- 10 Marks
Question
There are various instruments that can be employed for the purpose of raising capital within the domestic economy by government.
Required:
Discuss five of these instruments.
Answer
- Treasury Bills:
These are highly liquid financial instruments issued by the Central Bank on behalf of the federal government. They are short-term securities with maturities of 91 days, issued at a discount, and traded in the money market. The income is the difference between the purchase price and the maturity value. - Treasury Certificates:
These are medium-term interest-paying obligations of the federal government, issued for maturities ranging from one to two years. They generally offer a higher interest rate than Treasury bills due to their longer duration and associated risk. - FGN Bonds:
These are debt securities issued by the Debt Management Office (DMO) on behalf of the Federal Government of Nigeria. They have a minimum tenor of two years, and there are currently bonds with maturities ranging from 3 to 10 years. FGN bonds provide a stable source of capital for the government. - FGN Savings Bonds (FGNSB):
Issued by the DMO, these bonds aim to deepen the national savings culture and provide opportunities for all citizens, regardless of income level, to participate in national development. The bonds are offered in monthly tenors of 2 and 3 years and pay quarterly interest. - Government Development Stocks:
These are long-term securities issued to finance development projects or provide funds to lower levels of government. Development stocks offer higher yields due to their longer maturity, and their primary investors include insurance companies, banks, and other financial institutions.
- Tags: Domestic Borrowing, Government Bonds, Public Finance, Treasury bills
- Level: Level 2
- Topic: Government Revenue
- Series: NOV 2020
- Uploader: Kwame Aikins