Lesson Note on Capital Market: Methods of Raising Funds for SSS 2

Class: Senior Secondary School 2 (SS2 / SSS2)
Term: 3rd Term
Week: 4
Age: 16 years
Duration: 45 minutes
Subject: Financial Accounting
Curriculum Theme: Sources of Finance
Previous Lesson: Financial System and Money Market: Meaning, Components and Features.
Topic: METHODS OF RAISING FUNDS FROM THE CAPITAL MARKET
Subject Matter: Meaning of capital market (market for medium and long-term funds), methods of raising funds (offer for sale, offer for subscription, right issues, private placement)

Specific Objectives

By the end of the lesson, pupils should be able to:

Cognitive Domain:

• Define capital market, primary market, and secondary market.
• State the methods of raising funds from the capital market.
• Explain the concept of an insurance market.

Affective Domain:

• Appreciate the importance of the capital market in economic development.
• Recognise the various institutions involved in capital market operations.

Psychomotor Domain:

• Identify the key requirements for accessing the capital market.
• Distinguish between offer for sale and offer for subscription.

Social Domain:

• Discuss the benefits of capital markets to individuals and the economy.

Reference Materials

The following resources were used in planning this lesson:

• Senior Secondary Schools Education Curriculum
• State Unified Scheme of Work
• Financial Accounting for Senior Secondary Schools by O. A. Longe
• Publication of SEC
• NSE publications

Instructional Materials

The teacher will teach this lesson with the aid of:

• Publication of SEC
• NSE publications
• Video of activities on the floor of stock exchange
• Dividend warrant

Rationale for the Lesson

This lesson helps pupils understand how businesses and governments obtain long-term funds for growth and development. It enables them to grasp the various methods available in the capital market and its role in the economy.

Prerequisite/Previous Knowledge

Pupils have prior knowledge of basic business finance and types of business organisations.

Lesson Content/Board Summary

METHODS OF RAISING FUNDS FROM THE CAPITAL MARKET

Meaning of Capital Market

The capital market is a financial market where long-term funds are raised by companies, governments, and other entities. It deals with debt and equity instruments with maturities typically exceeding one year. It facilitates the mobilisation of savings for investment purposes.

Features of Capital Market:

• It deals with medium and long-term funds.
• It provides funds for capital expenditures and long-term projects.
• It involves instruments like shares, debentures, and bonds.
• It comprises primary and secondary markets.

Primary Market and Secondary Market

The capital market is divided into two main segments:

• Primary Market: This is where new securities (shares, bonds) are issued for the first time by companies or governments to raise capital directly from investors. It is also known as the New Issues Market.
• Secondary Market: This is where existing securities are bought and sold among investors. It provides liquidity for the securities issued in the primary market. The stock exchange is a major part of the secondary market.

Methods of Raising Funds from the Capital Market

Organisations can raise funds through the capital market using various methods:

• Offer for Sale:

  In this method, a company sells its new shares or securities to an issuing house or intermediary at an agreed price. The issuing house then resells these securities to the public at a higher price, making a profit. The company does not directly deal with the public.

• Offer for Subscription:

  Here, a company directly invites the public to subscribe for its new shares or securities by issuing a prospectus. Interested investors apply for the shares, and the company allots them based on the applications received. This is a common method for Initial Public Offerings (IPOs).

• Right Issues:

  This method allows existing shareholders to purchase additional new shares in the company, usually at a discounted price, in proportion to their current shareholding. It gives existing shareholders the ‘right’ to maintain their percentage ownership in the company.

• Private Placement:

  Under private placement, a company sells its securities directly to a select group of institutional investors or wealthy individuals, rather than offering them to the general public. This method is often used to raise funds quickly and with less regulatory burden, but it has a limited investor base.

Benefits of Capital Markets

The capital market offers several benefits:

• Mobilises long-term savings for productive investments.
• Facilitates economic growth and industrial development.
• Provides a platform for companies to raise capital for expansion.
• Offers investment opportunities for individuals and institutions.
• Enhances corporate governance through public scrutiny.
• Provides liquidity for existing investments.

Requirements for Accessing the Capital Market

Companies wishing to raise funds from the capital market must meet certain requirements:

• Must be a public limited company.
• Must have a good track record of profitability and management.
• Must prepare and submit a prospectus detailing financial information and business plans.
• Must comply with regulatory requirements of bodies like the Securities and Exchange Commission (SEC) and the Nigerian Exchange Group (NGX).
• Must appoint issuing houses, stockbrokers, and other intermediaries.

Understanding the Insurance Market

The insurance market is where risks are transferred from individuals or entities to insurance companies in exchange for premiums. It provides financial protection against potential losses.

Key Functions:

• Risk transfer and management.
• Pooling of funds for claims settlement.
• Encourages savings and investment.
• Contributes to financial stability.

Market Institutions:

• Insurance companies (underwriters)
• Insurance brokers
• Insurance agents
• Reinsurance companies
• Regulators (e.g., NAICOM in Nigeria)

Features:

• Deals with risk protection.
• Based on principles of utmost good faith and indemnity.
• Involves contracts (insurance policies).
• A source of long-term funds for capital market investment.

Teaching Methods/Instructional Techniques

Discussion, Lecture, Demonstration, Question and Answer, Visual Aids

Instructional Procedures

Step 1: Introduction

Time: 5 minutes
Teaching Skill: Set Induction
Teacher’s Activity: The teacher greets the pupils and asks them what they understand by “funds” and where businesses get money for their operations.
Pupils’ Activity: Pupils respond by mentioning sources like loans, savings, and share capital.
Learning Point: Pupils are introduced to the concept of business financing.

Step 2: Defining Capital Market

Time: 8 minutes
Teaching Skill: Explanation/Definition
Teacher’s Activity: The teacher defines the capital market as a market for medium and long-term funds, explaining its characteristics and importance.
Pupils’ Activity: Pupils listen attentively, take notes, and ask questions for clarification.
Learning Point: Pupils understand the meaning and key features of the capital market.

Step 3: Primary and Secondary Markets

Time: 8 minutes
Teaching Skill: Explanation/Differentiation
Teacher’s Activity: The teacher explains the primary market and secondary market, highlighting the difference between them and giving examples of activities in each.
Pupils’ Activity: Pupils define both markets and identify their differences.
Learning Point: Pupils can distinguish between the primary and secondary segments of the capital market.

Step 4: Methods of Raising Funds

Time: 10 minutes
Teaching Skill: Elaboration/Examples
Teacher’s Activity: The teacher guides pupils through the various methods of raising funds from the capital market: offer for sale, offer for subscription, right issues, and private placement, providing clear explanations for each.
Pupils’ Activity: Pupils listen, take notes, and ask questions to understand each method.
Learning Point: Pupils learn the different ways companies raise long-term capital.

Step 5: Benefits and Requirements of Capital Markets

Time: 5 minutes
Teaching Skill: Discussion/Listing
Teacher’s Activity: The teacher facilitates a discussion on the benefits of capital markets and the requirements for accessing them, drawing points from the pupils.
Pupils’ Activity: Pupils discuss the benefits and list requirements for accessing the capital market.
Learning Point: Pupils understand the advantages and conditions for using the capital market.

Step 6: Understanding the Insurance Market

Time: 5 minutes
Teaching Skill: Explanation/Concept Introduction
Teacher’s Activity: The teacher defines the insurance market, explains its key functions, main institutions, and features, linking it to financial stability and capital mobilisation.
Pupils’ Activity: Pupils listen and take notes on the insurance market concept.
Learning Point: Pupils gain knowledge about the insurance market and its role.

Step 7: Evaluation/Review

Time: 5 minutes
Teaching Skill: Questioning/Assessment
Teacher’s Activity: The teacher evaluates the learning by asking the following questions:

1. Define the capital market.
2. Distinguish between the primary market and the secondary market.
3. Mention any three methods of raising funds from the capital market.
4. State two benefits of the capital market.
5. Briefly explain what an insurance market is.

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 4 minutes
Teaching Skill: Summarisation
Teacher’s Activity: The teacher summarises the key points of the lesson and assigns pupils to research current developments in the Nigerian capital market.
Pupils’ Activity: Pupils listen, ask final questions, and note down the assignment.
Learning Point: Pupils consolidate their understanding and are encouraged to explore further.

Lesson Keywords

• Capital Market – A financial market for medium and long-term funds.
• Primary Market – Where new securities are issued for the first time.
• Secondary Market – Where existing securities are traded among investors.
• Offer for Sale – Company sells shares to an intermediary who then sells to the public.
• Offer for Subscription – Company directly invites the public to buy shares through a prospectus.
• Right Issues – Offering new shares to existing shareholders.
• Private Placement – Selling securities to a select group of investors.
• Insurance Market – Market for transferring and managing risks.

Differentiation

The teacher will provide additional examples and simplified explanations for struggling pupils, while more advanced pupils will be encouraged to research and present on specific capital market instruments or institutions.

Note for teachers using this lesson plan

Teachers should ensure to use real-life examples from the Nigerian capital market to make the lesson more relatable. Visual aids such as charts of stock market performance or SEC publications will enhance understanding. Encourage pupils to follow financial news.