FINANCIAL INSTITUTION - WEEK ONE AND TWO

FINANCIAL INSTITUTIONS

MEANING: - Financial Institution are organization which deals primarily in money. Financial institution helps to pool excess liquidity and saving from individuals and firms within the country.

TYPES OF FINANCIAL INSTITUTIONS

1.  The traditional financial institutions

2.  Insurance companies

3.  Commercial bank

4.  The central bank

5.  Development bank

6.  Stock exchange market

1.  TRADITIONAL FINANCIAL INSTITUTION

The Esus:- This is a kind of co-operation which consists of people who agree to contribute a certain sum of money each and had it to member of the group until every member receives his or her share.

2.  INSURANCE COMPANIES: - they guarantee the insured against risk of loss or harm. Insurance companies receives premium on various types of risk insured against.

3.  CENTRAL BANK:- It is a financial institution that is entrusted with the task of managing the currency of a country according to the form of a Monetary  standard legally  adopted by that country.

 functions:

                       I.        The central bank controls issue of currency note and coins

                     II.        The central bank is the bankers bank the commercial bank has an account with the central bank.

                   III.        The central Bank is bank to government

                   IV.        The central bank is a lender of last resort. commercial banks borrow money from the central bank when other source have failed.

                     V.        COMMERCIAL BANK: They are financial institution that accepts deposits of money from their customers and pay back on demand.

 Functions:

 1.They accept deposit from customers.

2. They lend money to individuals, government and business organizations.

3.They provide facilities for the safe keeping of valuables. 4. They help the government to put new money into circulation and to retire old money

Development Bank: Development bank are banks specially established to develop specific sectors of the economy; eg Agriculture, Commerce and industries (NIDB, NBCI, NACB).

STOCK EXCHANGE MARKET: Is a market which exists to bring together those who wish to sell stocks or shares and who wish to buy them.

MONEY MARKET

This is a market for short term debt instrument. The major function of the money market is to facilitate the raising of short term funds by the deficit from the surplus sector of the economy. Money Market is the market for short- term loans. The loans granted can be demanded at a short notice.

The money market is made up of:

1.  Commercial Bank

2.  Merchant Bank

3.  The Central Bank

4.  Hire Purchase Companies.

BENEFITS

1.  The Financial Institutions involved the public are able to invest their money on short – term basis and earn some interest.

2.  Investors and government are provided with the opportunity of borrowing money for short term financing of their project.

CAPITAL MARKET

The primary aim of Nigerian Capital Market is to mobilize long tern funds. The Nigerian stock Exchange is the Centre of the Capital Market. Capital Market can be divided into two:

1.          Primary Market: - This is a market for new issue of securities. The mode of offer for securities traded in this market includes offer for subscription, right issues, debenture etc.

2.          Secondary Market: This consists of Exchanges and over-the- counter markets where securities are bought and sold after their issuance in the primary market. Institutions that operate in this market includes: insurance company ,issuing Houses, Development banks, Investment Banks, Investment trusts, Building societies or mortgage banks, finance co-operation, savings bank, the stock exchange market.

NB: Bureax De-exchange:

In order to broaden the foreign exchange market and improve accessibility to foreign exchange especially for small users bureax de-exchange have been authorized since 1989 to act as dealers in the spot market for foreign exchange. The federal ministry of finance is in charges with responsibility of licensing them.

Discount House: A discount house is a special non-bank financial institution which specialize in mobilizing funds from surplus sectors of Economy for channeling into deficit sectors. Discount Houses have been established to serve as intermediaries between the CBN, licensed banks and other financial institutions.

Distressed Banks: These are banks with problems relating to liquidity poor earning and non-performing assets.

New Issues:- Are securities raised in the primary market for the first time offer for subscription which is an initation by a company to the public to buy new issues.

Right issues are share offer to company’s existing sharesholders in the proportion to number of shares held and usually at below market price to make the offer attractive.

Debenture: are fixed interest bearing securities.

Preference Share: are share of company on which dividends must be paid before any other share.

Market Capitalization is the market value of a company’s issued share capital. It is the number of product of the current quoted price of share and the number of shares outstanding.

VISUAL CLASS VIDEO

PART 1

PART 2

Class Exercise

Answer the following questions

1 Define financial institution

2 List five examples of financial institution