WAEC Commerce 2024 Theory — Question 5

Model answer

(a)(i) A factor is an agent or an intermediary that provides finance to companies or persons who are willing to sell off their shares usually at loss than the value of the share, meanwhile a broker is a person that acts as an intermediary between an investor and a security exchange while buys, a broker only creates a link. (ii) A stock exchange is the market where shares of companies can be bought and sold at market prices while a commodity exchange is the market where commodities gotten from natural sources such as grains and gold are bought and sold. (b)(i) Open outcry: this involves indicating interest to buy or sell by communicating orders or raising hands or calling on traders in the market that you are willing to sell or buy. (ii) Futures contract: this involves a legal agreement to buy or sell a particular commodity at a predetermined price at a specified date in the future. (iii) Clearing system: this is the process of settling transactions between banks, e.g. if customer of bank A presents its cheque in bank B, the banks (A and B) have to settle one another. This settlement is referred to as clearing system. (iv) Pit outcry: this is a situation in which buyers and sellers shout out their bids in the floor of the market.