Back to: Financial Management
Hello again, class! Great to see you back. Today, we’re moving into the bigger picture—how money moves in the economy and the systems that make it happen. Our topic is Financial Markets and Institutions.
Let’s start with this thought: Have you ever wondered how banks, the stock exchange, or even fintech apps work? These are all part of what we call the financial system.
Financial Markets and Institutions
The financial market is a place—real or virtual—where people and businesses buy and sell money-related products like shares, bonds, or even currency. It connects those who have extra money (savers or investors) with those who need money (borrowers or businesses).
There are two major types of financial markets:
Money Market – This is where short-term borrowing and lending take place. The money market deals with instruments that have short maturity periods, usually less than one year. Examples include Treasury bills, commercial papers, and certificates of deposit.
Capital Market – This is for long-term funds. If a company wants to raise money to build a factory, for instance, it may sell shares or bonds in the capital market. The Nigerian Stock Exchange is part of the capital market.
Now let’s talk about the key financial institutions that operate in these markets:
1. Central Bank of Nigeria (CBN)
The CBN is the apex financial authority in Nigeria. It regulates all other banks, controls interest rates, manages the supply of money, and ensures that the financial system remains stable. One of its important roles is to manage inflation and help the country’s economy grow.
2. Commercial Banks
These are the banks you see every day—GTBank, First Bank, Zenith, and so on. They collect money from people (in the form of savings or deposits) and lend it out to others who need it. They also help with payments, transfers, and offer financial advice.
3. Development Banks
These banks focus on specific areas such as agriculture, housing, or small businesses. Examples in Nigeria include the Bank of Industry (BOI) and Bank of Agriculture. Their goal is not only profit but also to support national development.
4. Microfinance Banks
These are smaller financial institutions that provide banking services to people and small businesses in rural or low-income areas. They help improve financial inclusion.
5. Insurance Companies and Pension Funds
These institutions collect money over time and invest it. For example, when you pay for insurance, the company invests that money until a claim is made. Pension funds do the same with retirement savings.
6. Stockbrokers and Investment Firms
These help people and businesses invest in the capital market. If you want to buy shares in Dangote Cement or MTN Nigeria, a stockbroker helps you do that.
Together, these markets and institutions form a network that allows money to flow where it is needed most. This helps businesses grow, creates jobs, and supports the economy.
In conclusion, financial markets and institutions are the lifeline of any economy. They link those who have money with those who need it. Understanding how they work is essential for anyone who wants to work in business, government, or finance.
Before our next class, try to observe how people around you use financial institutions. Which banks do they use? Do they save money, take loans, or invest? These observations will make the next topic—Capital Budgeting and Investment Decisions—even more interesting.
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