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Showing posts with label BFN. Show all posts
Showing posts with label BFN. Show all posts

Thursday, 8 December 2022

CBN CASH WITHDRAWAL POLICY TO ALL NIGERIANS

December 08, 2022 0

 

The central bank had placed a cap on cash withdrawals under the new dispensation, restricting the maximum cash withdrawal over the counter (OTC) by individuals and corporate organisations per week to N100,000 and N500,000 respectively.


The bank, in a letter dated December 6, 2022, which was addressed to all Deposit Money Banks, and Other Financial Institutions, Payment Service Bank (PSBs), Primary Mortgage Banks (PMBs), and Microfinance Banks (MFBs), also stated that third party cheques above N50,000 shall not be eligible for OTC payment while extant limits of N10 million on clearing cheques still remains.



The new withdrawal regime which may be targeted at curbing vote-buying as the 2023 elections draw closer, among others, further pegged the maximum cash withdrawal per week via Automated teller Machine (ATM) at N100,000 subject to a maximum of N20,000 cash withdrawal per day, adding that only denominations of N200 and below shall be loaded into ATMs while the maximum amount that can be withdrawn via Point of Sale (POS) terminal was limited to N20,000 daily.
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Sunday, 7 May 2017

May 07, 2017 0


Financial markets and their economic functions
A financial market is a market where financial instruments are exchanged or traded. Financial markets provide the following three major economic functions:
1) Price discovery
2) Liquidity
3) Reduction of transaction costs


1) Price discovery function means that transactions between buyers and sellers of financial instruments in a financial market determine the price of the traded asset. At the same time the required return from the investment of funds is determined by the participants in a financial market. The motivation for those seeking funds (deficit units) depends on the required return that investors demand. It is these functions of financial markets that signal how the funds available from those who want to lend or invest funds will be allocated among those needing funds and raise those funds by issuing financial instruments. 

2) Liquidity functionprovides an opportunity for investors to sell a financial instrument, since it is referred to as a measure of the ability to sell an asset at its fair market value at any time. Without liquidity, an investor would be forced to hold a financial instrument until conditions arise to sell it or the issuer is contractually obligated to pay it off. Debt instrument is liquidated when it matures, and equity instrument is until the company is either voluntarily or involuntarily liquidated. All financial markets provide some form of liquidity. However, different financial markets are characterized by the degree of liquidity. 

3) The function of reduction of transaction costs is performed, when financial market participants are charged and/or bear the costs of trading a financial instrument. In market economies the economic rationale for the existence of institutions and instruments is related to transaction costs, thus the surviving institutions and instruments are those that have the lowest transaction costs.
The key attributes determining transaction costs are   asset specificity,   uncertainty,  frequency of occurrence.
 
Asset specificityis related to the way transaction is organized and executed. It is lower when an asset can be easily put to alternative use, can be deployed for different tasks without significant costs. 
Transactions are also related to uncertainty, which has (1) external sources (when events change beyond control of the contracting parties), and (2) depends on opportunistic behavior of the contracting parties. If changes in external events are readily verifiable, then it is possible to make adaptations to original contracts, taking into account problems caused by external uncertainty. In this case there is a possibility to control transaction costs.  However, when circumstances are not easily observable, opportunism creates incentives for contracting parties to review the initial contract and creates moral hazard problems.  The higher the uncertainty, the more opportunistic behavior may be observed, and the higher transaction costs may be born.
Frequency of occurrence plays an important role in determining if a transaction should take place within the market or within the firm. A one-time transaction may reduce costs when it is executed in the market. Conversely, frequent transactions require detailed contracting and should take place within a firm in order to reduce the costs. 
When assets are specific, transactions are frequent, and there are significant uncertainties intra-firm transactions may be the least costly. And, vice versa, if assets are non-specific, transactions are infrequent, and there are no significant uncertainties least costly may be market transactions.
The mentioned attributes of transactions and the underlying incentive problems are related to behavioural assumptions about the transacting parties. The economists (Coase (1932, 1960, 1988), Williamson (1975, 1985), Akerlof (1971) and others) have contributed to transactions costs economics by analyzing behaviour of the human beings, assumed generally self-serving and rational in their conduct, and also behaving opportunistically. Opportunistic behaviour was understood as involving actions with incomplete and distorted information that may intentionally mislead the other party. This type of behavior requires efforts of ex ante screening of transaction parties, and ex post safeguards as well as mutual restraint among the parties, which leads to specific transaction costs.  

 

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May 07, 2017 0


Financial markets and their economic functions
A financial market is a market where financial instruments are exchanged or traded. Financial markets provide the following three major economic functions:
1) Price discovery
2) Liquidity
3) Reduction of transaction costs


1) Price discovery function means that transactions between buyers and sellers of financial instruments in a financial market determine the price of the traded asset. At the same time the required return from the investment of funds is determined by the participants in a financial market. The motivation for those seeking funds (deficit units) depends on the required return that investors demand. It is these functions of financial markets that signal how the funds available from those who want to lend or invest funds will be allocated among those needing funds and raise those funds by issuing financial instruments. 

2) Liquidity function provides an opportunity for investors to sell a financial instrument, since it is referred to as a measure of the ability to sell an asset at its fair market value at any time. Without liquidity, an investor would be forced to hold a financial instrument until conditions arise to sell it or the issuer is contractually obligated to pay it off. Debt instrument is liquidated when it matures, and equity instrument is until the company is either voluntarily or involuntarily liquidated. All financial markets provide some form of liquidity. However, different financial markets are characterized by the degree of liquidity. 

3) The function of reduction of transaction costs is performed, when financial market participants are charged and/or bear the costs of trading a financial instrument. In market economies the economic rationale for the existence of institutions and instruments is related to transaction costs, thus the surviving institutions and instruments are those that have the lowest transaction costs.
The key attributes determining transaction costs are   asset specificity,   uncertainty,  frequency of occurrence.
 
Asset specificity is related to the way transaction is organized and executed. It is lower when an asset can be easily put to alternative use, can be deployed for different tasks without significant costs. 
Transactions are also related to uncertainty, which has (1) external sources (when events change beyond control of the contracting parties), and (2) depends on opportunistic behavior of the contracting parties. If changes in external events are readily verifiable, then it is possible to make adaptations to original contracts, taking into account problems caused by external uncertainty. In this case there is a possibility to control transaction costs.  However, when circumstances are not easily observable, opportunism creates incentives for contracting parties to review the initial contract and creates moral hazard problems.  The higher the uncertainty, the more opportunistic behavior may be observed, and the higher transaction costs may be born.
Frequency of occurrence plays an important role in determining if a transaction should take place within the market or within the firm. A one-time transaction may reduce costs when it is executed in the market. Conversely, frequent transactions require detailed contracting and should take place within a firm in order to reduce the costs. 
When assets are specific, transactions are frequent, and there are significant uncertainties intra-firm transactions may be the least costly. And, vice versa, if assets are non-specific, transactions are infrequent, and there are no significant uncertainties least costly may be market transactions.
The mentioned attributes of transactions and the underlying incentive problems are related to behavioural assumptions about the transacting parties. The economists (Coase (1932, 1960, 1988), Williamson (1975, 1985), Akerlof (1971) and others) have contributed to transactions costs economics by analyzing behaviour of the human beings, assumed generally self-serving and rational in their conduct, and also behaving opportunistically. Opportunistic behaviour was understood as involving actions with incomplete and distorted information that may intentionally mislead the other party. This type of behavior requires efforts of ex ante screening of transaction parties, and ex post safeguards as well as mutual restraint among the parties, which leads to specific transaction costs.  

 

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Sunday, 12 March 2017

SOURCES OF FINANCE

March 12, 2017 0
INTRODUCTION Finance is the lifeblood of business concern, because it is interlinked with all activities performed by the business concern. In a human body, if blood circulation is not proper, body function will stop. Similarly, if the finance not being properly arranged, the business system will stop. Arrangement of the required finance to each department of business concern is highly a complex one and it needs careful decision. Quantum of finance may be depending upon the nature and situation of the business concern. But, the requirement of the finance may be broadly classified into two parts:

Long-term Financial Requirements or Fixed Capital Requirement
 Financial requirement of the business differs from firm to firm and the nature of the requirements on the basis of terms or period of financial requirement, it may be long term and short-term financial requirements. Long-term financial requirement means the finance needed to acquire land and building for business concern, purchase of plant and machinery and other fixed expenditure. Long- term financial requirement is also called as fixed capital requirements. Fixed capital is the capital, which is used to purchase the fixed assets of the firms such as land and building, furniture and fittings, plant and machinery, etc. Hence, it is also called a capital expenditure.

Short-term Financial Requirements or Working Capital Requirement
Apart from the capital expenditure of the firms, the firms should need certain expenditure like procurement of raw materials, payment of wages, day-to-day expenditures, etc. This kind of expenditure is to meet with the help of short-term financial requirements which will meet the operational expenditure of the firms. Short-term financial requirements are popularly known as working capital.
SOURCES OF FINANCE
Sources of finance mean the ways for mobilizing various terms of finance to the industrial concern. Sources of finance state that, how the companies are mobilizing finance for their requirements. The companies belong to the existing or the new which need sum amount of finance to meet the long-term and short-term requirements such as purchasing of fixed assets, construction of office building, purchase of raw materials and day-to-day expenses.

Sources of finance may be classified under various categories according to the following important heads:
1. Based on the Period
Sources of Finance may be classified under various categories based on the period.

Long-term sources: Finance may be mobilized by long-term or short-term. When the finance mobilized with large amount and the repayable over the period will be more than five years, it may be considered as long-term sources. Share capital, issue of debenture, long-term loans from financial institutions and commercial banks come under this kind of source of finance. Long-term source of finance needs to meet the capital expenditure of the firms such as purchase of fixed assets, land and buildings, etc. Long-term sources of finance include:
● Equity Shares

● Preference Shares

● Debenture

● Long-term Loans

● Fixed Deposits

Short-term sources: Apart from the long-term source of finance, firms can generate finance with the help of short-term sources like loans and advances from commercial banks, moneylenders, etc. Short-term source of finance needs to meet the operational expenditure of the business concern.

Short-term source of finance include:
 ● Bank Credit

● Customer Advances

● Trade Credit

● Factoring

● Public Deposits

● Money Market Instruments



2. Based on Ownership Sources of Finance may be classified under various categories based on the period:

An ownership source of finance include
 ● Shares capital, earnings

● Retained earnings

● Surplus and Profits



Borrowed capital include
 ● Debenture

● Bonds

● Public deposits

● Loans from Bank and Financial Institutions.



3. Based on Sources of Generation Sources of Finance may be classified into various categories based on the period.

Internal source of finance includes
 ● Retained earnings

● Depreciation funds

● Surplus



External sources of finance may be include
 ● Share capital

● Debenture

● Public deposits

● Loans from Banks and Financial institutions



4. Based in Mode of Finance

Security finance may be include
 ● Shares capital

● Debenture



Retained earnings may include
 ● Retained earnings

● Depreciation funds



Loan finance may include
 ● Long-term loans from Financial Institutions

● Short-term loans from Commercial banks.


The above classifications are based on the nature and how the finance is mobilized from various sources. But the above sources of finance can be divided into three major classifications:
● Security Finance

● Internal Finance

● Loans Finance
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