Unit notes and practice questions

Grade 10 Economics unit 5: Banking and Finance

Everything here is for unit 5 of the Grade 10 Economics textbook: what the chapter covers, the short notes, practice questions with their answers, and the lesson video where one exists.

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Cards: 10
Practice questions on unit 5: 88–113
The textbook pages for unit 5

Start here

The Temari lesson on unit 5

A short video lesson on this chapter, made by Temari. It loads only when you press play.

Ethiopia's banks: who does which job · 4 min · 2 past exam questions worked through

Parts of the lesson

Tap a part to play the lesson from there.

What unit 5 covers

1.Introduction to Financial Intermediaries
2.Introduction to Financial Markets
3.Introduction to Financial Institutions
4.Historical Development of Banks in Ethiopia
5.Micro-finance Institutions
6.Electronic Banking (e-banking)
7.Indigenous Financial Institutions

Short notes for unit 5

The cards filed under this chapter on the Grade 10 Economics page. Open one at a time.

Classification of Financial InstitutionsReference tableDepositary Institutions · Contractual Institutions · Investment Institutes

Institution Type	Primary Role	Examples
Depositary Institutions	Accept and manage deposits and make loans	Commercial banks, Credit unions
Contractual Institutions	Pool long term savings through legal contracts	Insurance companies, Pension funds
Investment Institutes	Facilitate trading and underwriting of securities	Investment banks, Brokerage firms, Underwriters

When you use it

Use this to categorize financial institutions by their operating mechanism and service type.

Watch out

Insurance companies are Contractual Institutions, not Depositary Institutions, because funds are mobilized via policy contracts rather than standard savings deposits.

Drafted from Grade 10 Economics, pages 68-113, then checked twice before it went up

Components of Financial MarketsReference tableMoney market · Capital market

Market Sector	Original Maturity	Primary Financial Instruments
Money market	1 year or less	Treasury bills, Commercial papers, CDs, Repurchase agreements, Bankers acceptances
Capital market	Greater than 1 year or perpetual	Equity (Common and Preferred stock), Debt obligations (Bank loans, Notes, Bonds)

When you use it

Use this to classify financial markets and their securities based on the maturity period of the instruments.

Watch out

Do not classify Treasury bills under Capital market. Instruments with maturity of one year or less strictly belong to the Money market.

Drafted from Grade 10 Economics, pages 68-113, then checked twice before it went up

Practice questions on unit 5

10 multiple-choice questions written against this chapter, each with its answer and the reason. Try one before you open the answer.

Question 1

What is the process of transferring funds from surplus spending units (savers) to deficit spending units (borrowers) through institutions called?

A.Financial intermediation
B.Price discrimination
C.Product differentiation
D.Monopolistic competition

Show the answer and why

Answer: A Financial intermediation

Why

Financial intermediation is the process where financial intermediaries act as middlemen to transfer money from people with excess funds (surplus units) to people who need funds (deficit units).

Question 2

In financial markets, money market instruments are financial assets that have an original maturity date of:

A.One year or less
B.Between two and five years
C.More than ten years
D.No maturity date (perpetual)

Show the answer and why

Answer: A One year or less

Why

The money market is defined as the sector of the financial market that includes instruments with a maturity of one year or less at the time of issuance.

Question 3

Which of the following is an example of a formal institution?

A.Written laws, policies, and regulations enforced by official authorities
B.Unwritten social customs and traditions
C.Traditional community cultural habits
D.Informal neighbourhood understandings

Show the answer and why

Answer: A Written laws, policies, and regulations enforced by official authorities

Why

Formal institutions consist of written rules, constitutions, laws, rights, and regulations enforced by official authorities, whereas informal institutions are unwritten norms and customs.

Question 4

In which year was the Bank of Abyssinia founded following an agreement between Emperor Menelik II and the National Bank of Egypt?

A.1906
B.1931
C.1943
D.1963

Show the answer and why

Answer: A 1906

Why

The Bank of Abyssinia was founded in 1906 as the first modern bank in Ethiopia based on an agreement signed with the British-owned National Bank of Egypt.

Question 5

According to the textbook, insurance companies and pension funds belong to which category of financial institutions?

A.Contractual institutions
B.Depositary institutions
C.Investment institutions
D.Informal institutions

Show the answer and why

Answer: A Contractual institutions

Why

Financial institutions are divided into three major types: depositary institutions (like commercial banks), contractual institutions (like insurance companies and pension funds), and investment institutions.

Question 6

In the capital market, debt securities issued with a maturity of 10 years or less are classified as:

A.Notes
B.Bonds
C.Common stocks
D.Treasury bills

Show the answer and why

Answer: A Notes

Why

Under capital market debt securities, debt securities with a maturity at issuance of 10 years or less are called notes, while those with a maturity greater than 10 years are called bonds.

Question 7

What is the original maturity range for commercial papers issued by corporations or municipalities?

A.1 day to 270 days
B.1 year to 5 years
C.5 years to 10 years
D.10 years to 20 years

Show the answer and why

Answer: A 1 day to 270 days

Why

Commercial papers are short-term promissory notes issued by creditworthy corporations or municipalities with maturities ranging from 1 day to 270 days.

Question 8

In 1963, Proclamation Number 206 split the former State Bank of Ethiopia into which two entities?

A.National Bank of Ethiopia and Commercial Bank of Ethiopia
B.Bank of Abyssinia and Bank of Ethiopia
C.Addis Bank and Agricultural Development Bank
D.Barclays Bank and Banco di Roma

Show the answer and why

Answer: A National Bank of Ethiopia and Commercial Bank of Ethiopia

Why

In 1963, Proclamation No. 206 split the State Bank of Ethiopia into the National Bank of Ethiopia (the central bank) and the Commercial Bank of Ethiopia (CBE).

Question 9

During the socialist era (1974 to 1991), which three dominant state-owned banks operated in Ethiopia?

A.National Bank of Ethiopia, Commercial Bank of Ethiopia, and Agricultural and Industrial Development Bank
B.Bank of Abyssinia, Barclays Bank, and Addis Ababa Bank
C.Commercial Bank of Ethiopia, Awash International Bank, and Dashen Bank
D.Banco di Roma, Banco di Napoli, and State Bank of Ethiopia

Show the answer and why

Answer: A National Bank of Ethiopia, Commercial Bank of Ethiopia, and Agricultural and Industrial Development Bank

Why

During the 1974 to 1991 socialist period, only three state banks operated with monopoly power: the National Bank of Ethiopia (NBE), the Commercial Bank of Ethiopia (CBE), and the Agricultural and Industrial Development Bank (AIDB).

Question 10

Following the 1994 monetary and banking proclamation that allowed private banking in Ethiopia, which private bank was established first in 1994 with 486 shareholders?