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Difficulty: MediumMerchant, Development, and Specialized Banks

A registered public limited company in Nigeria intends to raise capital by issuing corporate debentures and requires an institutional issuing house to underwrite the offer and accept bills of exchange. Which financial institution is specifically licensed to perform these wholesale investment functions?

  1. Merchant bankAnswer
  2. B
    Development bank
  3. C
    Commercial bank
  4. D
    Central bank

Answer

Merchant bank
Merchant banks are wholesale financial institutions that cater to corporate entities by providing investment banking services, including corporate loan syndication, underwriting of stocks and debentures, and acceptance of bills of exchange.

Step-by-Step Solution

1
Identify the financial services requested in the scenario
The corporate client requires underwriting of corporate debentures, acting as an issuing house, and accepting bills of exchange.
These are specialized wholesale investment banking operations.
2
Compare the core mandates of the financial institutions listed
Merchant banks handle wholesale investment services and corporate finance; Development banks focus on long-term sector-specific growth funds; Commercial banks cater to retail short-term deposit/credit operations; Central banks control monetary policy.
Matching institutional statutory functions reveals which bank operates in corporate investment securities.
3
Select the institution matching the required function
Merchant bank is the correct institution.
Merchant banks are legally structured to act as issuing houses and underwriters in Nigeria.

Key Concept

Functions of Merchant Banks vs Other Financial Institutions
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Topics

Merchant, Development, and Specialized Banks

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