Preview CIBN prep

Banks do not intermediate existing piles of cash; they create deposits by lending. When a bank advances ₦10,000,000 into an importer's current account, it has simultaneously created a deposit of the same size — the money is the entry. The constraint is not the vault but three others: the reserve requirement the Central Bank imposes on deposit liabilities, the bank's own liquidity and capital position, and the demand for credit at the price the bank can charge. Because each bank lends out what its customers leave with it, the system multiplies an initial injection of reserves by a multiple that shrinks as leakage rises — currency held outside banks, reserve and liquidity ratios, and banks' reluctance to lend are the leakages a candidate must be able to name. The central bank then works on price and quantity. Its policy rate — the monetary policy rate — anchors the interbank market: banks with a surplus lend at the short rate, banks with a deficit borrow, and the corridor around the policy rate sets the bounds within which that rate may move. Open market operations (selling or buying government securities) drain or inject liquidity; the reserve ratio changes the quantity of funds banks must park and cannot lend; moral suasion and direct guidance still appear in Nigerian practice where the Act allows administrative measures. The transmission chain a CIBN answer must trace is: policy rate → interbank and treasury-bill yields → bank lending and deposit rates → firms' and households' spending → output and inflation, with the exchange rate as a parallel channel because the naira's value moves with dollar liquidity. Markets divide the same system differently, and the paper asks for the distinctions: MONEY MARKET (short-term — treasury bills, commercial paper, call and notice money, repos) versus CAPITAL MARKET (long-term instruments and equity, regulated by the Securities and Exchange Commission with the Exchange as the venue); PRIMARY issuance versus SECONDARY trading; INTERBANK (banks trading liquidity among themselves) versus the CUSTOMER market. A bank's treasury desk sits at the junction, and a banker who understands it can explain why a rise in bill rates can damage lending margins even when deposits are plentiful. For development finance, the same tools serve different objectives: agricultural and SME credit schemes, guarantee funds that share the loss with the lender, intervention facilities at subsidised rates, mortgage and infrastructure lending with tenors the deposit base cannot naturally support. The examinable point is the tension: directed credit below market rates transfers cost to the lender or the budget, and financial inclusion measured by accounts opened has to be distinguished from usage and from real economic participation.

HIGH-POWERED MONEY: currency outside banks plus banks' reserves with the central bank. MONEY MULTIPLIER: the ratio of broad money to high-powered money. CRR: cash reserve ratio — the share of deposit liabilities a bank must keep with the central bank. LIQUIDITY RATIO: the minimum share of deposits that must sit in liquid assets. MPR: the monetary policy rate that anchors the corridor for the interbank rate. OMO: open market operations — securities sales or purchases to move liquidity. BROAD MONEY: cash outside banks plus deposit money banks' domestic claims on the private sector. YIELD CURVE: the term structure of rates, which prices both a bank's loans and its funding. PRIMARY VERSUS SECONDARY: new issuance versus trading of what is already outstanding. FINANCIAL INCLUSION: access to and USE of appropriate, affordable products — not account opening.