have good returns on their investment. In this chapter, we shall identify the rej agencies in the markets, the tools they use in regulating the financial system.
The money market is an arrangement for the exchange of short term securities. The mon market is used by institutions or individuals who wish to borrow on a short term basis or haw money to lend to the financial system on a short-term basis. The some instruments employ in the money market include treasury bills, commercial bills, money at call and bills of exchange, etc.
Instrument or Both Used in The Money Market
1. Bill of exchange
This is as well referred to as a trade bill or commercial paper. The bill of exchange is a downturn showing evidence of an outstanding loan between two parties. When the creditor (or the exporter) draws up the bill of exchange on the debtor (or importer); then it must be accepted consented to by the debtor (or importer) before it would have any value. If this bill exchange is drawn on a bank or an acceptance house (often referred to as drawer); this bill can be sold’ the money market for a small discount (this is called discounting bill of exchange).
The date of payment (or maturity) of the amount stated on the bill of exchange should not exceed 90 days (or 3 months). Often times, they are written out in a set of three. There exist both inland bills of exchange, drawn and payable within a country, and foreign hills (these bills are either drawn within the country and payable abroad or drawn abroad. and payable within the country).
2. Moneylender Funds
This is the excess cash Which commercial banks deposit with the. Central Bank or lend to financial institutions on short term basis. This financial instrument has no fixed date Dravidian or-repayment; it can be recalled by lending banks whenever required.
3. .Treas Bills
Lie Central Bank has part of the control over Commercial Bank converts short-term loans it bills) to government bonds to reduce the lending ability of Commercial Banks. A say bill enables the government, through the Central Bank, to borrow money from the samey market on short-term basis.
Agencies Involved in the Money Market Central Bank
i Commercial Banks
iii Acceptance Houses (Merchant Banks) [l Financial Houses
lv) Discount Houses
vi) Insurance Companies
(ii Central Bank
The Central Bank is the apex of the financial system. Apart from the government, it is the most important monetary and financial regulatory body within the country. Each independent country has its own Central Bank; for instance, Nigeria has the Central Bank of Nigeria.
The Central Bank is owned solely by the government of the country. Its Board of Directors and Governor are appointed by the government. The Central Bank serves majorly as a government instrument for controlling the country’s economy (especially the monetary and financial aspects of the economy). Therefore, the government of the country seeks to substantially influence the activities of the Central Bank.
Before political independence, all the English speaking West African countries have the Vest African Currency Board (WACB) acting as Central Bank. West African Currency Board has its head office in London. Since its functions were majorly the printing of and inane of currency notes, it was more or less a currency issuing financial house. As each of the!English-speaking West African countries gained political independence, it established a Central Bank of its own. Consequently, Ghana established a Central Bank in 1957; Nigeria in 1959; Sierra Leone in 1964 and Gambia in 1971.
These Central Banks perform the nonspecializing services and functions:
(1) Issuance of currency
(11) Serve as banker to the Government
liii) Serve as banker to Commercial Banks
(iv) Manages the country’s foreign monetary matters
(v) Serve as banker to discount houses
(vi) Facilitate socio-economic development
(vii) Implement Government’s monetary and financial policies
2. Commercial Banks
Like Central banks, commercial banks are financial institutions organised in form of limited liability companies or cooperative business units. Commercial banks are either owned by individuals, groups of individuals or corporate bodies or governments. The major economic activities of commercial banks revolve around the acceptance of money deposits for safe-keeping (or indigestible fund) and the granting of loans and advances that bear fixes rate of interest to their customers (or investors).
Commercial bank business originated from the activities of London Goldsmiths that accepted deposits from customers and lent out part of the money deposited with interest. In West Africa, commercial banking began in 1894 when the Bank of West Africa owned by Lloyd Standard Bank of South Africa and West Minster was established. Later in 1 926 Barclays Bank was instituted. These banks conducted commercial banking services on the West African shores with branches all over West Africa and close links with their foreign headquarters in Britain.
Indigenous commercial banking activities started in Nigeria when the industrial and commercial bank was established in the late I 900s. Economic mismanagement, accounting irregularities coupled with highly competitive nature of the banking environment brought about the demise of this indigenous bank in the 1930s. Three years later (1933); Dr. Maja. Dr. Daugherty and Dr. Subair founded the National Bank. This bank lived and grew until I 961 when the Western Region Government of Nigeria assumed control of it and changed its name to National Bank of Nigeria. In 1937, the Arab Bank (now known as African Continental Bank) was established too.
It is noteworthy that commercial banking was not regulated by government until unfortunate disquieting experiences of bank failures were recorded in the banking Indus. In 1952, the first Banking Ordinance was passed to regulate banking business. Thc commercial banking business in Nigeria today is less regulated than before and there exist many indigenous commercial banking institutions in the country too.
Functions of commercial Banks
The functions of commercial banks can be grouped into six major categories. Each is identified as follows:
- The safe-keeping (or acceptance) of customers’ money
- The transfer of money
- Provision of loans, advances and overdrafts
- Promotion of economic development
No comments:
Post a Comment