SCHEME OF WORK FOR SECOND TERM

Week 1: Revision
Week 2: Banking II-features and functions of central
bank and specialized banks
Week 3: Cheques / First CAT
Week 4: Terms and means of payment
Week 5: Credit
Week 6: Types of share capital and other forms of
capital / First CAT
Week 7: Mid-Term break topic for project assignment=
Turnover and rate of turnover; factors affecting
turnover and rate of turnover; types of profit.
Week 8: Business management (Business objectives
and resources; meaning and functions of management.
Week 9: Revision
Week 10-11: Revision/Examination

BANKING 2
CENTRAL BANK
The central bank may be defined as the only financial
institution established and charged with the day to day
management and control of the nations monetary
affairs, supervision and coordination of banking and
financial activities of the country.
Origin of CBN
CBN was established by the CBN Act of 1958. Before
independence, the West African Currency Board (WACB)
was the highest financial institution which performed
the functions of the CB. The WACB served four British
colonies namely; Nigeria, Ghana, Sierra Leone and
Gambia. The board controlled the issuance of currency
in the member countries. The CBN was established on
July 1 1959 to perform its duties.
Characteristics of CBN
1. It was established through the act of parliament.
2. There is only one CB in a country.
3. It is the highest financial institution in a country.
4. It is owned by the Federal Government.
5. It does not transact business with private
individuals.
6. It has the only authority authorised by law to issue
currencies in a country.
7. It is not profit oriented.
Functions of the CBN
1. It is a banker to the government. It controls public
accounts, receives revenue on behalf of the
government and makes payment from the account.
It also obtain loan on behalf of the government.
2. It serves as the bankers bank by ensuring that
banks open account with it in order to facilitate
clearing of cheques.
3. It acts as lender of last resort. It is the duty of the
CBN to assist the banking system when banks are
 in financial difficulties so that they can withstand
the strains of excessive demands
4. Issuing and control of currency: The CBN is the sole
authority empowered by law to issue the nation all
forms of currency. It controls the circulation of
currency to ensure monetary and price stability,
exchange bad notes for new ones and see to the
destruction of bad notes.
5. It controls foreign exchange reserve by issuing
foreign exchange to those in need of it.
6. It is responsible for monetary policy of the country.
These policies control the quantity and value of
money in circulation.
7. It forms rules and regulations guiding the banking
industry to ensure smooth operations of bank.
8. It acts as clearing house for other banks and
management of natural debts of a country.
9. It acts as agents of the country by relating with
other countries and international financial
institution like IMF, World Bank etc
How Central Bank control other banks
1. Open Market Operation (OMO): This is the purchase
or sale of government securities (government
bonds) to commercial banks in the open market. It
is done to expand or restrict the volume of money
in circulation. When there is too much money in
circulation, the CBN will sell securities and buys
securities to expand the volume.
2. Bank Rate/Discount Rate: It is the rate of interest
the central bank charges commercial banks and
other financial institutions for discounting their
bills. When CBN decides to curtail the lending
 powers of financial institutions it will raise discount
rate. This will make borrowing very exorbitant and
discourage people from borrowing. When bank rate
is reduced loan interest rate will reduce and attract
borrow.
3. Cash Reserved/cash ratio/liquidity ratio/cash asset
ratio: The CBN can reduce the money supply
raising the cash reserve deposits that commercial
banks are required to hold with her. For instance
commercial banks are mandated to keep 25% of
their total deposit with the CBN in order to control
the volume of credit.
4. Moral Suasion: in some cases CBN morally
persuades or request the commercial banks not to
indulge themselves in such economic activities
which re against the interest of the country.
Commercial banks are to follow a particular policy
for loans and refrain themselves from giving loan
for speculative purpose.
SPECIALIZED BANKS IN NIGERIA
A. MORTGAGE BANKS: They are financial institutions
that specialise in granting loans to individual and
corporate bodies for building purposes. Such loans
are repaid by instalments and can be spread over
several years. Examples of mortgage banks in
Nigeria are AG Homes Savings and Loans, Abbey
Bank PLC, Haggai Savings and loans Ltd etc

FUNCTIONS OF MORTGAGE BANKS

Provision of houses: They involve in
construction of houses, social amenities and
offer for sale to the people.
 Members of the public are encouraged by the
banks to save their money
They provide long term loans to people or to
estate developers to build houses.
They supervise and encourage the
development of mortgage institutions.
B. MERCHANT BANKS: can be defined as a financial
institution that provides short, medium and long
term loans, accepts large deposits, bills and deals
in stocks. They are sometimes referred to as
acceptance houses. Examples of merchant banks
in Nigeria are; Rand merchant bank, FBN Merchant
Bank Limited.
FUNCTIONS OF MERCHANT BANKS
They accept large deposits from wealthy
customers
They provide services such as investment
management, advice and guidance on the
management of investment portfolios.
They issue long-term loans to the government
and companies abroad for development
projects
They assist their customers to improve their
cash flow through banks equipment leasing
service
They help companies wishing to lease
equipments.
C. DEVELOPMENT BANKS: It is a financial institution
set up purposely to offer long term loans meant for
development projects. Examples of development
banks are; Nigerian Industrial Development Bank
(NIDB), Nigerian Bank for Commerce and Industry
(NBCI), Nigeria Agricultural and Cooperative Bank
(NACB).
FUNCTIONS OF DEVELOPMENT BANKS
Provision of long-term loans for capital
projects.
They help to implement government financial
policies especially policies that affect industrial
development of the country.
They conduct extensive study on the industrial
sector in order to determine the viability of
industries in a country.
Supervision of projects they gave loans for
their establishment in order to make sure that
the money is not diverted to other non-
development purposes.
They advice both the government and
industrialist on the surest way of developing a
nation.
They contribute to manpower development by
making funds available to manpower training
institutions
Assignment: Define Microfinance Banks and
Bureau-de-change with examples and state their
functions.
Cheques

TRADE TERMS FOR QUOTING PRICES

1. Cost, Insurance and Freight (CIF): Price
quoted CIF means that the cost of goods
includes insurance and carriage to the port of
 destination but excludes delivery from dock to
purchasers premises. The importer is
responsible for other charges.
2. Cost and Freight (CF): This price quotation
includes only the cost of the goods and freight
charges. The buyer takes care of other charges
until goods get to his premises.
3. Free on Board (FOB): This means that the
price quoted on the invoice covers all costs up
to the loading of goods on the ship.
4. Free Alongside Ship (FAS): Price quoted
includes all expenses to deliver goods to the
side of ship but excludes cost of loading goods
into ship.
5. Free On Rail (FOR): Price quoted covers all
charges including loading goods on rail to its
specific station.
6. Free On Quay (FOQ): Price quotation includes
cost of goods and delivery to the quay (wharf)
for shipment. Purchaser pays for shipment,
insurance and any other expenses.
7. FRANCO: This price quotation includes cost of
commodity, insurance, freight and all delivery
charges to the importers warehouse.
8. LOCO: This denotes that buyer bears all cost
from exporters warehouse to his own
warehouse.
9. Discount: It is a reduction in price to
encourage bulk purchase and prompt
payment.
Types of Discount
Trade Discount/Functional Discount: This is
an allowance given by the manufacturers
 or wholesalers to retailers in form of
deduction from the catalogue price of
goods supplied to cover the retailers
margin. It is an inducement to them to
buy goods in large quantity; it is deducted
before cash discount and appears in the
day books alone
Cash Discount: This is a percentage
allowance for prompt payment of an
account within a specified period of time.
Eg 2% cash discount implies that if a
buyer pays within stipulated time, he
would be allowed a discount of 2%. Also,
Net 3 months implies that there would be
no discount after 3 months but full
payment will be made.
Seasonal Discount: It is a price reduction
to buyers who will order and pay for goods
in off season which are to be sold in
season. Eg ordering for Christmas items in
May.
Quantity Discount: A price reduction to
retailer who orders large quantities in a
single order.
10. Carriage Paid: It is a quotation on the
invoice indicating that seller bears all delivery
and transportation charges.
11. Carriage forward: This price quotation
implies that buyer bears cost of carriage.
12. Ex-warehouse: Price quotation indicates
that buyer is responsible for expenses from
sellers warehouse.
 13. Ex-works: Price quoted is limited to the
good still in the factory.

MEANS OF PAYMENT
It is the various ways or methods by which settlement
of debts can be effected between two people in a
business transaction. The following payment system
can be used.
1. Banking System
Cheques
Bank draft
Standing order: An instruction given by an
account holder to his bank to make regular
payments (for example insurance premium
and subscription) on his behalf.
Credit Transfer: Payment made on
instruction to a bank to credit customer using
the same bank or other banks
Credit cards: These cards are issued by
reputable stores to their approved customers
which enable them to purchase goods on
credit and settle their indebtedness through
their banks monthly.
Direct debits: Using debit cards the bank
debits the account of a customer at the
instance of the creditor eg the use of POS for
payment.
2.Post Office System
In times past, the post office was a very reliable
medium for the settlement of debts in Nigeria and
all over the world even till today. The Nigerian
 structure towards the development of the public
sector had affected the public sector business in no
small measure. However the following are the
systems of payment.
Postage Stamps are for payment of small
items and posting of mails.
Postal Orders are for transmitting and settling
debt involving small amounts of money by
post not a negotiable instrument and
commission paid for it is poundage.
Money Order for settling and transmitting
larger sum.
Telegraphic money order is used to send
money via telegram from one place to
another if the payee has proof of
identification.
Postal Giro: With this system the post office
helps holders of accounts with them to do
money transfer for debt settlement without
charging interest.
3. Businessmen system
Bill of Exchange: It is an unconditional order
in writing address by one person to another,
signed by the person giving it, requiring the
person to whom it is address to pay on
demand or at a fixed or determinable future
date a sum certain in money to or to the order
of a specified person or bearer.
Legal Tenders eg coins and bank notes
Promissory Notes: it is an unconditional
promise in writing made by one person to
another, signed by the maker, engaging to pay
on demand or at a fixed determinable future
 date a sum certain in money or to the order of
a specified person or bearer.
I Owe You (IOU): It is an acknowledgement
of debt made in writing. It is not a negotiable
instrument but merely an evidence of
indebtedness.

CREDIT
MEANING OF CREDIT
Credit can be defined as a contractual agreement in which a buyer or
borrower receives something of value now and agrees to pay the
lender or seller at a later date. It could be trade credit (credit sale) or
bank credit.
Trade credit: It is a contract where a buyer takes possession and
ownership with an agreement to pay the price of goods later.
Bank credit: This happens when a bank makes an advance to a
customer either by loan or overdraft.
TYPES / SOURCES OF CREDIT
1. Mortgage
2. Loan and overdraft
3. Trade credit
4. Debt factoring
5. Hiring or leasing
6. Trading cheques or vouchers
7. Club trading
8. Credit trading
9. Budget account
10. Book me- down
11. Hire purchase
12. Deferred payment
MORTGAGE
This is a credit system whereby a mortgage bank or a building society
gives a loan to an individual to enable him to buy a piece of land or
build a house. The borrower (mortgagor) uses the particulars of the
land or house to present to the bank or building society (mortgagee)
as collateral security. Failure to repay the loan within the agreed
period, the mortgagee will take possession of the property.
LOAN AND OVERDRAFT
A loan is a sum of money borrowed by individuals, firms and
government from financial institutions or from people for a particular
period at an agreed rate of interest.
An overdraft is a form of credit provided by banks in which a
customer is allowed to draw over and above the money in his account.
DEBT FACTORING
This is a credit system whereby trade debts can be sold immediately
for cash to a factoring firm (bank) at a discount. It is a financial
transaction whereby a business sells its account receivable (debtors ie
money owed to a business by its customers or clients) to a third party
(factor) at a discount.
TRADE CREDIT
It is a system whereby manufacturers collect money from wholesaler
in advance in order to enable them raise money to produce goods for
the wholesalers.

HIRING OR LEASING
It is a credit system that the owner of a property adopts to grant
interested people the right to possess its property for a fixed time in
return for periodic payment. E.g leasing of equipment, houses etc.
CLUB TRADING
It is a form of credit whereby organization set up clubs to collect
regular contribution from members. This contribution can be
withdrawn periodically in order to make purchases at the shop.
BUDGET ACCOUNT
This form of credit sales is also called revolving credit or
subscription account facility. It is offered by large retail shop eg
department stores, chain stores, multiple shops etc to their customers.
When one has a budget account with a department store for example,
customers are enabled to make monthly payments to cover his past
and future purchases.
Under this facility a customer first make cash payment for his
purchases and agrees to pay equal amount each month. The customer
then opens an account with the store and pays in every month an
equal amount to the initial amount paid. The store will then allow him
a revolving credit equal to eight or ten times the initial payment made.

CREDIT TRADING
This is a type of credit sales that the trader (retailer) provides to its
customers and charges them 5% interest on the value of the credit
allowed.

HIRE PURCHASE
Hire purchase may be defined as a system of credit that payment is
made by instalment as the seller allows the buyer to take possession
of the product on hire basis after making initial deposit.
Characteristics Of Hire Purchase
1. There must be an initial deposit.
2. Buyers take possession of goods not ownership
3. Hire purchase is good for durable goods.
4. It attracts higher price.
5. Hire purchase Act stipulates that if the customer had paid more
than 1/3 of the amount due, the owner could reclaim the article
when buyer defaults unless he obtains an order of the court to
prevent such action.
6. The hirer may at any time before making final payment
terminate the agreement by giving notice in writing provided he
has paid half of the stated amount.
7. A copy of the agreement is to be made available to the hirer
within 14 days of entering into the agreement.
Advantages Of Hire Purchase To The Seller
1. It enables the seller to sell more goods.
2. The seller increases his selling price to hire Purchase price and
makes more profit.
3. It eliminates bad debts since the goods can be repossessed if
buyer defaults in payment.
4. Hire purchase increases the rate of turnover.
5. The seller retains ownership of goods until full payment is
made.
Disadvantages Of Hire Purchase To Seller
1. Hire purchase ties down a lot of sellers capital.
2. Court action for recovery of debts brings additional cost.
3. Sellers may find it difficult to re-sell repossessed goods.
4. There is possibility that buyers may run away with the goods.
5. It may create bad debts to the seller.
Advantages Of Hire Purchase To The Buyer
1. Buyers can enjoy products they have not fully paid for
2. Buyers have the opportunity to acquire expensive goods which
they could not have been able to buy by cash.
3. Hire purchase helps to improve the standard of living of people
as they are able to have more goods available to them.
4. Goods can be returned to the seller if buyers are no longer
interested.
Disadvantages Of Hire Purchase To The Buyers
1. Buyers pay more than he would have paid in cash purchase.
2. It entices the buyer to buy goods beyond his means.
3. Buyers will bear the brunt if the goods are damaged or stolen
even before the completion of full payment.
4. The buyer may fall into great debt.
5. The buyer might be able to insist on high quality goods.
6. Hire purchase does not create favourable climate for the buyer
to negotiate for better condition of sale.
DEFERRED PAYMENT
This means payment by instalment where seller allows a buyer to take
complete possession and ownership of the product after making initial
deposit. This credit system does not permit the seller to repossess the
goods if the buyer defaults in payment. He or she can only reclaim
through court action.

ASSIGNMENT
What are the similarities and differences between hire purchase and
deferred payment?
FUNCTIONS OF CREDIT TO RETAIL AND WHOLESALE
TRADE
1. Increase in sales
2. Increase in profit as higher prices are charged for credit
transaction.
3. Reduction in problem of stock being tied down (ie reduction in
the rate at which stocks expire or outdated)
4. Enjoyment of goods without payment
5. Increase in standard of living.
6. Means of meeting temporary needs for cash.
7. Encourages bulk purchase.

CREDIT INSTRUMENTS
Credit instruments are items that are utilized in place of currency. The
use of credit instruments instead of currency rest in the fact that
debtors and recipient agree upon the use of the instrument and there is
a reasonable expectation that the alternate form of payment will be
honoured. Examples of credit instruments are:
1. Cheques
2. Credit cards
3. Promissory notes
4. Bill of exchange
5. I owe you
6. Bank draft
7. Debenture certificate etc
Cheque: A cheque is an order written by the drawer to a bank to pay
on demand a specified sum of money to the person named as payee on
the cheque.
Promissory note: This is an unconditional promise in writing made
by one person to another, signed by the maker, engaging to pay on
demand or at a fixed or determinable future date sum certain in
money or to the order of a specified person or bearer.
Bill of exchange: It is an unconditional order in writing, addressed by
one person to another, signed by the person giving it, requiring the
person to whom it is addressed to pay on demand or at a fixed or
determinable future date a sum certain in money to or to the order of a
specified person or to bearer. Examples of bill of exchange is cheque
and bank draft
Credit card: It is a plastic card with a magnetic strip that authorizes
holders to purchase goods and services up to a predetermined amount
called credit limit.