EBSU FIN 207 Assignment Questions and Answers

Department
Banking and finance

1. Assignment Questions
   1. Compare central bank from commercial bank ( differentiate between both of them best done in a tabular form).
2. State the function of commercial bank.
3. State different ways of funding organizations.

NAME: [Your Name]

DEPARTMENT: Banking and Finance

COURSE CODE: FIN 207

ASSIGNMENT:

1. Comparison Between Central Bank and Commercial Bank

The Central Bank and Commercial Banks both play important roles in the financial system, but they have distinct functions and responsibilities.

• The Central Bank is the highest financial institution in a country, responsible for regulating and controlling monetary policy. It is owned and controlled by the government and does not deal directly with individuals or businesses. Instead, it supervises and supports commercial banks. It also has the authority to issue currency, control inflation, and act as a lender of last resort when commercial banks face liquidity crises. Examples include the Central Bank of Nigeria (CBN) and the Federal Reserve in the USA.

• On the other hand, a Commercial Bank is a financial institution that provides banking services to individuals, businesses, and organizations. Unlike the Central Bank, it is usually privately or publicly owned and deals directly with customers by accepting deposits, granting loans, and facilitating transactions. Commercial banks do not issue currency but operate under the regulation of the Central Bank. Examples include First Bank, Access Bank, and Zenith Bank.

2. Functions of Commercial Banks

Commercial banks perform several functions that support individuals, businesses, and the economy. These functions include:

1. Accepting Deposits – Commercial banks provide a safe place for customers to keep their money, offering different types of accounts such as savings, current, and fixed deposit accounts.

2. Granting Loans and Advances – They provide financial assistance to individuals and businesses through loans, overdrafts, and credit facilities.

3. Facilitating Payments – Commercial banks offer services like electronic transfers, mobile banking, ATM withdrawals, and POS transactions, making financial transactions easier.

4. Issuing Credit and Debit Cards – They provide customers with financial tools that allow them to make transactions conveniently without carrying cash.

5. Foreign Exchange Transactions – These banks facilitate international trade by providing currency exchange services.

6. Wealth Management and Investment Services – Some commercial banks offer advisory and investment services to help customers grow their wealth.

7. Safekeeping of Valuables – Many banks offer safety deposit boxes where customers can store important documents, jewelry, and other valuables securely.

3. Different Ways of Funding Organizations

Organizations require funds to start, run, and expand their operations. There are different ways through which organizations can raise money:

Internal Sources of Funding

1. Retained Earnings – Instead of distributing all profits as dividends, companies can reinvest a portion into the business to finance growth.

2. Owner’s Equity – Business owners can inject their personal savings into the company as capital.

3. Sale of Assets – Organizations can sell off unused or surplus assets to generate funds.

External Sources of Funding

4. Bank Loans – Businesses can borrow money from commercial banks, agreeing to repay with interest over a set period.

5. Government Grants and Subsidies – Some organizations receive financial support from the government, especially in key sectors like agriculture and manufacturing.

6. Trade Credit – Companies can buy goods on credit from suppliers and pay later, allowing them to manage cash flow effectively.

7. Issuance of Shares – Companies can raise funds by selling shares to investors, making them part-owners of the business.

8. Venture Capital – Investors, known as venture capitalists, provide funding to startups and growing businesses in exchange for ownership stakes.

9. Crowdfunding – This involves raising small amounts of money from a large number of people, often through online platforms.

10. Bonds and Debentures – Organizations can issue bonds or debentures, which are long-term debt instruments that investors buy in exchange for periodic interest payments.

Conclusion

The Central Bank and Commercial Banks both play significant roles in the economy, but they serve different purposes. While the Central Bank regulates the financial system and issues currency, commercial banks provide direct banking services to individuals and businesses. Additionally, organizations can fund their operations through various sources, including retained earnings, loans, government grants, and equity financing. Understanding these concepts is essential in the field of Banking and Finance.