WAEC Commerce 2025 Theory — Question 17

Model answer

i. Reserve requirement: the central bank sets a high or low reserve requirement for other banks to regulate their ability to give loans. A high requirement means banks can give out less credit, and vice versa. ii. Discount ratio: the percentage the central bank charges commercial banks for money kept with it. Raising it attracts more money away from commercial banks, and vice versa. iii. Moral suasion: the central bank persuades commercial banks on how to manage liquidity to prevent an over-liquid economy. iv. Special deposit: the central bank can mandate commercial banks to make a special deposit with it to cater for emergencies. v. Recapitalization: the central bank can set a high capital base for commercial banks in order to fizzle out weak banks.