Q1a

INTRODUCTION

Money is used to buy and sell things. It is a means of exchanging products or

services between two persons. Both sellers and purchasers recognize it.
The usage of money is used in trading. People in a barter system trade products for
goods. A farmer, for example, traded his grains for pots from a potter. As a result,
there were issues with that system, which are as follows:

 The farmer should exchange the number of grain sacks for the number of pots
from the potter.
 The potter must store the grain, and if he does so for an extended period of
time, the grain may spoil.
 If a potter wishes to purchase wood, but the seller refuses to accept grains or
pots, money solves all of these issues since it allows a vendor or buyer to buy
or sell anything for money. Money has four functions: it is a store of value, a
deferred payment standard, a medium of exchange, and a unit of account. As a
result, money simplifies the process of buying and selling.

Q1b

Key Differences Between Commercial Bank and Merchant Bank

The points given below are important, concerning the difference between
commercial bank and merchant bank:

1. A commercial bank can be defined as the financial intermediary, set

up by a group of individuals to offer basic banking services to the
general public like accepting deposits and advancing credit.
Conversely, merchant banks are the banking company that assist
large enterprises in international trade and offer a number of products
and services to its clients.
2. The commercial banks are governed by Banking Regulation Act,
1949. In contrast, the merchant banks follow the rules and regulations
framed by SEBI, i.e. Securities and Exchange Board of India.
3. The main business of the commercial bank is related to regular
banking services, whereas merchant banks excel in providing
consultancy and advisory services to the clients.
 4. Loan extended by the commercial bank is debt-related. Unlike equity
related loans are granted by the merchant banks.
5. Commercial banks are less prone to risk, while merchant banks are
highly exposed to risk.
6. The role of a commercial bank resembles a financier. On the
contrary, the merchant banks act as a financial advisor.
7. The commercial bank aims at fulfilling the needs of the general
public, whereas big business houses that are operating in more than
one nation and high net worth individuals are catered by merchant
banks.

Q2a
History of Nigerian Banking System
The history of banking system in Nigeria dates back to the era of colonialism. The
colonial government set up Colonial Banks through which it sought to meet its
commercial objectives. British West Africa and African Banking Corporation were
created in 1892 as the foremost banking institutions in Nigeria.
Later on, they merged with each other and metamorphosed into the present-day
First Bank of Nigeria. Through the merger of National Bank of South Africa and
Anglo-Egyptian Bank, Barclays Bank came into inception in 1925. The British and
French Bank for Commerce and Industry commenced business in 1948 and at a
later time, it developed into the present-day United Bank for Africa.
1929 marked the establishment of Nigeria’s first domestic bank named Industrial
and Commercial Bank. Following its collapse in 1930, the bank was displaced in
the subsequent year by Mercantile Bank. Also, The collapse of the Industrial and
Commercial Bank was followed by the establishment of the African Continental
Bank in 1949. Meanwhile, the latter bank [African Continental Bank] served as
Nigeria’s only preservable indigenous bank after the collapse of the first
indigenous bank. The Nigerian Farmers and Commercial Bank –a bank created for
agricultural development –came into inception in 1947.
Q2b
DIFFERENCE BETWEEN BANK AND NON-BANK FINANCIAL INSTITUTION
1. their customers. Such services include loan advancements, guarantees, credit
card facilities, remittance of funds, cheque payments, etc. Whereas NBFCs are
service providers in terms of savings and investment plans, stocks, insurance
facilities, mutual funds, etc.
2. While banks' primary business is accepting deposits and offering loans, NBFCs,
unlike banks, get deposits through the process of securitisation.
3. Banks accept deposits that are repayable on demand, whereas NBFCs are not
permitted to enter into the business of accepting such deposits.
4. Where banks are eligible for foreign investments up to 74%, NBFCs are allowed
for foreign investments up to 100%.
5. Banks' primary function involves and forms part of the payment and settlement
cycle. In contrast, Non-Banking Financial Companies do not form part of any such
payment and settlement cycle.
6. Banks must mandatorily maintain ratios like Cash Reserve Ratios (CRR) and
Statutory Liquidity Ratios (SLR). Whereas NBFCs don't need to maintain such
ratios.
Q2c
CONTRIBUTION OF NON-BANK FINANCIAL INSTITUTION TO ECONOMIC GROWTH
AND DEVELOPMENT OF NIGERIA
We can identify the following NBFIs operating in Nigeria.
 Finance companies
 Community/microfinance banks
 Bureaux de change
 Discount houses
 Development finance institutions
 Insurance companies
 Primary mortgage institutions.
Q3a
What is Monetary Policy?
Monetary policy is an economic policy that manages the size and growth rate of
the money supply in an economy. It is a powerful tool to regulate macroeconomic
variables such as inflation and unemployment.
 Q3b
Objectives of Monetary Policy
The primary objectives of monetary policies are the management of inflation or
unemployment and maintenance of currency exchange rates.
1. Inflation
Monetary policies can target inflation levels. A low level of inflation is considered
to be healthy for the economy. If inflation is high, a contractionary policy can
address this issue.
2. Unemployment
Monetary policies can influence the level of unemployment in the economy. For
example, an expansionary monetary policy generally decreases unemployment
because the higher money supply stimulates business activities that lead to the
expansion of the job market.
3. Currency exchange rates
Using its fiscal authority, a central bank can regulate the exchange rates between
domestic and foreign currencies. For example, the central bank may increase the
money supply by issuing more currency. In such a case, the domestic currency
becomes cheaper relative to its foreign counterparts.
Q3c
Instruments of Monetary Policy
Quantitative Instruments or General Tools
The Quantitative Instruments are also known as the General Tools of monetary
policy. These tools are related to the Quantity or Volume of the money. The
Quantitative Tools of credit control are also called as General Tools for credit
control. They are designed to regulate or control the total volume of bank credit
in the economy. These tools are indirect in nature and are employed for
influencing the quantity of credit in the country. The general tool of credit control
comprises of following instruments.
Qualitative Instruments or Selective Tools
The Qualitative Instruments are also known as the Selective Tools of monetary
policy. These tools are not directed towards the quality of credit or the use of the
credit. They are used for discriminating between different uses of credit. It can be
discrimination favoring export over import or essential over non-essential credit
supply. This method can have influence over the lender and borrower of the
credit. The Selective Tools of credit control comprises of following instruments.