Forex and Commodities Markets Overview

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Questions and Answers

What characterizes the forex market?

It consists only of long-term investments in securities.

Participants buy, sell, hedge, and speculate on currency exchange rates. (correct)

It focuses on issuing new securities.

It involves the trading of physical commodities.

What types of products are traded in derivatives markets?

Only stocks and bonds.

Futures and options contracts based on underlying assets. (correct)

Currencies, stocks, and physical commodities.

Primarily physical goods like grains and livestock.

Which of the following best describes over-the-counter (OTC) markets?

They are regulated by a central exchange.

They involve trading without any intermediary or formal exchange. (correct)

Only derivatives are traded in these markets.

They only allow the trading of government bonds.

What distinguishes the cash or spot market from the futures market?

Cash markets involve immediate delivery of financial instruments. Signup and view all the answers

What is the primary function of the primary market?

It involves the issuance of newly created financial instruments. Signup and view all the answers

Which of the following is an example of a financial instrument?

A secured loan agreement. Signup and view all the answers

What distinguishes soft commodities from hard commodities?

Soft commodities typically refer to agricultural goods while hard commodities refer to natural resources like metals. Signup and view all the answers

What is true about secondary markets?

Previously issued financial instruments are traded here. Signup and view all the answers

What is the primary purpose of capital market exchanges?

To facilitate trade between buyers and sellers of securities Signup and view all the answers

Which of the following is NOT a main function of insurance companies?

Investing in real estate directly Signup and view all the answers

What is the role of Pension Fund Administrators (PFAs) in the pension industry?

To manage and invest pension fund assets Signup and view all the answers

Which types of insurance companies exist within the insurance industry?

General, Composite, Life, Takaful, Reinsurance, and Microinsurance Signup and view all the answers

Which of the following statements about the Central Bank of Nigeria (CBN) is correct?

It began regulating all financial institutions in 1991. Signup and view all the answers

What distinguishes Pension Fund Custodians (PFCs) from Pension Fund Administrators (PFAs)?

PFAs open Retirement Savings Accounts (RSAs). Signup and view all the answers

What is one of the key obligations of insurance companies regarding the premiums they collect?

They need to pay compensations to policyholders when insured risks occur. Signup and view all the answers

How many Pension Fund Administrators (PFAs) operate in the pension industry?

22 Signup and view all the answers

What is the primary role of the Nigeria Deposit Insurance Corporation (NDIC)?

Guarantee deposits up to a certain limit in insured financial institutions Signup and view all the answers

Which of the following is NOT a function of the Central Bank of Nigeria (CBN)?

Guaranteeing financial institutions' deposits Signup and view all the answers

What is one of the mechanisms the NDIC uses to support distressed banks?

Merger and acquisition Signup and view all the answers

What does the CBN use to assist in resolving indebtedness among commercial banks?

Clearing House Signup and view all the answers

Which institution is responsible for liquidating failed insured banks in Nigeria?

Nigeria Deposit Insurance Corporation Signup and view all the answers

Which law governs the regulation and supervision of financial institutions by the CBN?

Banks and Other Financial Institutions Act (BOFIA) 2020 Signup and view all the answers

What primary function does the Securities and Exchange Commission (SEC) perform?

Examining capital raising applications Signup and view all the answers

How does the NDIC monitor the financial health of insured financial institutions?

Both On-site Examination and Off-site Surveillance Signup and view all the answers

When was the National Insurance Commission (NAICOM) established?

1997 Signup and view all the answers

What is one of the objectives of the CBN in formulating monetary policies?

To achieve price stability Signup and view all the answers

Which institutions does the CBN regulate and supervise?

DMBs, PMBs, MFBs, and other financial institutions Signup and view all the answers

One of PENCOM's functions is to supervise which aspect of financial administration?

Pension schemes Signup and view all the answers

What does CBN serve as to the federal government?

A financial advisor and banker Signup and view all the answers

What role does NAICOM play in the insurance industry?

Regulating transactions between insurers and reinsurers Signup and view all the answers

Which commission is tasked with educating the public on pension-related issues?

National Pension Commission Signup and view all the answers

What does the SEC recommend to prevent market issues from clustering?

The timing of capital issues Signup and view all the answers

What is the primary function of Commercial Banks?

Offering account services and credit products to individuals and businesses Signup and view all the answers

Which financial institution specifically aids low-income earners and vulnerable groups?

Microfinance Banks Signup and view all the answers

What is a key responsibility of Primary Mortgage Banks (PMBs)?

Offering project consultancy services for estate development Signup and view all the answers

Payment Service Banks primarily focus on which of the following?

Facilitating micro-savings and low-value remittance services Signup and view all the answers

How many licensed Microfinance Banks operate within the system mentioned?

721 Signup and view all the answers

What is the role of Mobile Money Operators in Nigeria?

To leverage mobile technology for delivering financial services to the unbanked Signup and view all the answers

Which service is NOT typically associated with Payment Service Banks?

Conducting large-scale corporate underwriting Signup and view all the answers

Which of the following describes a feature of Microfinance Banks?

Providing financial services to underserved communities Signup and view all the answers

Study Notes

Forex Market

The forex market facilitates the buying, selling, hedging, and speculation of currency pairs.

Commodities Markets

Engage in the exchange of physical commodities such as agricultural products, precious metals, and soft commodities.

Derivatives Markets

Involve contracts whose value is linked to underlying assets like securities or indexes, including futures and options.

Over-the-Counter (OTC) Markets

Allow direct trading between parties without a centralized exchange, covering stocks, bonds, and derivatives.

Cash or Spot Market

Enable immediate delivery of financial instruments or commodities compared to future delivery in futures markets.

Primary and Secondary Markets

Primary market: New security issuance.
Secondary market: Trading of previously issued financial instruments like stocks and bonds.

Financial Instruments

Assets that can be traded or exchanged, including stocks, ETFs, bonds, loans, and derivatives.

Types of Banking Institutions

Commercial Banks: Offer account services and credit products.
Merchant Banks: Provide underwriting, loan services, and financial advising.
Microfinance Banks (MFBs): Serve low-income earners and the unbanked; there are 721 licensed MFBs.

Private Sector Banking Operators

Primary Mortgage Banks (PMBs): Grant loans for real estate and engage in property trading; 32 PMBs in operation.
Payment Service Banks (PSBs): Use mobile technologies for financial services in rural areas; 4 PSBs including Hope PSB.
Mobile Money Operators (MMOs): Leverage mobile technology to deliver services, especially in rural areas.

Capital Market Operators

Exchanges facilitate trading by matching orders of buyers and sellers under established rules.

Insurance Industry Operators

Insurance Companies pool risks and manage policies; about 70 companies exist across various categories.
Functions include selling policies, collecting premiums, and compensating customers.

Pension Industry Operators

Pension Fund Administrators (PFAs) mobilize long-term savings; there are 22 PFAs and 4 Pension Fund Custodians (PFCs).
Functions include managing pension funds and making retirement benefit payments.

Regulatory Institutions

Central Bank of Nigeria (CBN): Regulates banks and financial institutions, formulates monetary policies, and issues currency.
Nigeria Deposit Insurance Corporation (NDIC): Insures deposits, monitors financial health, and supervises distressed banks.
Securities and Exchange Commission (SEC): Regulates and oversees the capital market and securities issuance.
National Insurance Commission (NAICOM): Regulates the insurance industry, setting approval rates for premiums and commissions.
National Pension Commission (PENCOM): Supervises and regulates pension schemes, licenses PFAs, and provides public education on pensions.

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Description

Explore the fascinating world of the forex market, where participants engage in currency trading. This quiz covers key concepts of both forex and commodities markets, including how they function and their importance to investors and traders alike.