Question 1
Explain the importance of two functions of the commercial bank to business.

The commercial banks offer loans and overdrafts to the business sector. Loans are required for start-up capital and for business expansion. Overdrafts assist business to bridge finance so that liquidity may be maintained to continue operation.

Commercial banks also provide a safe place for business to keep money. A business only needs to keep enough cash on location that is required for its daily operations.

Question 2
Explain the benefits of two services of commercial banks to customers.

It sells travelers cheques to customers who are travelling overseas. Traveler’s cheques are a safe way of traveling with funds overseas. They give financial advice to customers. This advice will help customers to make informed decisions concerning investment.

Question 3
Outline two functions of the central bank.

The Central Bank is a banker to other banks. All commercial banks must keep an account with the Central Bank. These balances are used for cheque clearing purposes between banks. The Central Bank can also demand commercial banks to deposit a certain percentage of their total deposits with the central bank in order to control the money supply.

The Central Bank is responsible for designing printing and issuing the country’s currency. It has the sole authority to issue notes and coins. Any other forms of printing money is counterfeit money and illegal.

Question 4
Explain how government is able to control inflation through the Central Bank.

The government can control inflation through the Central Bank. When the money supply is too high monetary policies such as high interest rates, selling certificates of deposits and treasury bills and increasing the cash reserve ratio are used to discourage borrowing and spending.

Question 5
Explain the term ‘money management.’

Money management refers to methods used to efficiently manage ones income. Preparing a budget will ensure that an individual lives within his means and save to achieve future goals.

Question 6
Give two reasons for drafting a budget.

A budget is outlines how much of an individuals personal income is to be allotted to various living expenditures. It provides a record of past expenditures so that the individual can analyze his expenditures and make more efficient spending decisions. It ensures that priorities are taken care of and that a system for savings can be developed to meet future goals.

Question 7
Distinguish between long and short-term financing.

Short-term financing involves loans that require repayment up to five years. Short-term loans can be accessed through commercial and merchant banks and credit unions. Long-term financing involves loans that allow a longer payment period. Building societies and development banks require repayment of to 20 years.

Question 8
Distinguish between savings and investment.

Savings is defined as money set aside or not spent from ones personal income. However, investment is defined as methods of increasing wealth. It differs from savings as it involves risks. Examples of investments include, starting a business and purchasing shares.

Question 9
Discuss the importance of the stock market to an economy.
The stock market provides a means of financing for firms. Firms that need capital to expand may offer shares for sale. The stock market also provides an opportunity for investment. Individuals who buy shares may resell them when the stock prices rise.

Question 10
Differentiate between two type of investors on the stock market.

Bears are speculators who sell securities because they expect the price to fall soon. Bears wish to prevent losses by selling their shares before prices fall. However, bulls are speculators who buy securities because they think the price will rise soon. They purchase shares as they expect to make profits as soon as stock prices increase.

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