Banknotes are an example

Question 12

What are the three Motives for Holding Money?

Answer 12

Transactionary Motive: for day-to-day purchases

Precautionary Motive: for unforeseen emergencies

Speculative Motive: to profit from changes in asset prices

Question 13

Paper money or banknotes were first used in —i—during the Song Dynasty. These banknotes, known as—ii—- evolved from promissory notes that had been used since the 7th century

Answer 13

i. China
ii “jiaozi”,

Question 14

When was Nigeria’s first bank established and what was its name?

Answer 14

Nigeria’s first bank, the African Banking Corporation, was established in 1892.

Question 15

When was banking legislation first introduced in Nigeria?

Answer 15

Banking legislation was first introduced in Nigeria in 1952.

Question 15

What was the role of the West African Currency Board established in 1912?

Answer 15

The West African Currency Board was established to finance the export trade of foreign firms in West Africa and to issue a West African currency convertible to British pounds sterling.

Question 16

What led to the establishment of the Central Bank of Nigeria?

Answer 16

Calls for a central bank to facilitate economic development in 1952 and a subsequent study sponsored by the Colonial Office in 1957 resulted in the establishment of the Nigerian central bank.

Question 17

When did the Central Bank of Nigeria begin operations?

Answer 17

The Central Bank of Nigeria began operations on July 1, 1959.

Question 18

What were the primary roles of the Central Bank of Nigeria?

Answer 18

The roles of the Central Bank of Nigeria were 1. to establish the Nigerian currency, 2
control and regulate the banking system, 3 serve as banker to other banks in Nigeria, and 4 carry out the government’s economic policy in the monetary field.

Question 19

What were the key tools used by the Central Bank of Nigeria for monetary policy?

Answer 19

Key tools included control of bank credit growth, credit distribution by sector, cash reserve requirements, discount rates, and the ratio of banks’ long-term assets to deposits.

Question 20

What significant event happened to the Nigerian currency in 1973?

Answer 20

The Nigerian pound was converted to the naira (N), a decimal currency equivalent to two old Nigerian pounds, in 1973.

Question 21

What was the impact of the Second Nigerian Enterprises Promotion Decree of 1976 on foreign banks?

Answer 21

The decree required 60-percent indigenous holdings, leading the federal government to acquire an additional 20-percent holding in the three largest foreign banks and 60-percent ownership in other foreign banks

Question 22

What are the primary functions of commercial banks in Nigeria?

Answer 22

The primary functions of commercial banks are accepting deposits, Money at call, advancing loans, and discounting bills of exchange.

Question 23

: What are the different types of deposits accepted by commercial banks?

Answer 23

Commercial banks accept demand deposits (current deposits), saving deposits, and fixed deposits

Question 24

What is the main focus of merchant banks in Nigeria?

Answer 24

Merchant banks primarily cater to the needs of corporate and institutional customers and provide medium to long-term finance

Question 25

What are some of the key activities undertaken by merchant banks?

Answer 25

Key activities include loan syndication, equipment leasing, debt factoring, and project financing

Question 26

What is the role of the Nigerian Deposit Insurance Corporation (NDIC)?

Answer 26

The NDIC increased confidence in banks by protecting depositors against bank failures in licensed banks up to N50,000.

Question 27

Money created by commercial banks is known as ----------

Answer 27

deposit money.

Question 28

---------- is a most common way of lending. Under it, the borrower is allowed to overdraw his current account balance.

Answer 28

Overdraft

Question 29

Loans are given against security, while overdraft made without securities.True or FALSE

Answer 29

True

Question 30

The difference between a loan and an overdraft is that, while in case of loan, the borrower pays us interest on the amount outstanding against his account. But in the case of an overdraft, the customer pays interest on the--------standing against his account further

Answer 30

deal balance

Question 31

Money at call loans are very short period loans and can be called back by the bank at a very short notice of say one day to---- days

Answer 31

14

Question 32

Briefly discuss the emergence of commercial bank in Nigeria.

Answer 32

1. First Generation bank: These were banks that were licensed before Nigeria’s independence in 1960 Second Generation (1960-1980): These are banks that were licensed between Nigeria's independence in 1960 and 1980 Third Generation (1980-1991): These banks received their licenses between 1980 and 1991 Fourth Generation (1998 to present): This generation comprises banks licensed from 1998 to the present time

Question 33

what type of loan is the borrower is allowed to withdraw up to a certain amount on a given security which comprise mainly stocks of goods, but interest is charged on the amount actually withdrawn.

Answer 33

Cash credit

Question 34

What is known as one of the oldest central banks in the world?

Answer 34

The Bank of England

Question 35

What were the primary catalysts that highlighted the crucial roles of central banks in finance?

Answer 35

Wars and economic crises

Question 36

What was the initial main function of older central banks, including those in England, Sweden, and France?

Answer 36

o financially serve their respective governments

Question 37

What significant action did the Bank of England take when it was incorporated in 1694?

Answer 37

It granted a loan of 1.2 million pounds to the government of William III to finance the war against France

Question 38

In exchange for the loan, what privileges did the government grant to the Bank of England?

Answer 38

The right to carry on general banking business, including buying and selling coin and bullion, dealing in bills of exchange, issuing its own notes, and making loans.

Question 39

Why did commercial banks find it convenient to keep deposits with the Bank of England?

Answer 39

Because the Bank of England was the principal issuer of notes.

Question 40

By the mid-19th century, what had the Bank of England become?

Answer 40

A banker's bank

Question 41

What legislation granted legal power to the Bank of England's notes?

Answer 41

The legislation passed in 1833

Question 42

What did the Bank Act 1844 (Peel's Act) stipulate regarding note issuance in the United Kingdom?

Answer 42

No new bank could issue notes, and restrictions were placed on existing note-issuing banks in England and Wales

Question 43

What major financial crises occurred in the 19th century involving excessive lending by banks?

Answer 43

The crises of 1825 and 1837

Question 44

When did the Bank of England begin to act as a lender of last resort to banks?

Answer 44

Around 1837.

Question 45

What are the three traditional main functions of a central bank?

Answer 45

Managing the nation's monetary system, serving as a banker to commercial banks, and acting as a financial agent for the national government.

Question 46

What is an "unorthodox" role of a central bank that developed in the 1930s, particularly in developing countries?

Answer 46

Acting as an engine of economic growth

Question 47

How does a central bank control the monetary system?

Answer 47

By regulating the supply, cost, and availability of credit.

Question 48

What are some of the key services a central bank provides to commercial banks as their banker?

Answer 48

Holding legal reserves, acting as a lender of last resort, clearing and collecting cheques, and distributing coins and paper currency.

Question 49

What are some of the responsibilities of a central bank as a financial agent for the government?

Answer 49

Receiving, holding, transferring, and disbursing government funds; providing technical services related to public debt; and offering financial advice.

Question 50

What is the primary role of a central bank in the development process of developing countries?

Answer 50

to develop the financial structure necessary for it to perform its traditional roles in the future.

Question 51

What are the two extreme forms of relationship between a central bank and the government?

Answer 51

Complete independence of the central bank and the central bank being just an arm of the government (lack of autonomy).

Question 52

What is generally considered the preferable relationship between a central bank and the government by most observers today?

Answer 52

A relatively independent central bank with the government holding ultimate responsibility for economic policy.

Question 53

Besides laws and regulations, what other factor can influence the autonomy of a central bank?

Answer 53

The personality (or stature) of the governor of the bank relative to that of the Minister of Finance

Question 54

When did Mr. J. Mars first draw attention to the desirability of having a central bank in Nigeria?

Answer 54

1948

Question 55

What did Fisher propose as an alternative to establishing a central bank immediately in Nigeria?

Answer 55

The transfer of the West African Currency Board, the establishment of a Nigerian Currency Board, and a Nigerian Bank of Issue.

Question 56

What was a key criticism of Fisher's report regarding the developmental role of a central bank?

Answer 56

It erred too much on the side of conservatism by not recognizing the developmental role of a central bank

Question 57

What was the core conclusion of Newlyn and Rowan regarding the role of a central bank in a developing country like Nigeria?

Answer 57

The only role for the central bank in such a situation was purely developmental.

Question 58

Whose recommendations formed the basis of the draft legislation for the establishment of the Central Bank of Nigeria?

Answer 58

Mr. Loynes, an advisor to the Bank of England

Question 59

When did the Central Bank of Nigeria (CBN) officially come into being?

Answer 59

On July 1st, 1959

Question 60

What are the core mandates of the Central Bank of Nigeria as outlined in the Central Bank Act?

Answer 60

Issuance of legal tender currency, maintenance of external reserves, promotion of monetary stability and a sound financial system, acting as banker and financial advisor to the Federal Government, and acting as lender of last resort.

Question 61

What is the Central Bank of a country considered to be in relation to its financial system?

Answer 61

The apex regulatory institution

Question 62

According to Ajayi (1995), what is the fundamental responsibility of a central bank?

Answer 62

Regulating the supply, availability, and the cost of money in the interest of social welfare

Question 63

A central bank controls commercial banks primarily through its role in managing the nation's ---i--- system and acting as a ---ii--- to commercial banks

Answer 63

i monetary ii banker