MONEY MARKET
Subject:
ECONOMICS
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Term:
FIRST TERM
Week:
WEEK 9
Class:
SS 3
Topic:
MONEY MARKET
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Previous lesson:
The pupils have previous knowledge of
THE PRINCIPLE OF COMPARATIVE COST ADVANTAGE
that was taught as a topic in the previous lesson
Behavioural objectives:
At the end of the lesson, the learners will be able to
- EXPLAIN MONEY MARKET
- LIST TOOLS THAT ARE USED IN THE MONEY MARKET
- MENTION THE FINANCIAL INSTITUTIONS THAT ARE INVOLVED IN THE MONEY MARKET
Instructional Materials:
- Wall charts
- Pictures
- Related Online Video
- Flash Cards
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Methods of Teaching:
- Class Discussion
- Group Discussion
- Asking Questions
- Explanation
- Role Modelling
- Role Delegation
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Reference Materials:
- Scheme of Work
- Online Information
- Textbooks
- Workbooks
Content:
MONEY MARKET
The money market is a financial market made up of institutions which provide short-term finance for investments. They bring short-term borrowers and lenders together.
The market consists of institutions or individuals who either have money to lend or wish to borrow on a short-term basis. They provide loans to borrowers for periods from a few months to two years.
Money market regulations are established to ensure the safety and stability of money markets. These regulations are implemented by a variety of different agencies, including the Central Bank of Nigeria (CBN), the Nigerian Deposit Insurance Corporation (NDIC), and the Securities and Exchange Commission (SEC)
Agencies that regulate money markets (i.e. CBN, NDIC etc.)
Agencies that regulate money markets play a very important role in ensuring the safety and stability of these markets. The Central Bank of Nigeria (CBN) is one such agency, and it implements monetary policy by exercising control over the country’s credit system to meet broad financial goals like low inflation. Overseeing the operations of commercial banks, microfinance institutions, and other financial service providers, the CBN uses tools like open market operations and reserve requirements to manage money supply.
Other agencies that regulate money markets include the Nigerian Deposit Insurance Corporation (NDIC) and the Securities and Exchange Commission (SEC). The NDIC provides deposit insurance to protect bank customers in case of a banking crisis, while the SEC is responsible for regulating securities markets and ensuring that investors are protected from fraud.
Tools/instruments used in money markets
1. Open market operations: This is a tool used by central banks to influence the supply of money in an economy. It involves either buying or selling government securities (such as bonds and treasury bills) from the market, usually in order to regulate short-term interest rates.
2. Reserve requirements: Also known as reserve ratios, this is another tool used by central banks to manage liquidity in the money market. This involves setting a minimum amount of reserves that commercial banks are required to maintain as a percentage of their deposit liabilities
3. Repurchase agreements (repos): These are short-term loans provided by financial institutions, using high-quality securities as collateral. Repos are commonly used to finance short-term cash needs and are a key source of funding for money market participants.
4. Term deposits: This is another financial instrument commonly offered by banks and other financial institutions, where individuals can invest their money for a fixed period of time in exchange for a higher interest rate than what would be offered on standard savings accounts.
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5.Treasury Bills: Treasury bills are normally issued by the central bank of a country which assists the government to borrow money from the money market on a short-term basis. These are instrument, which the federal government of Nigeria uses to borrow money for-short term period of 3 months. The maturity date of treasury bills is 91days.
6. Bill of Exchange: Bill of exchange refers to a promissory note which shows the acknowledgement of indebtedness by a debtor to his creditor and his intention to pay the debt on demand or at an agreed time in future, normally ninety (90) days.
7. Call money funds: The call money fund or market is a special arrangement in which the participating institutions invest surplus money for their immediate requirement on an overnight basis with the interest and withdrawal on demand. The call money has an advantage of early return and at the same time is withdrawable on demand.
While there are a number of tools and instruments used in the money market, they all share a common goal: to manage liquidity and ensure stability in financial markets. Whether it’s through open market operations, reserve requirements, repos, or term deposits, these instruments provide an important source of funding for short-term borrowers and lenders.
INSTITUTIONS INVOLVED IN THE MONEY MARKET
The central bank is typically the primary regulator of money markets, and it often uses tools like open market operations and reserve requirements to manage liquidity and keep markets stable. Other institutions that are involved in the money market include commercial banks, microfinance institutions, and securities regulators like the SEC or NDIC.
EVALUATION
1. What is the primary function of central banks in money markets?
A. To regulate interest rates and liquidity levels
B. To issue and regulate treasury bills and other short-term securities
C. To provide funding for long-term investments and businesses
D. To act as a lender of last resort and provide liquidity in times of crisis
2. Which institutions are typically involved in the money market?
A. Commercial banks, mutual funds, and stock exchanges
B. Central banks, microfinance institutions, and private equity firms
C. Government regulators, hedge funds, and private equity firms
D. Broker-dealers, investment banks, and pension funds
3. What role do repos and term deposits play in the money market?
A. They are key sources of funding for short-term borrowers and lenders
B. They are used to finance long-term investments in real estate or infrastructure projects
C. They allow individuals to invest their savings in a range of financial instruments
D. They help to stabilize the value of currencies and maintain exchange rates
4. How do central banks typically manage liquidity and stability in financial markets?
A. By using open market operations, such as bond purchases or asset swaps
B. By setting interest rates and reserve requirements for financial institutions
C. By intervening directly in the market through sales of government bonds or treasury bills
D. By limiting the amount of leverage that can be used in investment activities
5. What are some potential risks or challenges associated with the money market?
A. Low returns, limited investment opportunities, and high levels of volatility and risk
B. Short-term focus and a lack of long-term funding options for businesses and investors
C. Conflicts with government fiscal or monetary policies, or political interference from outside forces
D. All of the above, as money markets are highly dynamic and constantly changing in response to market conditions and economic factors.
ANSWERS: [mediator_tech]
1. D; 2. A; 3. A; 4. B; 5. D
FUNCTIONS OF THE MONEY MARKET
- Provision of short–term capital to investors in both the private and public sectors
- Provision of short – term investment opportunities from which income may be earned
- Mobilization of saving for investment
- Provision of investment, technical and managerial advice
- Provision of opportunity for the public to participate in the management of the economy.
Overall, the money market plays an important role in managing liquidity and ensuring financial stability in our economy. Whether it’s through central bank tools like open market operations, or commercial banks offerings like repos and term deposits, these instruments are an important source of short-term funding for investors. As such, they are an essential component of any well-functioning financial system.
EVALUATION
- How can the money market function as a source of funds?
- What is the role of the money market in financing business and government expenditure?
- What role does the money market play in our economy?
EVALUATION
1. What are some of the key functions of the money market, and how do they help to stabilize financial markets?
2. How do repos, term deposits, and other short-term securities play a role in the money market?
3. What are some of the risks or challenges associated with the money market, and how do central banks typically manage them?
4. How do commercial banks and other financial institutions use the money market to manage their liquidity and meet funding needs?
5. What are some of the key trends and developments in the global money market, and how are they affecting investors, businesses, and policymakers?
ANSWERS:
1. The key functions of the money market include mobilization of savings, provision of investment opportunities and advice, and management of liquidity and stability in financial markets.
2. Repos, term deposits, and other short-term securities are used in the money market to provide liquidity to investors, manage risk, and facilitate trading of financial assets.
3. Potential risks or challenges associated with the money market include volatile market conditions, high levels of leverage, political interference from external forces, and conflicts with government policies.
4. Commercial banks and other financial institutions use the money market to manage their liquidity, meet funding needs, and invest in short-term securities like repos and commercial paper.
5. Some key trends and developments in the global money market include increased regulation and oversight following the 2007-2008 financial crisis, growing use of digital technologies in trading and investing activities, shifts towards more non-traditional forms of financing such as peer-to-peer lending platforms, etc.
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Presentation
The topic is presented step by step
Step 1:
The class teacher revises the previous topics
Step 2.
He introduces the new topic
Step 3:
The class teacher allows the pupils to give their own examples and he corrects them when the needs arise
Conclusion
The class teacher wraps up or concludes the lesson by giving out short notes to summarize the topic that he or she has just taught.
The class teacher also goes round to make sure that the notes are well copied or well written by the pupils.
He or she makes the necessary corrections when and where the needs arise.
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