00:10 Good day students, my name is Mr. Balogun Abdullah, your economics teacher.

00:19 The topic for today is financial institutions. At the end of this lesson,

00:26 you should be able to do the following. One, explain the term financial institutions.

00:33 Two, least the different types of banking and non-bankant financial institutions.

00:39 Three, state the major difference between banking and non-bankant financial institutions.

00:47 Four, explain the function of each institution.

00:55 Let us define financial institutions.

00:57 Financial institutions refer to all business organizations which hold money for

01:04 individuals and institutions and may borrow from them in order to give loans or make other investments.

01:13 That is, all those financial institutions who are involved in holding money for people and

01:22 either bring some out or using them for investments are called financial institutions.

01:29 Financial institutions are very important to the economic development of a nation.

01:35 They represent the main channel to which funds can flow from lenders to borrowers.

01:42 That is, where there is access of money in the economy, they channel it to the place where we

01:48 have it in lower supply so that it can be used and channeled into the production processes through

01:54 borrowing and lending. Times of financial institutions, the two major groups of financial

02:02 institutions are banking financial institutions and non-bankant financial institutions.

02:13 The major differences between the banking and non-bankant financial institutions is that

02:19 the liabilities of the banking institutions are counted as part of the total supply of money.

02:25 Why those of the non-bankant financial institutions are excluded from supply of money?

02:33 What do we mean by liabilities here?

02:35 Liabilities we are talking about are the deposits of the customers of the banks and other financial

02:42 institutions. Those deposits within the banking financial institutions are counted as part of

02:51 money supplies. Why those that are deposited either as a form of savings or premiums like for insurance

02:58 companies, those ones are not counted as part of money supply. Now the banking financial institutions

03:07 include the following, commercial banks, central banks, merchant banks, development banks,

03:16 and savings banks. The non-bankant financial institutions include the following, insurance companies,

03:25 higher-purchase companies, building societies. Let's now define a bank. What is a bank?

03:34 A bank is a commercial institution which performs various financial activities such as accepting

03:42 and handling of deposits of its customers, giving out loans to people and safe keeping of other

03:49 valuables like will, jewelry, gold, etc. A bank is a commercial institution which performs

03:59 various financial activities such as accepting and handling of deposits of its customers, giving

04:07 out loans to people and safe keeping of other valuables like will, jewelry, gold, etc.

04:16 The types of banks, the major types of banks include those listed under the banking financial

04:25 institution. That is these. All these institutions here are also those included under types of banks.

04:39 Now let now explain the types of banks that we have, commercial banks. Commercial banks are

04:47 financial institutions which accept deposits and other valuables from the public for safe keeping

04:54 with the sole aim of making profits. Commercial banks are financial institutions which accept

05:03 deposits and other valuables from the public for safe keeping with the sole aim of making profits.

05:10 And how do commercial banks make profits? They make profits by giving out loans from

05:18 that deposits given to them. The deposits that they collect or receive from their customers

05:23 part of the deposits are given out to other people who require them for their businesses and other

05:28 reasons. So in return the commercial banks we charge loans for them and they also go into other

05:36 investments apart from giving out loans. They hold people's money through the accounts

05:43 operated by such people in the commercial banks and they use such money to make loans and do

05:49 investment to yield profits for the banks. The loans are usually for a short term that is the

05:56 loans given out from the commercial banks are usually for a short term that is commercial banks

06:03 do not give out long term loans. Examples of commercial banks in Nigeria are first bank of Nigeria

06:11 PLC, then bank PLC, access bank PLC and guaranteed trust bank PLC. Functions of commercial banks

06:22 the following are the functions of commercial banks acceptance of deposits that is they receive

06:30 money from their customers for safe keeping lending of money that is a give out loans to those who

06:38 require them if they are able to meet their requirements. The agent of payment that they serve as

06:43 agent of payments for their customers for instance those customers who have current accounts

06:49 in commercial banks they just give some starting orders to the banks to pay out loan money on their

06:56 behalf so they pay out money on the behalf of their customers from the accounts that the customers

07:02 operate with such commercial banks. Safe keeping of valuables. They keep people's money and other

07:10 valuables like jewelry, girls, diamonds and even certificates. The discounting bill of exchange

07:21 that is the customers of such banks when their customers borrow money and they come

07:28 depth out to the person they have borrowed money from there is what is called bill of exchange

07:32 which is the recommend signifying that their customer is indebted to a person which is known

07:38 as a creditor so in essence the commercial banks will pay on behalf of their customers who are

07:46 owing the creditors at a discount that is what is known as discounting bill of exchange.

07:52 Issues of travelers check that is the issue checks for travelers to aid their transactions abroad

07:59 and internationally foreign exchange transactions that is the make available foreign currencies to aid

08:08 foreign exchange transactions. Central banks what is a central bank? Central bank is the highest

08:17 financial institution in a country which carries out the monetary policy of the government that is

08:25 the essential rule the most important rule rule of a central bank is to carry out the monetary

08:32 policy of the government of that country. It is the sole authority in the banking industry which

08:41 adds as banker to the government and the commercial banks. It controls and regulates the supply of money.

08:51 Example is the central bank of Nigeria. This means every country in the world has

09:00 her own central bank. Functions of central banks the function of central banks include the following

09:10 banker to the government that is it serves as banker to the government the government operates

09:16 accounts with the central bank. Issues and control of currency they are the only bank authorized

09:24 by law to issue currency and they also control the flow of currency through the monetary policies.

09:32 Bank has bank that is the serve as banker to commercial banks and other kind types of banks.

09:40 Lender of last results that is when commercial banks and other banks really need money to

09:47 to to get money and pay back that is when they are second loan they go to central bank to get the loans.

09:54 Foreign exchange transaction this is true they are rule of getting currency and controlling foreign

10:04 currency. So the aid foreign exchange transaction maintenance of external reserves it helps in maintaining

10:12 the external reserves of the country that is the money that the country has from or received from

10:22 foreign exchange. They are responsible for monetary policy and also the aid in the formulation of

10:30 rules and regulations guiding the banking industries. Merchant bank. Merchant banks are financial

10:40 institutions which perform specialized functions such as acceptance of bills of exchange,

10:47 issuance of loans for foreign trade transactions, issuance of new shares and provision of medium

10:56 and long term loans. Merchant banks. Merchant banks are financial institutions which perform

11:04 specialized functions such as acceptance of bills of exchange, issuance of loans for foreign trade

11:12 transactions, issuance of new shares and provision of medium and long term loans.

11:19 That is unlike the commercial banks they aid in the provision of medium and long term loans.

11:26 Remember that the commercial banks only give out short term loans.

11:32 They are also referred to as acceptance houses. The first merchant bank in Nigeria was in

11:39 Nigeria and acceptance limited now which was established in the year 1966. Examples of commercial

11:50 of merchant banks in Nigeria today are ABC Merchant Bank, Merchant Banking Corporation,

11:57 Merchant Bank of Africa, Esthetaria. Now the functions of merchant banks

12:05 discounting bill of exchange loan to foreign traders that is the give out loan to foreign traders

12:13 to aid their transaction. Advisors to companies that is the give expert advice to companies

12:22 to help them in carrying out their businesses and in their production processes. On the writing of

12:29 shares that is they aid companies and business organizations in giving out their new shares.

12:39 In offering of their new shares provision of long term loans. That is they give out long term

12:46 loans and not short term loans. Malignant of major bays. This is a situation whereby two

12:54 companies say for instance two banks are coming together as one so merchant bank helps in the

13:01 malignant of such major bids. Loan syndication that is they get institutions together to

13:10 hear aid in financing a particular business or project. Acceptance of large deposits. That is the

13:20 deal majorly in acceptance of large deposits. Equipment leasing. This is the situation whereby

13:32 a company gives out its equipment for a particular period of time to be used by other company

13:38 organizations or individuals for the payments of rent on aid. So merchant banks help in this form

13:47 of activities. Development bank. These are specialized financial institutions which provide

13:56 long term credits or loan to other enterprises for capital projects. They provide loans for projects

14:05 in the area of agriculture, commerce and industry. So in essence development banks are mainly

14:14 created to aid the development of industries especially the agricultural sector and the manufacturing

14:24 industries by giving out long term loans to such industries. Examples of development

14:35 banks in Nigeria are Nigeria industrial development bank NIDB. Nigeria bank for commerce and industry

14:46 NBCI and Nigerian agricultural and cooperative bank NACB. Functions of development banks include

14:59 the following. One, provision of funds for capital projects. Two, manpower development. Three,

15:07 the renders special advice to companies and industries. Four, the undertake research. Five,

15:16 this provides development projects. Six, the aid in the implementation of government policies.

15:27 Money markets. What is money markets? Money markets can be defined as a market for short-term loan.

15:34 That is the market that involves all the institutions, all the financial institutions that

15:41 gives out short-term loans. The market consists of institutions or individuals who either have

15:49 money to lend or wish to borrow on a short-term basis. Instruments use in the money

15:57 markets. The instruments include the following. Treasury bills. What are Treasury bills? Treasure bills

16:05 are financial documents to which the government can solve for loan from the public and interest

16:12 repeat back when the government is paying back the loan. Bill of exchange. Call on money fund.

16:22 Call on money fund is a kind of money that is put into a business, invest into a business,

16:27 but it can't be recalled back at any time. Institutions involved in the money market

16:34 includes the following. Central bank, commercial banks, acceptance houses, finance houses,

16:43 discount houses, and insurance companies. Advantage is of the money markets include the following.

16:50 Provision of finance. Creation of extra income that is when people give out their money in loan,

16:58 they receive interest on it. Or when they save their money in the bank, the foresighted period

17:04 of time, it attracts interest rates. It enhances savings. It is easy to recall invested funds.

17:16 Promotion of economic development that is the money markets are seized in promoting economic

17:22 development, true giving out by giving out short-term loans. Capital market. What is capital

17:32 market? Capital market is a market for medium-term and long-term loans. That is, as opposed to money

17:39 markets which gives out short-term loans, the capital market gives out medium-term and long-term

17:46 loans. The capital market serves the needs of industry and the commercial sector.

17:53 That means it serves the needs of building manufacturing sector and also the commercial sector.

18:01 It compromises all the institutions which are concerned with either the supply of or demand for

18:12 long-term capital. That is, all those institutions which are involved in the supply and in the demand

18:20 for long-term capital are involved in capital markets. Instruments used in capital markets.

18:28 Instruments used in capital markets are mainly stocks and shares.

18:36 Stocks and shares are securities purchased by individuals which is an evidence of contributing

18:43 part of total capital used in running a company. That is, it is the shareholders share

18:53 of the company. That is why a person who buys shares is called the shareholder. That is,

19:00 that is, his own interest in the company. At the end of a number business year,

19:06 stock and shareholders received dividend as a reward for contributing part of the money used

19:13 in running the business. Institutions involved in capital markets are listed as follows.

19:24 Issuing houses, insurance companies, development banks,

19:29 building societies, national provident fund, stock exchange,

19:35 advantages of capital markets. The following are the advantages of capital markets.

19:43 Provision of long-term loans. That is, the capital market is people and businesses in

19:51 getting long-term loans to run their businesses. Mobilization of savings. That is, it aides

19:58 in encouraging people to save. True, the accruing of dividends on their money invested and shares.

20:08 So, people are encouraged to save. Growth of merchant banks. That is, it aides in the growth of

20:16 merchant banks. Then, it also helps in the general running of the economy.

20:22 Now, take these questions for yourself. Assessments 1. Explain the term financial institutions.

20:32 2. List three banking financial institutions and 2 non-banking financial institutions.

20:41 3. State-for-functions of commercial banks. Thank you for watching. My name is Mr. Baalogu Abdullah.

20:50 See you in the next class.