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JAMB Commerce lesson note

Money, Banking, and Stock Exchange

Banking services businesses rely on, and how the stock exchange lets companies raise capital through shares.

Banking services for businesses

Commercial banks offer current accounts (for frequent transactions, often with chequebook and overdraft facilities, usually no/low interest) and savings accounts (for accumulating funds, earning interest, with more limited transaction frequency). Cheques let account holders make payments without handling physical cash, by instructing the bank to transfer a stated sum to the payee.

The stock exchange

A stock exchange is an organized marketplace where shares of publicly listed companies (and other securities like government bonds) are bought and sold. Companies raise capital by issuing shares to investors; in return, shareholders own a portion of the company and typically get voting rights and a share of profits (dividends).

Example 1: Explain the difference between a share and a debenture as ways for a company to raise capital.

A share represents part-ownership of the company -- the shareholder gets voting rights and a variable dividend depending on profits, and shares the business's risk. A debenture is essentially a loan to the company -- the debenture holder is a creditor, not an owner, and receives a fixed interest payment regardless of the company's profit level, with no voting rights, but is typically repaid before shareholders receive anything if the company is wound up.

Key terms

Cheque
a written order instructing a bank to pay a stated sum from the account holder's account
Stock exchange
an organized market where shares and other securities are bought and sold
Share
a unit of ownership in a company, entitling the holder to a portion of its profits and, usually, voting rights
Debenture
a loan to a company that pays fixed interest, but does not give ownership or voting rights

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