Examkin

Money and Financial Institutions

128 questions

All types128Multiple choice60True / False17Numeric3Matching43Ordering5
Question 61Question →

Match each characteristic or function of money on the left with its correct economic description on the right.

Click a left item, then click its matching right item

Items

Divisibility
Medium of exchange
Portability
Store of value

Matches

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Answer

Divisibility matches the ability to be divided into smaller denominations; Medium of exchange matches facilitating trade by eliminating double coincidence of wants; Portability matches the physical quality of being easy to carry around; Store of value matches enabling individuals to save purchasing power over time.
Each feature of money directly corresponds to its core economic definition: divisibility allows small payments and change; medium of exchange enables smooth commercial transactions; portability ensures money can be carried easily; store of value preserves wealth over time.

Step-by-Step Solution

1
Distinguish between physical characteristics and economic functions of money.
Divisibility and Portability represent physical attributes, whereas Medium of exchange and Store of value represent functions.
Categorizing terms clarifies their respective definitions.
2
Pair each item on the left with its matching definition on the right.
Divisibility connects to smaller denominations, Medium of exchange connects to trade facilitation, Portability connects to transport convenience, and Store of value connects to saving purchasing power.
This aligns each money concept directly with its established economic meaning.

Key Concept

Functions and Characteristics of Money
Question 62Question →

A commercial bank receives a fresh cash deposit of N400,000\text{N}400,000. If the central bank mandates a Cash Reserve Ratio of 25%25\%, what is the total volume of deposits created across the banking system?

Show answer & explanation

Answer: N1,600,000\text{N}1,600,000

Answer

The total volume of deposits created across the commercial banking system is N1,600,000\text{N}1,600,000.
The total credit expansion capability of commercial banks depends inversely on the cash reserve ratio set by the regulatory authority. With a 25%25\% reserve requirement, the credit multiplier is 10.25=4\frac{1}{0.25} = 4. Multiplying the initial deposit of N400,000\text{N}400,000 by 44 yields the total created deposit volume of N1,600,000\text{N}1,600,000.

Step-by-Step Solution

1
Determine the credit multiplier
The credit multiplier is 44
The credit multiplier is the reciprocal of the Cash Reserve Ratio (CRRCRR): Multiplier=1CRR=10.25=4\text{Multiplier} = \frac{1}{CRR} = \frac{1}{0.25} = 4.
2
Calculate the total expansion in deposits
N1,600,000\text{N}1,600,000
Multiply the initial cash deposit by the credit multiplier: Total Deposit Expansion=Initial Deposit×Multiplier=N400,000×4=N1,600,000\text{Total Deposit Expansion} = \text{Initial Deposit} \times \text{Multiplier} = \text{N}400,000 \times 4 = \text{N}1,600,000.

Key Concept

Credit Creation and the Deposit Multiplier
Estimated Time:45s
Question 63Question →

Under a commercial banking system with a mandatory Cash Reserve Ratio of 12.5%12.5\%, a customer makes a new cash deposit of N800,000\text{N}800,000. Assuming there are no cash leakages in the economy, what is the maximum amount of derivative deposits (credit created) that the banking system can generate?

Show answer & explanation

Answer: N5,600,000\text{N}5,600,000

Answer

N5,600,000\text{N}5,600,000
The total deposit expansion is given by dividing the initial deposit by the Cash Reserve Ratio (12.5%12.5\% or 0.1250.125), which yields N6,400,000\text{N}6,400,000. To determine net derivative credit created by commercial banks, the initial cash deposit (N800,000\text{N}800,000) must be subtracted from total deposit expansion, resulting in N5,600,000\text{N}5,600,000.

Step-by-Step Solution

1
Calculate the credit multiplier using the Cash Reserve Ratio (CRR).
Multiplier = 1CRR=10.125=8\frac{1}{\text{CRR}} = \frac{1}{0.125} = 8.
The credit multiplier determines the degree to which initial deposits expand total money supply.
2
Calculate total deposit expansion across the banking system.
Total Deposit Expansion = Initial Deposit ×\times Multiplier = N800,000×8=N6,400,000\text{N}800,000 \times 8 = \text{N}6,400,000.
Total deposits reflect the combination of primary initial cash deposits and subsequent derivative bank loans.
3
Calculate the derivative credit created (net credit expansion).
Derivative Credit Created = Total Deposit Expansion - Initial Deposit = N6,400,000−N800,000=N5,600,000\text{N}6,400,000 - \text{N}800,000 = \text{N}5,600,000.
Derivative deposits represent the secondary deposits created purely through bank lending.

Key Concept

Derivative Deposits and Credit Multiplier
Question 64Question →

Match each commercial banking service listed on the left with its correct functional description on the right.

Click a left item, then click its matching right item

Items

Overdraft facility
Standing order
Bank draft
Night safe facility

Matches

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Answer

Overdraft facility pairs with the credit arrangement allowing current account holders to draw beyond their balance up to a set limit. Standing order pairs with an instruction to pay a fixed amount regularly on specified dates. Bank draft pairs with a payment instrument drawn by a bank on itself guaranteeing payment. Night safe facility pairs with a secure deposit service for lodging funds after normal operating hours.
Each banking service fulfills a specific commercial need: an overdraft facility provides flexible short-term borrowing for current account holders; a standing order automates regular fixed-amount disbursements; a bank draft acts as a risk-free payment instrument drawn on the bank; and a night safe facility provides safe cash lodgement outside normal operating hours.

Step-by-Step Solution

1
Identify short-term credit facilities extended to current account holders.
Overdraft facility allows temporary borrowing above available account funds up to an agreed ceiling.
Commercial banks offer overdrafts exclusively to current account holders needing immediate short-term credit.
2
Distinguish between automated customer payment instructions.
A standing order specifies a fixed amount paid regularly on fixed calendar dates.
Standing orders are standing customer mandates for predictable recurring payments.
3
Identify guaranteed bank payment instruments.
A bank draft is a bank's own cheque drawn against its own funds for secure merchant settlement.
Bank drafts eliminate dishonour risk because the customer pays the bank upfront before issuance.
4
Recognize after-hours business deposit services.
Night safe facility provides secure cash deposit options past operating hours.
Traders generating late evening sales require safe cash lodgement before the bank opens next day.

Key Concept

Commercial Bank Services and Payment Facilities
Question 65Question →

A building contractor enters into an agreement with a supplier to purchase 500 bags of cement today, with a formal contractual commitment to settle the payment of ₦2,500,000 in six months time. Which function of money is directly illustrated by this credit transaction?

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Answer: Standard of deferred payment

Answer

Standard of deferred payment
The correct answer is the option identifying money as a standard of deferred payment. When goods are acquired on credit and debt settlement is postponed to a future date, money functions as the benchmark measure in which debt is expressed and legally settled.

Step-by-Step Solution

1
Analyze the commercial transaction scenario described in the stem.
The scenario describes obtaining goods immediately while postponing financial settlement to a specified future date (credit transaction).
Identifying the nature of the transaction helps determine which specific function of money is being exercised.
2
Map the transaction characteristics to the functions of money.
Money acts as a standard of deferred payment when it facilitates credit trade by serving as an agreed unit for settling future financial obligations.
This secondary function overcomes the limitation of barter where future obligations were difficult to measure or enforce.

Key Concept

Secondary Functions of Money: Standard of Deferred Payment
Question 66Question →

Arrange the following monetary assets in descending order of liquidity, starting from the most liquid form of money to the least liquid near-money instrument:

Drag items to arrange them in the correct order

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Answer

The correct sequence from highest to lowest liquidity is: Currency notes and coins held by the public, followed by Demand deposits in current accounts, then Savings bank account deposits, and finally Ninety-day Treasury bills.
Liquidity measures how quickly and easily an asset can be converted into a medium of exchange without loss of value. Physical currency notes and coins are the definition of liquid cash. Demand deposits (cheque account balances) come next because they are spendable on demand. Savings account deposits are near-money, requiring transfer or withdrawal actions. Ninety-day Treasury bills are debt securities that must be discounted in the money market, giving them the lowest immediate liquidity among the choices.

Step-by-Step Solution

1
Identify the primary legal tender (actual cash money)
Currency notes and coins held by the public are at the top of the spectrum with perfect liquidity (100% liquid).
Cash requires no conversion and must be legally accepted to discharge debt instantly.
2
Determine commercial bank money directly usable for transactions
Demand deposits in current accounts occupy the second rank in liquidity.
Cheques drawn on current accounts transfer funds on demand, though secondary to cash because cheques can be refused.
3
Identify liquid financial assets requiring conversion to cash/cheque (Near-Money)
Savings deposits rank third in liquidity.
Savings accounts store value and earn interest but cannot directly settle debts in daily commerce without prior withdrawal.
4
Identify fixed-term money market assets with contractual maturity
Ninety-day Treasury bills occupy the final position as the least liquid asset listed.
Treasury bills represent short-term debt securities that must be sold on the secondary market or held to maturity to realize liquid cash.

Key Concept

Liquidity spectrum of money and near-money instruments
Question 67Question →

In a commercial banking system, the Central Bank mandates a Cash Reserve Ratio of 15%15\%. If the banking system generates a total deposit expansion of N6,000,000\text{N}6,000,000 through the credit creation process, what is the initial cash deposit (in Naira) made into the system?

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Answer: 900000

Answer

The initial cash deposit required to generate a total deposit expansion of 6,000,000 Naira at a 15% Cash Reserve Ratio is 900,000 Naira.
The relationship between initial deposit (PP), total deposit expansion (TT), and Cash Reserve Ratio (CRRCRR) is given by T=PCRRT = \frac{P}{CRR}. Rearranging this equation to solve for the initial deposit yields P=T×CRRP = T \times CRR. Substituting the given values gives P=N6,000,000×0.15=N900,000P = \text{N}6,000,000 \times 0.15 = \text{N}900,000.

Step-by-Step Solution

1
Identify the total deposit expansion formula
Total Deposit Expansion = Initial Cash Deposit / Cash Reserve Ratio (CRR)
The deposit multiplier is the inverse of the Cash Reserve Ratio, meaning total credit created expands proportionately to the primary cash deposit.
2
Substitute the provided figures into the equation
6,000,000 = Initial Cash Deposit / 0.15
The Cash Reserve Ratio of 15% is expressed as 0.15 in decimal form.
3
Rearrange the equation to solve for the initial cash deposit
Initial Cash Deposit = 6,000,000 * 0.15 = 900,000 Naira
Multiplying the total credit expansion by the reserve requirement yields the original primary deposit.

Key Concept

Credit Multiplier and Primary Cash Deposit Calculation
Question 68Question →

A commercial banking system generated a maximum total credit expansion of N1,000,000\text{N}1,000,000 from a fresh initial cash deposit of N200,000\text{N}200,000. What is the mandatory Cash Reserve Ratio (CRR) set by the central bank, expressed as a percentage?

Show answer & explanation

Answer: 20

Answer

The mandatory Cash Reserve Ratio is 20%.
Total credit creation is given by the formula Total Credit=Initial Deposit×1CRR\text{Total Credit} = \text{Initial Deposit} \times \frac{1}{\text{CRR}}. Rearranging to solve for CRR gives CRR=Initial DepositTotal Credit×100%=200,0001,000,000×100%=20%\text{CRR} = \frac{\text{Initial Deposit}}{\text{Total Credit}} \times 100\% = \frac{200,000}{1,000,000} \times 100\% = 20\%.

Step-by-Step Solution

1
Calculate the Credit Multiplier
Credit Multiplier = 5
Divide the total credit expansion (N1,000,000) by the initial cash deposit (N200,000).
2
Calculate the Cash Reserve Ratio
Cash Reserve Ratio = 20%
The Cash Reserve Ratio is the reciprocal of the credit multiplier, calculated as (1 / 5) × 100%.

Key Concept

Calculation of Cash Reserve Ratio from Initial Deposit and Total Credit Expansion
Question 69Question →

Match each form of money listed in Column A with its defining characteristic or legal attribute in Column B.

Click a left item, then click its matching right item

Items

Token Money
Fiat Money
Legal Tender
Near Money (Quasi-Money)

Matches

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Answer

Token Money matches with money whose declared face value substantially exceeds its intrinsic material cost; Fiat Money matches with currency issued by government decree without physical commodity backing; Legal Tender matches with a medium of exchange that creditors are legally bound to accept for debt settlement; Near Money matches with liquid financial instruments easily convertible to cash but not directly usable for transactions.
Each monetary form is matched according to its fundamental commercial definition: Token Money has a face value above its metallic/intrinsic cost; Fiat Money is established by state decree without physical reserves; Legal Tender is legally compulsory for settling monetary debts; Near Money consists of liquid financial instruments that act as store of value but require conversion to cash before spending.

Step-by-Step Solution

1
Analyze Token Money
Identify that token money possesses an official face value far greater than the value of its physical metal or paper composition.
Token coins rely on face value assignment rather than full metallic bullion weight.
2
Analyze Fiat Money
Recognize that fiat money is backed by government order/sanction rather than convertible reserves of gold or silver.
The term fiat signifies an order or decree by government authorities.
3
Analyze Legal Tender
Link legal tender to statutory protection that obligates creditors to accept it for debt repayment within a jurisdiction.
Refusing legal tender invalidates legal claims to debt default damages in court.
4
Analyze Near Money
Identify non-currency assets that retain high liquidity and store value but require conversion prior to purchasing goods.
Near money assets lack general acceptability as direct media of exchange.

Key Concept

Distinction and Attributes of Forms of Money
Question 70Question →

A retail business makes a fresh cash deposit of N600,000\text{N}600,000 into a commercial bank. The Central Bank mandates a Cash Reserve Ratio of 10%10\%, and the commercial bank voluntarily retains an additional 10%10\% of deposits as excess liquid reserves. Assuming no cash leakages in the economy, what is the maximum amount of derivative deposits the commercial banking system can create from this initial deposit?

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Answer: N2,400,000\text{N}2,400,000

Answer

N2,400,000\text{N}2,400,000
The effective reserve ratio is 20%20\% (10%10\% mandatory plus 10%10\% voluntary excess reserves). The credit multiplier is 10.20=5\frac{1}{0.20} = 5. Total deposit expansion equals N600,000×5=N3,000,000\text{N}600,000 \times 5 = \text{N}3,000,000. Subtracting the primary deposit of N600,000\text{N}600,000 yields derivative deposits of N2,400,000\text{N}2,400,000.

Step-by-Step Solution

1
Calculate the effective total reserve ratio
Total Reserve Ratio (r)=10%+10%=20%=0.20\text{Total Reserve Ratio } (r) = 10\% + 10\% = 20\% = 0.20
Both mandatory cash reserves and voluntary excess reserves reduce the proportion of deposits available for lending.
2
Determine the credit multiplier
\text{Credit Multiplier } (K) = \frac{1}{r} = \frac{1}{0.20} = 5
The credit multiplier is the reciprocal of the total reserve ratio.
3
Calculate total deposit expansion
\text{Total Deposit Expansion} = \text{Initial Deposit} \times K = \text{N}600,000 \times 5 = \text{N}3,000,000
The total volume of money created in the banking system includes both primary and secondary deposits.
4
Deduct the primary cash deposit to find derivative deposits
\text{Derivative Deposits} = \text{Total Deposit Expansion} - \text{Initial Cash Deposit} = \text{N}3,000,000 - \text{N}600,000 = \text{N}2,400,000
Derivative deposits represent the loan-created secondary expansion separate from the original cash influx.

Key Concept

Credit Creation Constraints and Derivative Deposits Calculation
Estimated Time:1m 30s
Question 71Question →

Match each traditional function of the Central Bank listed in Column I with its correct operational description in Column II.

Click a left item, then click its matching right item

Items

Banker to commercial banks
Lender of last resort
Sole authority to issue currency

Matches

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Answer

Banker to commercial banks matches with maintaining statutory cash reserves and operating the clearing house; Lender of last resort matches with providing emergency liquidity assistance to commercial banks; Sole authority to issue currency matches with exercising exclusive legal power to print notes and mint coins.
Each central bank role corresponds directly to its defined duty: acting as banker to commercial banks involves maintaining cash reserve balances and settling interbank payments; serving as lender of last resort involves making emergency credit available to banks experiencing short-term liquidity deficits; and possessing sole currency issuing authority involves exercising legal monopoly over printing notes and minting coins.

Step-by-Step Solution

1
Identify the operational role of the central bank regarding commercial bank reserve accounts.
Banker to commercial banks matches with maintaining cash reserves and operating interbank clearing.
Commercial banks maintain mandatory deposits at the central bank, which acts as their banking institution.
2
Determine the safety-net function that prevents banking panics during financial stress.
Lender of last resort matches with extending emergency credit facilities to distressed commercial banks.
The central bank acts as the ultimate guarantor of liquidity to prevent bank failures.
3
Relate currency creation powers to their operational definition.
Sole authority to issue currency matches with printing banknotes and minting coins.
Central banks exercise sole legal monopoly over legal tender issuing within the nation.

Key Concept

Traditional Functions of the Central Bank
Question 72Question →

Match each commercial banking concept, service, or regulatory mechanism listed in Column A with its corresponding operational description in Column B.

Click a left item, then click its matching right item

Items

Derivative Deposit
Credit Transfer
Bankers' Clearing House
Cash Reserve Ratio (CRR)

Matches

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Answer

Derivative Deposit matches the creation of credit deposits via loan accounts; Credit Transfer matches settling multiple payees via one debit order; Bankers' Clearing House matches the netting of interbank claims and cheque clearing; Cash Reserve Ratio (CRR) matches the mandatory deposit percentage held at the central bank limiting credit expansion.
Derivative Deposit is directly linked to secondary credit creation during loan disbursements. Credit Transfer represents a bulk payment service from a single account debit. Bankers' Clearing House provides interbank cheque clearing and balance settlement. Cash Reserve Ratio (CRR) is the official central bank reserve requirement that regulates loan expansion capacity.

Step-by-Step Solution

1
Identify the credit creation process mechanism
Derivative deposit is defined as a secondary deposit originating from bank lending operations rather than cash paid in by depositors.
Commercial banks create credit by creating derivative deposits whenever loans are extended.
2
Analyze commercial bank payment and transfer services
Credit transfer allows an individual or firm to send funds directly to several creditors using one payment order.
This differentiates credit transfer from standing orders or direct debits.
3
Examine interbank settlement services
Bankers' Clearing House is the central institution managed by banks to clear cheques and reconcile interbank debts.
Interbank claims are settled by transferring only the net balances owed.
4
Determine monetary policy constraints on commercial banks
Cash Reserve Ratio (CRR) is the legal reserve requirement specified by the monetary authority that limits total bank credit expansion.
Higher CRR reduces excess reserves, thereby curtailing derivative deposit creation.

Key Concept

Commercial Bank Functions, Services, and Credit Creation Mechanisms
Question 73Question →

Match each monetary policy instrument or Central Bank function in Column I with its correct operational description in Column II.

Click a left item, then click its matching right item

Items

Open Market Operations (OMO)
Bank Rate
Cash Reserve Ratio (CRR)
Moral Suasion

Matches

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Answer

Open Market Operations matches with direct buying and selling of treasury bills and government securities; Bank Rate matches with the interest rate charged to commercial banks; Cash Reserve Ratio matches with the minimum percentage of deposits kept with the central bank; Moral Suasion matches with informal advice or persuasive directives.
Each monetary instrument correctly pairs with its specific operational mechanism: Open Market Operations involves trading government debt instruments; Bank Rate is the central bank's discount rate; Cash Reserve Ratio specifies required statutory reserves; and Moral Suasion consists of qualitative persuasion.

Step-by-Step Solution

1
Identify quantitative market trading instruments
Open Market Operations refers directly to the trading of government securities such as treasury bills in the financial market to influence liquidity.
Central banks purchase securities to expand money supply and sell securities to contract it.
2
Identify key interest rate tools
Bank Rate corresponds to the interest rate levied by the central bank when providing loans or rediscounting bills for commercial banking institutions.
Changes in the bank rate influence the cost of borrowing for commercial banks and consequently their lending rates to the public.
3
Identify reserve requirement regulations
Cash Reserve Ratio matches the regulatory requirement mandating banks to keep a fixed portion of their deposit liabilities with the central bank.
Adjusting the ratio alters the volume of excess reserves available for lending by commercial banks.
4
Identify qualitative/selective credit control tools
Moral Suasion aligns with informal persuasion and policy advice used by central bankers without resorting to statutory sanctions.
It relies on co-operation between commercial banks and the central monetary authority.

Key Concept

Central Bank monetary policy instruments (quantitative and qualitative) and their operational mechanisms
Question 74Question →

An investor makes a fresh cash deposit of N500,000\text{N}500,000 into a commercial bank. The Central Bank enforces a Cash Reserve Ratio (CRR) of 12.5%12.5\% and a mandatory Liquidity Ratio of 7.5%7.5\%. Assuming commercial banks hold no excess reserves and the public holds no cash leakages, what is the net total of derivative deposits created by the banking system?

Show answer & explanation

Answer: N2,000,000\text{N}2,000,000

Answer

The net total of derivative deposits created by the commercial banking system is N2,000,000\text{N}2,000,000.
Combining the cash reserve ratio (12.5%12.5\%) and liquidity ratio (7.5%7.5\%) gives an effective statutory reserve requirement of 20%20\% (0.200.20). The credit multiplier is 10.20=5\frac{1}{0.20} = 5. Total deposit expansion equals 5×N500,000=N2,500,0005 \times \text{N}500,000 = \text{N}2,500,000. Subtracting the original primary deposit of N500,000\text{N}500,000 yields net derivative credit created of N2,000,000\text{N}2,000,000.

Step-by-Step Solution

1
Calculate total legal reserve requirement ratio
Total Reserve Ratio (r)=CRR+Liquidity Ratio=12.5%+7.5%=20%=0.20(r) = \text{CRR} + \text{Liquidity Ratio} = 12.5\% + 7.5\% = 20\% = 0.20
Commercial banks must satisfy both statutory reserve mandates before granting loans.
2
Calculate total deposit expansion
Total Expansion = Initial Depositr=N500,0000.20=N2,500,000\frac{\text{Initial Deposit}}{r} = \frac{\text{N}500,000}{0.20} = \text{N}2,500,000
Applying the bank credit multiplier formula 1r\frac{1}{r} yields maximum gross deposits.
3
Calculate net derivative deposits created
Derivative Deposits = Total Expansion - Initial Deposit = \text{N}2,500,000 - \text{N}500,000 = \text{N}2,000,000
Derivative deposits consist of newly created credit secondary to the initial primary cash injection.

Key Concept

Credit Creation and Total Reserve Multipliers
Estimated Time:2m 0s
Question 75Question →

When commercial banks experience temporary liquidity shortages and are unable to borrow from the interbank market, they can obtain emergency financial accommodation directly from the Central Bank. Which function of the Central Bank is demonstrated in this scenario?

Show answer & explanation

Answer: Lender of last resort

Answer

Lender of last resort
The central bank acts as the lender of last resort by discounting bills and granting short-term emergency advances to commercial banks facing severe liquidity shortages when no other credit facilities are available.

Step-by-Step Solution

1
Analyze the action described in the question stem
Commercial banks encountering short-term liquidity deficits receive financial assistance directly from the Central Bank when alternative sources fail.
Identifying the nature of interbank financial rescue pinpoints the central bank's protective role.
2
Relate the action to standard Central Bank functions
The function that acts as a financial safety net for commercial banking institutions during liquidity crises is known as lender of last resort.
This function safeguards public confidence and protects the stability of the entire banking system.

Key Concept

Central Bank Functions - Lender of Last Resort
Estimated Time:45s
Question 76Question →

A commercial banking system maintains cash reserves of N1,500,000\text{N}1,500,000, which fully satisfies a mandatory Cash Reserve Ratio (CRR) of 15%15\%. If the Central Bank reduces the CRR to 12%12\%, what is the maximum additional credit expansion, in Naira, that the banking system can generate from the resulting excess reserves?

Show answer & explanation

Answer: 2500000

Answer

The maximum additional credit expansion that the banking system can generate is 2,500,000 Naira.
When the Central Bank lowers the Cash Reserve Ratio from 15% to 12%, the total deposits supported by N1,500,000 in reserves increases from N10,000,000 (N1,500,000 / 0.15) to N12,500,000 (N1,500,000 / 0.12). The maximum additional credit expansion achievable by the banking system is the difference between the new total deposit capacity and the initial total deposits, which equals N2,500,000.

Step-by-Step Solution

1
Determine the initial total deposits in the commercial banking system.
Initial Total Deposits = N10,000,000
Since N1,500,000 represents 15% of total deposits, total deposits = N1,500,000 / 0.15 = N10,000,000.
2
Calculate the new total credit expansion capacity under the 12% reserve ratio.
New Total Deposit Capacity = N12,500,000
With N1,500,000 reserves and a 12% CRR, the system can support total deposits of N1,500,000 / 0.12 = N12,500,000.
3
Subtract the initial total deposits from the new total deposit capacity to find additional expansion.
Additional Expansion = N2,500,000
N12,500,000 - N10,000,000 = N2,500,000.

Key Concept

Excess Reserves and Credit Creation Multiplier
Question 77Question →

Match each form of money listed in Column A with its corresponding defining feature in Column B.

Click a left item, then click its matching right item

Items

Token Money
Fiat Money
Quasi-Money
Bank Money

Matches

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Answer

Token Money matches with money whose face value exceeds its intrinsic material value; Fiat Money matches with currency established by government order without physical commodity backing; Quasi-Money matches with highly liquid assets serving as near-money; Bank Money matches with commercial bank deposit balances transferable via cheques.
Token Money is characterized by face value exceeding intrinsic value; Fiat Money is defined by government decree without physical commodity backing; Quasi-Money includes near-money liquid assets not functioning directly as legal tender; Bank Money comprises commercial bank deposit balances transferable by cheque.

Step-by-Step Solution

1
Analyze Token Money and Fiat Money attributes
Token Money focuses on the gap between face value and material intrinsic value, whereas Fiat Money depends on official legal decree without gold backing.
Understanding these legal and material characteristics distinguishes modern physical currency types.
2
Analyze Quasi-Money and Bank Money attributes
Quasi-Money represents near-money store-of-value assets, while Bank Money refers specifically to active demand deposit accounts accessible by cheque.
Liquidity levels and direct acceptance in transactions separate bank credit balances from near-money instruments.

Key Concept

Distinguishing features and classifications of modern forms and types of money.
Question 78Question →

Match each specialized development bank in Nigeria with its core operational target.

Click a left item, then click its matching right item

Items

Bank of Agriculture (BOA)
Federal Mortgage Bank of Nigeria (FMBN)
Nigerian Export-Import Bank (NEXIM)
Bank of Industry (BOI)

Matches

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Answer

Bank of Agriculture matches with financing agricultural projects; Federal Mortgage Bank of Nigeria matches with providing housing loans; Nigerian Export-Import Bank matches with promoting non-oil export trade; Bank of Industry matches with funding industrial and manufacturing projects.
Each development bank in Nigeria was established with a specific sector-focused mandate: Bank of Agriculture supports agricultural growth, Federal Mortgage Bank of Nigeria supports housing facilities, Nigerian Export-Import Bank facilitates non-oil export trade, and Bank of Industry provides credit for industrial manufacturing.

Step-by-Step Solution

1
Identify the mandate of Bank of Agriculture (BOA)
Matched with agricultural project financing
BOA was established to support farming and rural development.
2
Identify the mandate of Federal Mortgage Bank of Nigeria (FMBN)
Matched with housing and mortgage credit
FMBN oversees mortgage institutions and housing loan delivery.
3
Identify the mandate of Nigerian Export-Import Bank (NEXIM)
Matched with non-oil export credit
NEXIM promotes foreign trade growth outside crude oil exports.
4
Identify the mandate of Bank of Industry (BOI)
Matched with manufacturing and industrial expansion funding
BOI assists industrial growth by issuing long-term credit.

Key Concept

Specialized and Development Banks
Question 79Question →

An investor holds assets such as Treasury bills and fixed deposit receipts that are highly liquid and easily convertible into cash, but cannot be directly tendered to purchase goods in a retail transaction. Which form of money is exemplified by these assets?

Show answer & explanation

Answer: Quasi-money

Answer

The correct answer is Quasi-money.
Quasi-money consists of highly liquid financial assets like Treasury bills, money market fund shares, and savings accounts that can be readily turned into cash but cannot be transferred directly to settle daily retail trades.

Step-by-Step Solution

1
Analyze the properties of the financial instruments described
Treasury bills and fixed deposit receipts have high liquidity and fixed monetary value, but lack direct transactional acceptance in retail markets.
Identifying whether an instrument is a direct medium of exchange or a near-cash asset determines its classification.
2
Match these characteristics to the taxonomy of monetary forms
Assets that perform the store of value function of money and are easily converted to cash, yet do not serve directly as a medium of exchange, are categorized as quasi-money (near-money).
This distinguishes liquid investments from legal tender and bank demand deposits.

Key Concept

Quasi-money (Near-money)
Question 80Question →

Match each characteristic or function of money on the left with its corresponding commercial description on the right.

Click a left item, then click its matching right item

Items

Homogeneity
Cognizability
Standard of deferred payment
Scarcity

Matches

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Answer

Homogeneity matches ensuring identical units per denomination; Cognizability matches enabling quick identification of legal tender; Standard of deferred payment matches facilitating credit settlement in the future; Scarcity matches regulating currency supply relative to demand.
Homogeneity refers to uniformity of currency units of the same denomination. Cognizability relates to ease of recognition and counterfeit detection. Standard of deferred payment enables future credit settlement. Scarcity ensures purchasing power is preserved through controlled supply.

Step-by-Step Solution

1
Analyze physical characteristics versus functions of money
Identified Homogeneity, Cognizability, and Scarcity as physical/essential attributes, while Standard of Deferred Payment is a secondary function.
Clarifying the fundamental definition of each term helps connect it directly to its practical commercial role.
2
Pair each characteristic or function with its matching definition
Homogeneity pairs with visual uniformity across denominations; Cognizability pairs with rapid identification and counterfeit prevention; Standard of deferred payment pairs with future debt settlement; Scarcity pairs with limited supply maintaining purchasing power.
Matching terms precisely ensures correct economic classification per JAMB UTME syllabus standards.

Key Concept

Attributes and Functions of Money in Commerce
Estimated Time:1m 30s
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Money and Financial Institutions Practice Questions — JAMB UTME — Page 4 | Examkin