WAEC Commerce 2023 Theory — Question 4

Model answer

(a) Securities traded at the stock exchange market: (i) Stocks — this is the unit of ownership in a limited liability company; by buying stock of a company, one becomes part of the owner of the company; the shareholder receives dividend from the company from time to time and also has the opportunity to attend the annual general meeting of the company. (ii) Bonds — this is a document of indebtedness on the part of the issuer, which usually has a maturity date, but the owners can trade the bonds at the stock exchange market before the maturity date; the holder usually receives interest from time to time before its maturity. (iii) Unit trust — this is a type of investment in which a group of investors form a mutual fund managed by a fund manager; a contributor may sell off its fund at any time. (iv) Debentures — this is also a document which stipulates that the issuer is indebted to the bearer; the difference between it and bond is that it is issued by a limited liability company. (v) Derivatives — this is a financial contract which value is related to the underlying asset used to back it; it is also traded in the market. (b) Duties of an agent to his principal: (i) He should always act in the interest of his principal. (ii) He must always act for the advantage of the principal. (iii) He must execute the mandate given to him by the principal with utmost good faith. (iv) He must exercise reasonable care and skills in the discharge of his responsibility. (v) He must always communicate with the principal as situation demands.