financial sector

Question 1

Define the Financial Sector

Answer 1

A company engaged in the businesses of dealing with financial and monetary transactions such as deposits loans and investments.

Question 2

Examples of what the financial sector consists of

Answer 2

The central bank
Commercial Banks

Question 3

Other Bank and Non bank institutions

Answer 3

Credit Unions
Insurance Companies
Building Societies

Question 4

Functions of the Financial Sector

Answer 4

1. It provides the government with a source of funds for investment purposes
2. Provides compensation when mishaps occur, reducing risks in the economy
   3.Attracts funds from businesses and private individuals

Question 5

What are financial instruments

Answer 5

A Financial Instrument is defined as a contract between individuals / parties that holds a monetary value. They can either be created, traded, settled, or modified as per the involved parties’ requirement. In simple words, any asset, which holds capital and can be traded in the market, is referred to as a financial instrument. These instruments are called ‘Securities’.

Question 6

Examples of Financial Instruments

Answer 6

Cash
Treasury Notes
Corporate Bonds

Question 7

What are securities

Answer 7

These are certificates proving entitlement to debt repayment or part-ownership of a company. Securities are traditionally divided into TWO (2) types namely, ‘debt securities’ and ‘equity securities’.

Question 8

What is the period of time treasury bills are used for

Answer 8

Treasury bills are short-term loans, usually for 91 or 182 days [These debt instruments / certificate mature in less than one year].

Question 9

What is the period of time bonds are used for

Answer 9

Bonds are long-term loans of a 5-, 10-, 20- or 30-year period [These debt instruments / certificate mature in over one year].

Question 10

What are Corporate Bonds?

Answer 10

Corporate bonds are long-term debt security [instrument] issued by companies or corporations [NOT the Central Government]. Bondholders have a claim against the company equal to the value of the bond. Once the claim of the bondholder is paid off, the bondholder has no claim on the company. Corporate bonds are a source of finance for companies.

Question 11

What are Municipal Bonds?

Answer 11

Municipal bonds represent the debt of a municipality or other governmental unit other than central government. It is a source of finance and is a loan made by the buyer to the government unit.

Question 12

What is Money?

Answer 12

Money is defined as anything that is acceptable as a means of settling debts. It is anything that is acceptable to both buyers and sellers as a means of paying for goods and services. Money is, therefore, a medium of exchange.

Question 13

What are some features of money?

Answer 13

It must be portable, acceptable, homogeneous and durable

Question 14

What are some functions of money

Answer 14

1. A Medium of Exchange – Money is acceptable as a means of payment for goods and services. For example, a farmer can sell his bananas at the market for money.
2. . A Store of Value – Unlike some goods, money can be stored or saved for use at a later date. It gives the saver purchasing power in the future.