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FIN 112 Banking and Finance (3 Credits - Compulsory)

Course: FIN 112 Banking and Finance (3 Credits - Compulsory) Course Duration: Three hours per week for 15weeks (45hours) As Taught in 2009/2010 Lecturer: Abdullahi, I.B. B.Sc. (Zaria), M.Sc. (Kano), Ph.D. (Ilorin) Department of Accounting and Finance, Faculty of Business and Social Sciences, University of Ilorin, Ilorin, Nigeria. Email: ibrahimabdul2008@yahoo.com, Office Location: Room 7, Dept. of Accounting and Finance, Faculty of Business and Social Sciences, University of Ilorin. Consultation Hours: 9 am-12 pm Mondays - Friday Lecturer: Etudaiye-Muhtar, Oyebola Fatima B.Sc.(Ilorin), MBA (Ilorin), M.Sc. (Malaysia). Email: mf.etudaiye@unilorin.edu.ng fatimaetudaiyemuhtar@yahoo.com Office Location: Room 29, Dept. of Accounting and Finance, Faculty of Business and Social Sciences, University of Ilorin. Consultation Hours: 10 am 1 pm Mondays-Thursdays Course Content Money; its invention and various forms. The history of banking in Nigeria and its contribution to the economy. The principal saving and lending institutions of the Nigerian Banking System. The development of the Central Bank and its role in the economy. The 1

commercial banks and uses of funds. The general principles of bank lending. Reserve and liquid payment through the bank. An outline of the main personal and business bank services 45T C Course Description: This course introduces the students to the evolution and development of money, the evolution and development of the banking system. Justification The course provides the basic knowledge of the evolution and development of the Nigerian Financial System and thus prepares the foundations necessary to undertake / understand higher level courses relating to the financial system across the globe and Nigeria in particular. Course Objectives The main aim of this course is to introduce students to money and banking in Nigeria and for them to understand and appreciate the evolution and development of money and the banking system. At the end of this course students will be able to: Have the basic knowledge of the Nigerias monetary and financial system Know the different types of the financial institutions and regulatory organs within the economy and also the Understanding of the frame work within which the system operates.

Course Requirements Every student is mandated to participate actively in class, in group discussions and study groups activities. All students will have to be ready to research on the Internet for information. Furthermore, attendance should not be less than 75%. Methods of Grading No 1. 2 3. 4. 5. Types Test Take home Assignment Class participation & Class discussions Comprehensive final examination Total Score Score (%) 10 10 10 70 100

Course Delivery Strategies The course will employ the use of traditional face to face teaching and group discussions/presentations.

LECTURE CONTENT Week 1: Introduction to Money: its invention and various forms Objectives: To introduce the course to the students, give a general outlook of the course and examine the various definitions of money. Description First Hour This will take a look at the different and diverse definitions of money Second Hour An examination of the various items used as money. Third Hour Examination of the various uses of money. Study Questions 1. Give 4 acceptable functional definition of money. 2. What items were used as money before the introduction of legal tender? 3. Critically examine definition of money by law. 4. What are the various uses of money? Reading List Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2 1 Umole J.A. (1985): Monetary and Banking System in Nigeria. Benin City Adi Publishers ISBN: 978-30372-0-X

Week 2: Theory of Exchange (Barter System) and its Problems. Objectives: To explain how the barter system developed and the problems associated with the system. Description: First Hour Definition and development of the Barter system Second Hour Operations of the Barter System Third Hour Problems of the Barter system

Study Questions 1. A commodity traded under the barter system could have as many as a hundred different prices or exchange rates as against one if money was in use. You are required to explain with the aid of hypothetical example, the concept of pricing under the barter system. 2. Enumerate the problems of the barter economy. 3. Explain the way in which the barter system gave way to indirect exchange. Reading List Ajayi1 S.I. & Ojo O.O (1981): Money and Banking: Analysis and Policy in the Nigerian Context. Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2 Umole1 J.A. (1985): Monetary and Banking System in Nigeria. Benin City Adi Publishers ISBN: 978-30372-0-X

Week 3: Functions and Attributes of Money. Objectives: To introduce the various functions that money performs and identification of its attributes Description First Hour Examination of money as a medium of exchange. Second Hour Analysis of money as a standard for deferred payment and store of value. Third Hour Examination of the various attributes of money; portability, divisibility, recognizability, durability etc. Study Questions 1. Functionally explain the concept of money and identify the major components of money. 2. Critically analysis the major functions of money 3. Discuss the main attributes of money and describe the attributes which money receives by law. Assignments Distinguish between the barter system and the monetary system

Reading List Bain1 A.D (1991): The control of the Money Supply Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2 Mishkin3, F.S (2009): The Economics of Money, Banking and Financial Markets. New Jersey Prentice Hall ISBN: 978-0321599797 Umole1 J.A. (1985): Monetary and Banking System in Nigeria. Benin City Adi Publishers ISBN: 978-30372-0-X Week 4: Forms of Money Objective: To introduce the students to the various forms of money that is available and its importance. Description: First Hour Identification of the various forms of commodities used as money and its classifications. Second Hour Introduction to credit money and its classifications. Third Hour Introduction to credit money and its classifications (contd). Study Questions: 1. The history of money has been a movement from commodity money to credit money. Discuss this statement bringing out the different types of money. 2. Discuss the types of credit money on the basis of the issuing authority. 3. What is legal tender? Identify the limits placed on the use of legal tender in the payment of debts as stipulated under Decree No 24 of 1991

Reading List: Bain1 A.D (1991): The control of the Money Supply Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2 Umole1 J.A. (1985): Monetary and Banking System in Nigeria. Benin City Adi Publishers ISBN: 978-30372-0-X

Week 5: The Process of Money Creation by Banks. Objectives: To introduce the students to the money creation process in the financial system. 5

Description: First Hour Identification of the assumptions that has to be in place before money is created. Second Hour A practical example of the money creation process. Third Hour A practical example of the money creation process (contd). Study Questions 1. How can a commercial bank create credit and can the CBN control the process? 2. What are the assumptions taken into consideration in the credit creation process? 3. Given an injection of N5 billion into the Nigerian economy, construct graphical representation of the total credit that will be created given that the Reserve Ratio varies from 10%, 15%, 20%, 25% and 30% over a period of time. Assignment

Reading List: Bain1 A.D (1991): The control of the Money Supply Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2

Week 6: Role and Importance of Money in the Economy. Objectives: To identify the relevance and role of money in the larger economy viz-a-viz price level, GNP, Interest rate etc. Description: First Hour A study of the importance of money in the economy and its effect on the GNP and price level. Second Hour The effect of money on interest rate and use of credit. Third Hour The effect of money on the redistribution of wealth and income. Study Questions 1. Discuss the importance of money in an economic development. 2. What are the effects of money on; a. Interest rate b. GNP 6

c. Price Level and d. Use of credit. Reading List Bain1 A.D (1991): The control of the Money Supply Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2

Week 7: The Banking System Objectives: To introduce the students to the evolution of the banking system and the various definitions of a bank. Description: First Hour A look at the various definitions of banks from the legal perspective as supported by various legislations. Second Hour First Hour lecture continues Third Hour A study of the origin of banking and how it developed. Study Questions 1. Give the definition of a bank as expressed in a legal perspective. 2. Banking in Nigeria can be traced to the early history of banking itself in former British West Africa. Discuss.

Reading List Ajayi1 S.I. & Ojo O.O (1981): Money and Banking: Analysis and Policy in the Nigerian Context. Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2 Umole1 J.A. (1985): Monetary and Banking System in Nigeria. Benin City Adi Publishers ISBN: 978-30372-0-X

Week 8: Historical Background of Banking in Nigeria Objectives: To introduce the students to how banking evolved in Nigeria by tracing the history of banking in the country and the various reforms introduced.

Description: First Hour Tracing the history of banking from the colonial era to modern banking. Second Hour Identification of the banks in existence from the pre-colonial period to present day. Third Hour An examination of the various reforms introduced over the years. Study Questions 1. Critically discuss the reforms that have taken place in the Nigerian Banking system over the last couple of years. 2. Give an account of the development of the banking in Nigeria from the colonial era to present day banking. 3. Reading List Ajayi1 S.I. & Ojo O.O (1981): Money and Banking: Analysis and Policy in the Nigerian Context. Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2 Umole1 J.A. (1985): Monetary and Banking System in Nigeria. Benin City Adi Publishers ISBN: 978-30372-0-X

Week 9: Principal Saving and Lending Institutions in the Nigerian Banking System Objectives: To let the students know the various saving and lending institutions that abound in the Nigerian Financial System and how they operate. Description: First Hour Introduction to the operations of commercial banks and merchant banks. Second Hour Introduction to the operations of Development banks. Third Hour An examination of the various reforms that led to the abolition of some institutions such as community banks, merchant banks and the introduction of others like the Bank of Industry, Microfinance and Universal Banks. Study Questions 1. Explain the similarities and differences between merchant and commercial banks. 2. Name 4 examples of development finance institutions and discuss them.

3. What are the differences between a commercial bank and a development finance institution? Assignment Critically discuss the reforms that have taken place in the Nigerian Banking system over the last couple of years. Reading List Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2 Umole1 J.A. (1985): Monetary and Banking System in Nigeria. Benin City Adi Publishers ISBN: 978-30372-0-X Week 10: Development of the Central Bank of Nigeria and its role in the economy. Objectives To introduce the students to the concept of central banking, its functions and operations. It will also enable the student to know the distinguishing features between a commercial bank and a central bank. Description: First Hour An introduction to the concept of Central Banking and its definition. Second Hour Origination of Central Bank in Nigeria. Third Hour An evaluation of the traditional functions of the CBN. Study Questions 1. Central Banking is an institutional arrangement. Discuss. 2. What are the traditional functions of the central bank? 3. What are the factors responsible for the establishment of central bank of Nigeria?

Reading List Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2 Mishkin3, F.S (2009): The Economics of Money, Banking and Financial Markets. New Jersey Prentice Hall ISBN: 978-0321599797 Umole1 J.A. (1985): Monetary and Banking System in Nigeria. Benin City Adi Publishers ISBN: 978-30372-0-X

Week 11: Development of the Central Bank of Nigeria and its role in the economy. Contd. Objectives To introduce the students to the concept of central banks, its functions and operations. It will also enable the student to know the distinguishing features between a commercial bank and a central bank. Description: First Hour An evaluation of the developmental functions of the CB Second Hour Central Bank Vs Commercial Banks: the distinguishing features. Third Hour Continuation of 2nd hour lecture. Study Questions 1. Identify the distinguishing features of central bank and commercial banks in Nigeria. 2. What are the roles of the Central Bank of Nigeria in the economic development of Nigeria? 3. Critically explain and appraise the functions of the Central Bank of Nigeria.

Reading List Bain1 A.D (1991): The control of the Money Supply Casu4, B, Girardone, C & Molyneux, P (2006): Introduction to Banking. Prentice Hall, New Jersey ISBN: 9780273693024 Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2 Umole1 J.A. (1985): Monetary and Banking System in Nigeria. Benin City Adi Publishers ISBN: 978-30372-0-X Mishkin3, F.S (2009): The Economics of Money, Banking and Financial Markets. New Jersey Prentice Hall ISBN: 978-0321599797

Week 12: Commercial Banks and uses of Funds Objectives: Introduction to the components of commercial banks balance sheet and utilization.

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Description: First Hour A practical example of a commercial banks balance sheet is presented in class and studied under the various headings. Second Hour An examination of the liquid assets and its various components Third Hour An evaluation of other assets (such as due from other banks, bills discounted, investment etc). Study Questions 1. What is a balance sheet? 2. Distinguish between hard assets and liquid assets. 3. What are the differences between the asset structure of commercial banks and that of non-financial institutions? Assignment

Reading List: Bain1 A.D (1991): The control of the Money Supply Casu4, B, Girardone, C & Molyneux, P (2006): Introduction to Banking. Prentice Hall, New Jersey ISBN: 9780273693024 Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2 Mishkin3, F.S (2009): The Economics of Money, Banking and Financial Markets. New Jersey Prentice Hall ISBN: 978-0321599797 Umole1 J.A. (1985): Monetary and Banking System in Nigeria. Benin City Adi Publishers ISBN: 978-30372-0-X Week 13: Continuation of Week 12 Objectives: Introduction to the components of commercial banks balance sheet and utilization. Description: First Hour Discussion / Examination of the components of a Banks Balance Sheet. Second Hour Evaluation of Bank assets such as Loans and Advances, Fixed Assets, Exchange rate differential etc. Third Hour An evaluation of short term funds.

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Study Questions 1. Write short notes on; a. Loans and advances b. Exchange rate differential and c. Fixed assets. 2. The level of a commercial banks investment depends on two main factors. Identify and discuss these factors. 3. Explain the term statutory reserve and its importance to a commercial bank

Reading List Bain1 A.D (1991): The control of the Money Supply Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2 Mishkin3, F.S (2009): The Economics of Money, Banking and Financial Markets. New Jersey Prentice Hall ISBN: 978-0321599797 Umole1 J.A. (1985): Monetary and Banking System in Nigeria. Benin City Adi Publishers ISBN: 978-30372-0-X

Week 14: Distribution of Liabilities Objectives: Introduction to the liability components of a Banks balance sheet. Description: First Hour An examination of Bank Liabilities (sources of funds) and the constituents of capital and reserves Second Hour An examination of loan capital or debenture stock Third Hour Other Liabilities. Study Questions: 1. Describe the main liabilities and assets of a commercial bank and to what extent to they reflect the banking services provided by a commercial bank? 2. With reference to the main assets of and liabilities of a commercial bank, describe how to strike a balance between profitability and liquidity.

Reading List: Bain1 A.D (1991): The control of the Money Supply Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2 12

Mishkin3, F.S (2009): The Economics of Money, Banking and Financial Markets. New Jersey Prentice Hall ISBN: 978-0321599797 Umole1 J.A. (1985): Monetary and Banking System in Nigeria. Benin City Adi Publishers ISBN: 978-30372-0-X

Week 15: Revision of the various weeks lessons and general overview of the course. Class and group discussions will also be made on topical issues based on reactions from students during the sessions. (3 hours) Study Questions 1. Critically examine the concept of money and identify its various components. 2. What is Legal Tender and what are the limits placed on its use in the payment of debts as stipulated under Decree No. 24 of 1991? 3. Briefly explain whether any item that serves as a store of value can also serve as a medium of exchange. 4. With the use of hypothetical example, explain the concept of pricing under the barter economy. 5. Discuss the types of credit money on the basis of the issuing authority. 6. Explain the role and importance of money in economic development. 7. As a result of different kinds of banks in existence, it would be difficult to formulate a definition of banking which connotes the diverse activities of all kinds of banks. What then is the definition of a bank as expressed by the courts? 8. Banking in Nigeria can be traced to the early history of banking itself in former British West Africa. Discuss. 9. Discuss the various technological developments that have enhanced competition within the Nigerian Banking System. 10. Write short notes on the following: a. Bank of Industry b. Microfinance Banks c. Nigerian Export and Import Bank (NEXIM) 11. Give an account of the evolution of the evolution of the Central Bank in Nigeria. 12. Discuss the objectives and traditional functions of the CBN. 13. Compare and contrast the similarities and differences between the Central and the commercial bank. 14. What unique features distinguish commercial banks from other forms of financial institutions? 15. List and describe the various kinds of shares which commercial banks can hold in their portfolio.

Reading List Ajayi1 S.I. & Ojo O.O (1981): Money and Banking: Analysis and Policy in the Nigerian Context. Bain1 A.D (1991): The control of the Money Supply

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Casu4, B, Girardone, C & Molyneux, P (2006): Introduction to Banking. Prentice Hall, New Jersey ISBN: 9780273693024 Ekezie1, E.S (2002): The Elements of Banking, Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited ISBN: 978-175-338-2 Mishkin3, F.S (2009): The Economics of Money, Banking and Financial Markets. New Jersey Prentice Hall ISBN: 978-0321599797 Umole1 J.A. (1985): Monetary and Banking System in Nigeria. Benin City Adi Publishers ISBN: 978-30372-0-X

Keys: 1: 2: 3. 4. Available in the University Library. Available in the Departmental Library. Available on the Web. Personal Collection

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