1.
What
are the main factors that determine the interest rates payable to bank
customers?
Answer:
The money which the customer deposit for the
credit of his account is not held for the customer but borrowed from him with a
promise to repay it or any part of it on demand. Thus, it can be seen that the amount or
volume of deposit will determine how much interest is paid to customer.
The Length of time – the customer
decides to continue his contractual agreement with the bank i.e. continue to
leave his money with the bank determines how much interest the banks would pay
to the customer.
The nature of accounts: Customers who
operate savings accounts are not likely to attar ts a high interest rate like
customers who operates a fixed deports account.
2.
List
the characteristics and qualities of money and explain the differences.
Answer:
The following are characteristics or prosperity
of good money.
a.
Acceptability
of value
– Money is accepted because a specific value has been conferred on it. Money must posses the important quality of
acceptability of value.
b.
Homogeneity – Money must be
homogenous. For example, N5 naira unit
should be worth another N5 naira unit at all times and in all places within the
geographical area of Nigeria.
c.
Portability:-Money should be
easy to carry
d.
Durability:-Money should not
be easily damaged or destroyed.
e.
Divisibility – Money should be
divisible into smaller units without any loss in value.
f.
Stability
of value -
3.
What
are the major ways banks use to generate income/profit?
Answer:
The two major functions of a commercials bank are
the mobilisation of deposits and the extension of credits. Banks act as financial intermediaries,
collecting money-on deposit from one group and lending it out to another group.
In this role, they are able to convert short-term deposits into long-term
loans.
4.
What
circumstances does a bank have a right to disclose information about a customer
account to a third party?
Answer:
In Tournier v.
National Provincial Bank (1923) case, it was clearly established that the
banker is entitled to disclose information about his customer’s affairs in four
instances only:
i. Where disclosure
is under compulsion of law ( e.g. where he is required to give evidence in
legal proceedings) ii. Where there is a duty to the public to disclose (may be
his customer is trading with the enemy of the country). iii. Where a guarantor asks to know the
extent to which is guarantee is been relied upon by the bank iv. Where the
disclosure is made by the express or implied consent of the customer e.g. where
he supplies a reference for his customer.
5.
How
does Central Bank of Nigeria use the open market operation to support its
interest rates policy? What are the Banker’s responsibilities when he acts
in vicarious capacity for his customer?
Answer:
This technique is
normally used by CBN where there is a well-developed financial structure. The national debt relatively large and the
CBN has a large stock of government securities.
The CBN can buy or sell securities in the stock market or to the public
with a view to influencing interest rates and money supply (i.e. increase or
decrease money supply) thereby altering the supply of financial assets.
To increase money
supply, the CBN purchases securities.
Conversely, to decrease money supply, the CBN sell securities thereby
making the prices to fall and yields to rise leading to a transfer of cash from
the purchasers or the public to the CBN, thus reducing the reserve assts of the
banks. Banks now have less money to lend
hence they have to curtain their lending so that the money supply is reduced
and interest rates will thus rise.
BANKER’S RIGHTS
BASIC RIGHTS
The following are
the most important rights of the commercial banker:
1. The charge his customer reasonable commission
for services rendered
2. To repayment on
demand from the customer of any overdrawn balance which has be permitted on a
current account.
3. To be indemnified by
the customer for expenses and liabilities incurred while acting for him.
4. to dispose of his
customer’s money as he pleases provided he honours customer’s valid cheques
5. to expect his
customer to exercise due drawing cheques
6. to exercise a lien
over any of his customer’s securities that are in his possession, other than
those deposited for safe custody, for any money owing to him
7. to exercise the
right of set-off
6.
Write
short notes on the following:
i. Banking ordinance
1952 ii. Special clearing iii. The barter system iv. What is certificate of
deposit, and how important is it in the money market?
Answer:
In Nigeria, the
first banking legislation was enacted in 1952. The 1952 Ordinance restricted
the establishment of banks and banking to companies holding valid
licenses. Prior to that time, banking
was not given any special treatment, but treated as any other business. The need to regulate banks by special laws became
apparent after several bank failure and losses to depositors which necessitated
the setting up of the Paton Commission in 1948.
The report of the Commission led to the enactment of the first banking
ordinance in 1952.
ii. Special
Clearing, if a customer is in urgent need to funds and wants the proceeds of a
cheque to be credited to his account on the same day or wants to know the fate
of a cheque on the same day, he can ask his bank to send the cheque for special
clearing or to arrange special presentation.
iii.
The
barter system is the second stage in the development of money, which involves
the direct production of goods for personal needs as well as for others. Barter System is exchange of goods for goods.
The major problems
with the barter economy that led to the use of money were;
i. The absence of a
common unit of measure
ii. The necessity of a
double coincidence of wants
iii. The absence of a means of storing value.
iv. Poor measure of
deferred payment
iv. Certificates of Deposits: These are in two
forms, Negotiable Certificates of Deposit (NCD) and Non-Negotiable Certificate
of Deposit (NNCD). The maturity of these
instruments varies between three and thirty-six months. Certificates of Deposits (CD) was introduced
in 1975 as an inter-bank instrument considered relevant at a time when banks
had excess liquidity when there was a shortage of government short term debt
instruments.
7.
State
briefly the narrow and broad definitions of the money supply as used by the
Central Bank of Nigeria.
Answer:
Money supply in
Nigeria is usually defined in two ways, namely; the narrow concept (M1)
and the broad concept (M2).
The narrow Concept
(M1), measures money supply in terms of currency, including coins,
paper money and demand deposits in the banks, especially commercial banks, that
are generally acceptable in payment for goods and services. Even though demand
deposits do not have legal-tender status in the country, they are nevertheless
generally acceptable as means of payment once confirmation is obtained form a
bank. Thus, M1=Currency + Demand
Deposits.
The broad concept (M2).
– this is the definition that incorporates other things that are widely used as
store of value or wealth in the money supply.
In particular, in Nigeria, only saving and time deposits are added to M1
to get (M2)., the broader definition concept of money supply. Thus, (M2). = M + Saving Deposit + Time Deposits.
8.
List
and explain fully the basic principles of lending, ensuring to recognise the
factors that must be considered before grating a loan.
Answer:
The major principles
of lending otherwise known as cannon of lending to be considered when giving
out loan by the credit analyst is character.
The willingness to repay the loan grated is a major consideration by the
credit analyst. The fact that people do
not live up to their promises, had made it necessary that credit risk be
properly investigated. The creditor has
a special responsibility, to search for and avoid dishonest debtors.
Although, a banker
will always try to assess the reliability of a customer or a potential
customer, honesty and integrity on their own, are insufficient. Therefore, a record of prudence over a period
of years is a better guide to a customer’s credit worthiness than your personal
opinion of his probity.
9.
The
terms Bank, Banker and Customer are similar and/or complementary but confusing
to layman. Discuss by stating clearly
the responsibilities of a customer to its Bank Vice-Visa.?
Answer:
Bank/ Banker
according to J.W. Gilbert’s definition, a bank/Banker is referred to as a
dealer in capital., or more properly a deal in money. He is an intermediate party and lends to
another. A customer is a person who
must have opened an account with the banker and have at least one transaction
on account.
Relationship between
a banker and a customer
The Banker-Customer
relationship can be summarised as follows:
i. The basic relationship of a banker and
customer is that of debtor (The bank) and creditor (the customer)
ii. A Banker is not a trustee for money deposited
by a customer and is free to use the money the way he likes
iii. in accepting deposits
from the customer, the banker is not acting as an agent. However, he must always be in a position to
repay the amount in part or full on demand.
iv. Money deposited
with the bank is not for safe custody.
Hence a customer cannot demand to be repaid with the exact note he paid
with.
v. Why performing
other banking functions, the relationship can become that of principal and
agent. When a banker receive item for
safe custody, he is called a bailee and when he act as-an-executor of a will,
he become a trustee.
DUTIES AND RIGHTS OF
A BANKER
- to receive money, cheque and other
instrument for collection and subsequent credit to the customer current or
deposit account
- to pay cheque and other withdrawals
authorities, properly drawn by the customer
- To maintain secrecy concerning the customer
account and other affairs
- to give reasonable notice to customer before
closing his account
- to pay agreed interest on deposit and to
ensure that the customer’s money is safe.
- to avoid wrongful dishonour of customer
cheques
- to render statement of account to the
customer periodically or upon request
THE RIGHTS OF THE
BANKER
The following are
the most important right of the commercial banker:
1. to charge his customer reasonable commission
for services rendered to him and to charge interest on loans made to him
2. to be indemnified by
the customer for expenses and liability incurred while acting for him.
3. to dispose of his
customer money as he pleases provided he honors customer valid cheques.
4. to expect his
customer to exercise due drawn cheques
5. to repay on demand
from the customer of any overdrawn balance which has to be be permitted on the
current account.
DUTIES AND RIGHTS OF
A CUSTOMER
The following are
the duties of a customer
1. The customer must draw his cheques and other
instruments so as not to facilitate fraud.
2. He must pay
reasonable fees for services rendered by the bank
3. the customer is to
exercise due care not to facilitate forgery or conversion, for example his
cheque book must be kept under strict control to avoid unauthorized use.
The following are
the rights of the customer
i. Right to be
issued a periodic statement of accounts
ii. Right to be paid interest on their deposit
iii.
right
to honour their cheques, where their accounts is in adequate funds
iv.
Right
of confidentiality of the operations of the account
v.
Right
to have access to financial advice.
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