Economics Notes

Financial Institutions: Money market and Capital market


  • Money Market (Meaning, Functions and Instruments Used)
  • Capital Market (Meaning, Functions and Instruments Used)


Money market is a market where short term securities are traded in.  The market comprises of institutions or individuals who either have money to lend or wish to borrow on a short-term basis.


  1. Treasury Bills
  2. Treasury Certificate
  3. Bill of exchange

       iv. Call money funds

  1. Treasury Bill – This is issued by the central Bank.  It enables the government to raise capital for ninety days.
  2. Treasury Certificate – is also a means by which the government raises short – term loans. Unlike a treasury bill, however, a treasury certificate falls due for repayment in twelve to twenty-four months. Because of its longer maturation, it earns a higher rate of discount than the treasury bills

      C.  Bill of Exchange – This is a promissory note where the debtor acknowledges its debt and intend to pay within ninety days (90days).

      D.  Call Money Funds – The surplus are often invested through a special arrangement in which participating institutions invest surplus money for their immediate requirement on an overnight basis with the interest and withdrawal on demand.  This enhances the liquidity of the money market.


i.          Central Bank

ii.         Commercial Banks

iii.        Acceptance House

iv.        Finance House

v.         Discount House

vi.        Insurance companies


1.         Money market helps to provide capital (working capital) for day to day running of the business.

2.         Through investing in call money extra income is generated.

3.         Money market helps to mobilize savings.

4.         Money market helps to promote economic growth and development

5.        It enhances good saving habit by those having surplus funds

6.        Money invested in the money market is very easy to recall


1.         Write a short note on: i money market, ii treasury bill, iii call money          

2.         Outline the functions of money market.


Funds are needed by entrepreneur, government and business firm on a long term basis. 

Money market cannot provide these needed funds.  Hence capital market bridges this gap.  Capital market is a market where long term securities are traded. 


Securities such as shares, stocks, development stock, bond, debenture

  1. Share– is a unit of capital measured by a sum of money which is an individual portion of the company’s capital owned by a shareholder. It is a means of raising long-term loans for company through the stock exchange market.
  2. Stock- is the bundle of shares or mass capital which can be transferred in fractional amounts. Stocks are always fully paid, for example stocks can be quoted per N100 nominal value. They are collections of shares into a bundle. Stocks are not issued but converted from share issued.
  3. Development Stock- is a debt instrument through which governments get long-term loans or borrowing for a period of up to five years and above.
  4. Bond- is an interest bearing or discounted government or corporate security that obliges the issuers to pay the bondholder on specified sum of money annually at a specific interval and to repay the principal amount of the loan at maturity.
  5. Debenture- is an instrument or a loan certificate for raising a long-term loan from the public by a limited company. A debenture is a debt and a debenture holder is not a co-owner of the business but a creditor.


i.          Issuing houses

ii.         Insurance companies

iii.        Development Banks

iv.        Building Societies

v.         National Provident Fund (NPF)

vi.        Stock Exchange


1.         Capital market provides long term loan for purpose of investment.

2.         Capital market serves a forum through which public sector takes part in running of the economy.

3.         Capital market helps to mobilize savings for investment purpose.

4.         It provides means through which merchant banks can grow and develop.

5.     It gives opportunity to the general public to participate in the running of the economy of the country


1.         What is capital market?  Mention any three securities traded in the stock exchange.

2.         Outline three functions of capital market.


Amplified and Simplified Economics for SSS by Femi Longe page 327-330,335-337.


  1. Highlight four objective of price control.
  2. Explain the concept of of diminishing marginal utility.
  3. What are those factors that can determine the size of a firm.
  4. Define labour as a factor of production.
  5. Explain five characteristics of labour.


1.         A government treasury bill is a form of debt instrument which falls due for repayment after. (a) 3 months               (b) 9 months       (c) 2 years    (d) 5 years    (e) 10 or more years

2.         Long term loans can be secured from _______ (a) commercial banks (b) discount houses  (c) development banks    (d) acceptance house

3.         In the money market, money can only be borrowed for ___________

            (a) long term      (b) short term           (c) capital projects     (d) public utilities

4.         The debt instrument through which loan can be secured for a period up to five years and above…………… (a) debenture (b) share (c) stock (d) bond

5.         Call money funds is a debt instrument being used in…………… (a) stock exchange market (b) money market (c) foreign exchange market (d) capital market.      


1.         What is a capital market?

2.         Describe any three instruments used in the money market.

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