Economics Paper 2, WASSCE (PC), 2016

Question 6

    (a) Distinguish between money market and capital market.

(b)        Identify two institutions each which operate in the:
(i)         money market;
(ii)        capital market.
(c)        Explain four roles played by commercial banks in the economic development of your country.




This question was also quite popular among the candidates. Candidates were required to distinguish between money market and capital market, identify institutions operating in the money and capital markets and explain any four roles played by commercial banks in the economic development of their country. Most candidates could not really distinguish between money and capital markets in the (a) part of the question and could not elucidate on their points in the (c) part. Candidates were expected to answer thus to score maximum marks in this question.

  1. The money market is a financial market comprising institutions which provide short-term loans for investment.                                               

The capital market on the other hand is a financial market made up of institutions which grant medium to long-term loans for investment.              

(b) Institutions in the money market:
(i)    the central bank;
(ii)   commercial banks;
(iii)  discount houses;
(iv)  hire-purchase companies;
(v)   finance companies;
(vi)  co-operative societies/credit unions
(vii) micro-finance banks.


Institutions in the capital market:
(i)    the stock exchange market;
(ii)   insurance companies;
(iii)  development banks;
(iv)  savings banks;

     (v)   building societies / mortgage banks.
(vi)  merchant banks
(vii) the central bank

(c)(i)    They provide  short- term and medium- term loans for investment.

    (ii)    They engage in direct investment in productive sectors of the economy.

    (iii)   They facilitate business transactions  through the use of cheques, transfers and other banking facilities.
(iv)    They offer technical, financial and other advice to clients to enhance their businesses.
(v)     They facilitate  international trade through foreign exchange transactions.

   (vi)    They assist  monetary authorities in regulating the money supply of the economy.

   (vii)   They guarantee loans on behalf  of their  clients who want to enter into partnership with foreign investors.
(viii)  They help to mobilize  savings to enhance capital formation.