RIFT VALLEY UNIVERSITY

DIRE GEFERSA CAMPUS

BASIC ACCOUNTING LEVEL II

ACCOUNTING DEPARTMENT
BASIC ACCOUNTING WORKS LEVEL II

Unit of Competence:
Develop Understanding of the Ethiopian
Financial System and Markets

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 Element one:

1.1 Ethiopian Financial Market

 A financial markets: is a market in which people and entities can trade Financial
securities commodities and others.
 Tangible items of value at law transaction costs and at price that reflect supply and
demand
 Financial securities include:
 Stocks
 Bonds
 Commodities include preciseness metals or
agricultural goods

Market means:-

 The aggregate of possible buyers and sellers of a certain good or

service and the transaction between them.

Financial Market:-

 is the blood term describing any market place where buyers and
sellers participation in the trade of asset such as equities bonds
currencies.
1.2Types of Financial Markets:
1. Long term Finance
Example: Capital Market
2. Short term Finance
Example: Money Market

Capital Market:-

 Consists of stock markets and bond markets

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Stock market:-

 provide Financing through the insurance of shares or common

stock

Bond market:

 provide financing through the insurance bonds.

Money Market:-

 provide short term debt financies and investment

The major types of Financial markets in Ethiopian includes:

 Bond market
 Derination
 Foreign exchange
 Short term money
 Market other option market
1.3Relationship between Lender and Borrowers

Lenders Financial Financial Borrowers

Intermedations Market
Banks Inter bank
Individual Insurance Stock exchange Individuals
company
Companies Pension funds Bond market Companies
Mutual fund Money market
Foreign Public
exchange coperation

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 market

Role of Financial Markets:-

There are many role of Financial Market

1. Saving Mobilization
2. Investment
3. National Growth
4. Entrepreneurship Growth
5. Industrial Development and etc.

Function of Financial Market:

1. Intermediary Functions
2. Financial Functions

1.5 The primary purpose of Financial Market:

Financial market Facilities:

 The raising of capital (in the capital market)

 The transfer of risk (in the derivative market)
 The transfer of liquidity (in the money market )
 International trade (in the current market)

1.6 Major Participants in Financial Market (FM)

1. Insurance Companies:-

 Issue contracts to provide the future payment if certain events

happen.
 Use of the fees from these contracts to invest inequities debt and
property

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2. Finance Companies:-

 Get funds by issuing debentures and borrowing from the general

public
 Provide short to medium term funds to business, particulary
leasing finance

3. Banks:-

 Are the largest providers of funds to business

 Get most the funds on deposits
 Provide the range of debt securities to business

4. Marchant Banks:-

 Get funds from short term borrowing

 Loan mainly to companies and commercial bills

5. Companies:-

 Often have surplus funds from operation

 Invest funds the money market commercial bills and sometimes by shares
in business

6. Mutual Funds :-

 Get funds from the saving of people preparing for retirement

 Invest funds on money market, commercial bills and sometimes by
share in business.

7. Governments:-

 Acts for the government ensure gaps in the supply of founds are filed .
 Works through the authorized dealers

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The Purpose of Financial Market:-

 Enabling participants to invest raise surplus funds by

issuing securities
 Enabling participants to invest to raise required funds
by issuing securities

The Participants in Financial Market:-

 Banks and Non- banks financing institutes

 Investors
 Local and International Government
 Individual

Element Two

The Role of National Bank of Ethiopia (NBE):-

Introduction:

monetary policy of central bank in a simplified analysis amounts to the determination of the
optimal quality of money or optimal rate of/ grouth of the money

I. Action by Monetary Policy:-

 Setting minimum interest rates on deposit or the rediscount rate
charged to commercial banks borrowing resources
 Setting reserve requirements on various class of deposits
 Increasing or decreasing commercial bank reserve through
open market purchases or sales of government securities
 Regulatory action to constrain commercial bank financial
activities or to set minimum capital requirements.

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  Intervention in foreign exchanges markets to buy and sell
domestic currency for foreign exchange
 Decide on level of required reserve of commercial banks and
total deposits.
II. Monetary Policy Objective:-
 The principle objective of the monetary policy of the NBE is
to maintain price and exchange rate stability and support
sustainable economic grouth of Ethiopia
III. Monetary Policy Strategy(Targeting Frame Work:-there are two main target
1. Final Target:-
 the final target of monetary policy in Ethiopia are to maintain
price and exchange rate stability and support sustainable
grouth.
2. Operational Target:
 The operational target is an economic variable that the central
bank wants to influence largely on a day to day basic through
it monetary policy instrument
IV. Monetary Policy Instrument:-
1. Open market operation (sales and purchase of bonds or securities issued
by government
2. A standing central bank credit facility
3. Other monetary policy instrument include:
 Reserve requirement
 Setting of floor deposit interest rate
 Direct borrowing (lending in the interbank money
market and introducing re-purchase agreement
 Use of selected credit control when necessary and
 Moral sausage
V. Legal and Institutional Frame Work
V.1 Board of Directors: the BOD of NBE composed of 7 members

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  The Government. Governor and vice governor of the bank are
as permanent official members
 The chair person of the BOD as well as the remaining four (4)
members are to be appointed by the government
 The BOD players a role in monetary policy formation as it is the highest decision making
body of the bank
 The BOD will meet regulary at least once every three (3)month and required within short
intervals to discuss and decide on monetary policy stance
V.2 Monetary Policy Committe(MPC):
 The MPC of NBE is responsible for the :
Periodic review of monetary
Balance of purchase
Exchange rate
Interest rate
Financial sector development of the country and etc.
 Monetary policy committee will be chaired by the governor of the bank
 Monetary policy committee have 8 members

The role of the National Bank Ethiopia:

 Regulating bank and other financial institution

 Maintaining financial stability and regulating the ethiopian
payment system
 Regulating the payment system
 Setting and implementing monetary policy

The effective of the NBEs monetary policy;

 Changes interest rate

 Flow changes to employment ,price and production level
 Increase and decreases in the supply of monetary in the
Ethiopian economy

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 Element Three

Fuction of Money:

What is Money?

 Money is any medium exchange

 Money is a common dominator
 Money is used for a business

Types of Money: There are two types of Money

1. Paper Money
Example: 200, 100, 50, 10, 5, 1
2. Coins
Example: 1, 0.50, 0.25, 0.10, 0.05 0.001

Why we need Money:

 To fulfill our basic needs

The Four(4) Basic Function of Money:

1. The medium of exchange

2. Unit of Account
3. Store of value
4. Standard of Deferred payment
1. Medium of Exchange:
 The primary function of money is to not as the medium of
exchange
 Money can be used for buying and selling goods and service
 Buyers give up money and receive goods
 Sellers give up goods and service money

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  If there were no money, good would have to exchanged through
the process of barter goods would be traded for other goods in
transaction arranged in the basis of mutual (need)
 Money makes transaction easier because everyone is willing to
trade money for good and service money
2. Unit of Account:
 The second function of money means that is money is being used
as the common benchmark to designate the price of goods through
out the economy
 Money is a common standard for measuring relative both of goods
and service
 Price of goods are stated informs of the monetary unit
3. Store of Value:
 Money is the most liquid asset
 Liquidity measures how easily asset can be spent to buy goods
and service
 Monetary can be retained over time
 It is commending way to store wealth
4. Standard of Deferred Payment:
 Money is used as a standard benchmarking of specifying
future payments for current purchase
Example : buying now and paying later
 It is the direct resource of store value owe and unit of
account function

Element Four
Motivating for Holding Money

What is motivation?:

 Is the commitment or willingness to do something

 Three major types of demand for money:

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 1. Precautionary Demand: wanta irraan deebi’amnee
 It is a demand for many to pay future expense w/c may not be
anticipated
2. Speculative Demand: hardha kan boruuf bitachuu
 Is the demand for money to be able to take advantage of
future of the purchaser
3. Transaction Demand:- waan nu barbaachisuu guyya guyyaan bitachaa deemuu
 For money to pay every day predictable demand

The consumer activity may include:-

 Application for home leans

 Purchase of private health insurance
 Purchase of university education
 Purchase of building of residential accommodation
 Tourism within Ethiopia by Ethiopia

Element Five

Instruments Traded on the Short Term Money Market in Ethiopia

Money Market:-

 Became a component of the financial markets for assets involved in short

term:
 borrowing
 lending
 buying and
 selling with original maturities of one year or less
 trading in the money markets is done over the counter and is whole sale

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The majer instrument traded in the short term money market in ethiopia include

1. Bill of Exchange (BOE):-

 Is a written order to a person requiring them to make a
specified payment to the signatory or to a named payee a
promissory note
 A bill of exchange is also called a draft but while all draft are
negotiable instrument only to order bill of exchange can be
negotiable

Bill of Exchange Legal Definition :

 A written order from one person by the person to whom it is addressed to

pay an demand or at some fixed future date a certain sum of money to
either the person identified as payee to any person presenting the bill of
exchange
2. Commercial Paper:
 Is a exchange issued by a company ( a trade bill ) or accepted by
a bank (a bank bill)
 As opposed to a treasury bill w/c issued by the government
 An unsecured short term debt instrument issued by a company
 Typically for the financing of accounts receivable inventories
and meeting short term liabilities
 Maturies o commercial paper rarely range any longer than 270
days
3. Government Bills:
 A bill is proposed low under consideration by a legislation
 A bill does not become low until it is passed by the legislative and
approved by the executive
 Once a bill has been enacted into low it is called an act

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4. Promissory Note:
 Is a signed document containing a written promise to pay a stated sum to a
specified or the barer at a specified date or on demand
 A financial instrument that contense a written promise by one party to pay
another part a definite sum of money either on demand or at a specified
future date
5. Treasure Bill:
 Issued only by a government
 It is a short term obligation
 Has a maturity of less than one year
 Are issued in maturities of 4,13,and 26 and 52 weeks in various
denomination

1. Role of the team member in the Bank?

 Bank staff is required by nurseries to cover for supplement their permanent or
part time staff.
 Bank staff cover for-
 Sickness
 Absence
 Holidays and
 Period of temporary fluctuation in child numbers
What are the three role of the bank :
 Open market operation\
 Changing reserve requirements
 Changing the discount rate
5 key team lead responsibilities:
 Manage the operation and admin
 Lead and motivate the team
 Manage performance
 Solve the problem

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  Care for the health, safety and welfare of your people
There are many hottest technology in banking for 2021:
 Digital account opening
 Application programming interface
 Video collaboration
 Person to person payment
Financial technology office:
 Used to describe new tech that seeks to improve
 Use of financial service
 Is utilized help companies
 Business owners
 Consumer better manage
 Processes
 Lives by utilizing specialized software
 Algorithing that are used on computers

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