ECONOMIC INSTITUTIONS - 2024

Meaning of Economic Institution: An economic institutions is an agency which engages in the process of production, distribution and consumption of goods and services in the society.

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Economic institutions include, the Nigerian Stock Exchange, the Central Bank, Insurance companies etc.

TYPES OF ECONOMIC INSTITUTIONS

Banking Institutions: Banking institutions are economic institutions that render money and financial services to people and corporate organizations in the society. The banking institution include commercial banks, central bank of Nigeria, development banks etc.
Commercial Bank: Commercial banks are financial institutions that keep money and other valuables for individuals and firms in the society. They are established by individuals for the purpose of making profit. Examples are First bank, Zenith bank, Skye bank, UBA, GT Bank and many more others.

FUNCTIONS OF COMMERCIAL BANK

They keep money and other valuables; the primary function of commercial banks is safe-keeping of money. They equally keep jewelries and documents for their customers.
They lend money to customers: Banks lend money in form of loans or overdraft. Only customers operating current accounts have access to major loans and overdrafts.
They act as Agents of Payment: Commercial banks make payments on behalf of their customers. Such payments could be electricity bill, telephone bill or any other regular payments which the customer has given them a standing order to pay.
Financial Advice: Banks give financial advice to their customers on any business proposal. They are times carry out feasibility studies to ascertain the level of profitability of the business.
They provide foreign exchange services: Banks buy and sell foreign exchange (currencies) for their customers.
They help government is executing its Monetary policy: The central bank through commercial banks execute government major monetary policies.

THE CENTRAL BANK OF NIGERIA (CBN)

The central bank is a financial institution owned, control and used by government to control all other banks in the society. The Central Bank of Nigeria started operation in 1959.

FUNCTIONS OF CENTRAL BANK

It act as Government Bank: The central bank keeps the internal and international accounts of the federal government of Nigeria. As individuals bank with commercial banks so does the government bank with Central Bank.
It acts as Bankers’ Bank: All other banks in Nigeria keep account with the CBN like individuals keep account with them.
It lends Money to other Banks: Whenever commercial banks need loan, the central bank lends them at a particular rate called bank rate.
It issues our Currency: The central banks is the only government agent that has right to issue any Nigerian currency to the public.
Executes Monetary Policy: The Central bank through the commercial banks helps in executing government monetary policies.
Financial Adviser to the Government: The CBN through its experts advises the government and financial institutions on issues relating to Nigerian economyparticularly on financial matters.

INSURANCE COMPANIES

An insurance company is an economic or financial institution that protects business against risks and losses.

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Under contract of insurance the insurance company (the insurer) promises to indemnify (compensate) the insured (individuals or companies buying insurance services) against losses upon the payment of premium. Premium is the price paid by an individual to an insurance company to insure his goods.

Examples of insurance companies in Nigeria are AIICO Insurance, Gold link insurance, NICON, Royal Exchange Assurance, Cornerstone insurance, industrial and General insurance (IGI) and many others.

TYPES OF INSURANCE

Motor Vehicle Insurance: This covers damages, losses or accidents that involve vehicles. The commonest form is Third Party Motor Insurance. Another type is comprehensive motor insurance.
Burglary and Theft: This covers losses arising from stolen goods and damages through theft and burglary.
Fire Insurance: Thus covers risks or losses arising from fire incidents.
Goods – in – transit: This covers losses arising from transportation of goods between warehouse and the point of destination.
Fidelity Guarantee Insurance: This is insurance taken by an employer against any fraud arising from his employees.
Life Assurance: This is special insurance. It is normally called assurance because death is very possible. Life assurance policy is taken by an individual with a certain sum of money payable to the family of the assured in case of death.
Employer’s Liability Insurance: This is taken on behalf of the employee by the employer to cover him against injury, diseases, industrial accident leading to partial or total disability in course of discharging his duty to his employee.
Consequential Loss Insurance: This covers loss of profit due to fire accident or any other accident that disrupt business or production over a period of time.
Marine Insurance: This covers ships and cargoes against all risk arising from water transport.
Aviation Insurance: This covers all risks involving aircraft either the passengers or the cargoes.

ROLE OF INSRUANCE COMPANIES

They encourage savings
They help in reducing risks
They provide funds needed for investment
They help in supporting international trade
They give opportunity to provide for old age, and sudden death
They help employers to provide means of motivating their workers
They provide collateral security
The Nigerian deposit insurance corporation (NDIC)

FUNCTIONS OF NIGERIAN DEPOSIT INSURANCE CORPORATION (NDIC)

Promotes safe and sound banking system
Protects depositor’s interest
Promotes good banking habit in Nigeria
It conducts periodic examination of bank records and banks activities
It regulates, supervises and advises insured banks.

THE NIGERIAN STOCK EXCHANGE (NSE)

The Nigerian Stock Exchange is a financial institution which provides market for the buying and selling of securities

It used to be known as Lagos Stock Exchange when it was established in 1960 but became Nigerian stock exchange in 1977 due to the spread of its operations to other parts of Nigeria.

Presently, the Nigeria Stock Exchange has branches in Port-Harcourt, Ibadan, Kaduna, Kano, Onitsha and Abuja and its headquarters is in Lagos.

TYPES OF SECURITIES

Security is a general term used for investment which are traded (brought and sole) on the floor of the stock exchange for profit purposes.

Shares: A share is a unit of a company’s capital owned by an individual called a shareholder.
Stocks: A stock can be described as bundle of shares transferable in smaller amounts
Bonds: A bond is a security issued by government. It usually carries a fixed rate of interest.
Debenture: A debenture is a form of loan from individuals to companies. Technically, it refers to a certificate of indebtedness.
Gift-edged: This is a form of security issued by the government to raise funds for its projects.

FUNCTIONS OF THE STOCK EXCHANGE

Provides revenue for raising capital
Helps in transfer of shares
Makes sale of old securities possible
Monitors the activities of quoted companies
Provides investors with relevant information
Provides employment opportunities

SECURITIES AND EXCHANGE COMMISSION (SEC)

The Securities and Exchange Commission is a financial institution which oversees the activities of the stock exchange, all public limited liability companies and other businesses involving foreigners.

Securities Exchange Commission (SEC) was established in 1979. It was created to replace the Capital issue commission formed by Federal Government in 1973.