SURVEY ON MARKET RISK IN NIGERIA

SURVEY ON MARKET RISK IN NIGERI CHAPTER ONEINTRODUCTION Background of the study

Market risk is the risk that the value of an investment will decrease due to moves in market factors. It can also be said to be the risk to an institution resulting from movements in market prices, in particular, changes in interest rates, foreign exchange rates, and equity and commodity prices. Market risk is often propagated by other forms of financial risk such as credit and market-liquidity risks.Market risk is the risk of loss in the value of a financial institution's proprietary trading holdings in equity, debt, FX or commodity instruments, due to fluctuations in market prices.

Market risk can also arise with the management of client's moneys where financial institutions provide unhedged guaranteed minimum returns. A form of market risk also arises where banks accept financial instruments exposed to market price volatility as collateral for loans. Poor market risk management practices can lead to significant losses very quickly in volatile market conditions and also complete institutional collapse in severe situations. The most spectacular recent case of market risk management failure was the bankruptcy of Bear Sterns, a US investment bank with substantial proprietary trading activities, at the start of the global financial crisis in 2008. During the 1998 emerging market crisis, LTCM a large US hedge fund made massive losses on so called zero risk arbitrage derivative contracts and the US Fed had to step in to prevent a systemic disruption. However, the most famous case was probably the collapse of Barings Bank, a 100 year old British bank (and bankers to the royal family) in 1995 due to inadequate oversight of equity futures proprietary trading activities in the Asian operations.

The global financial crisis has shown that financial markets are becoming more integrated, more complex and more volatile, than what was previously commonly believed. The importance of market risk management will thus increase going forward.The management of market risk is highly complex. To limit the size of market risk exposures it should allow traders to take to achieve profit targets, a bank needs to have an understanding of the size of potential loss that can be incurred under extreme market volatility. As nobody has a crystal ball, we can only rely on statistics to provide us with an estimate of downside market volatility. Deriving variance/co-variance parameters from historical market rates data, we can estimate for a given statistical confidence limit what the maximum potential lossin a downside scenario could be.

Statement of the general problem

The loss of finances as a result of the instability of the market has resulted to the steady decline of our economic base and foreign reserve. This has equally discouraged small and medium enterprises which is one of the cardinal thrust of any economy. The lack of proper understanding of the market has influenced unnecessary inflation and scarcity of goods.

Objectives of the study

The following aims and objectives of the study

To survey the Nigerian market risk. To analyze the risk factor involved in venturing into the Nigerian market. To know the stability level of Nigerian markets. To know if the Nigerian market is safe for investors. To know if the Nigerian market encourages SME development. Significance of the study

This study will be of importance to investors as this would help them in knowing the true state of the Nigerian market. This study would also be of immense importance to SME owners in understanding the level of risk factor involved in Nigerian market.

Scope and limitation of the study

This study is restricted to the survey on market risks in Nigeria.Limitation of the studyFinancial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

Research Questions

What is the stability level of Nigerian markets? Is the Nigerian market is safe for investors? Does the Nigerian market encourage SME development? Is the risk in venturing into the Nigerian market enormous? Research Hypothesis

H0: The risk factor of venturing into the Nigerian market is not enormous H1: The risk factor of venturing into the Nigerian market is enormous

Definition of terms MARKET RISK:The possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets. Market risk, also called "systematic risk," cannot be eliminated through diversification, though it can be hedged against. The risk that a major natural disaster will cause a decline in the market as a whole is an example of market risk. Other sources of market risk include recessions, political turmoil, changes in interest rates and terrorist attacks. SME:Small and medium-sized enterprises (SMEs) are non-subsidiary, independent firms which employ less than a given number of employees. This number varies across countries. VOLATILE:Volatility frequently refers to the standard deviation of the change in value of a financial instrument with a specific time horizon. INVESTMENT:The action or process of investing money for profit.

REFERENCE Berkley, R.A., S.C. Myers and A.J. Marcus, 2001. Fundamental of Corporate Finance. 3rd Edn., McGraw-Hill Irwin, Boston. Black, F., 1972. Capital market equilibrium with restricted borrowing. J. Bus., 45: 444-454. Blume, M., 1975. Betas and their regression tendencies. J. Financ., 10(3): 785-795. Brailsford, T.J. and T. Josev, 1997. The impact of return interval on the estimation of systematic risk. Pac. Basin Financ, J., 5: 357-376. Breeden, D., 1979. An Intertemporal asset pricing model with stochastic consumption and investment opportunities. J. Financ. Econ., 7: 265-296. Brock, W.A. and C.H. Hommes, 1998. Heterogeneous beliefs and routes to chaos in a simple asset pricing model. J. Econ. Dyn. Cont., 22: 1235-1274. Burton, J., 1998. Revisiting the Capital Asset Pricing Model. Dow Asset Manager, pp: 20-28. Campbell, J.Y., A.W. Lo and A.C. MacKinlay, 1997. The Econometrics of Financial Markets. Princeton University Press, Princeton, NJ. Chiarella, C., R. Dieci and X.Z. He, 2006. Aggregation of Heterogeneous Beliefs and Asset Pricing Theory: A Mean-Variance Analysis. Research Paper186, Quantitative Finance Research Centre, University of Technology, Sydney. Elton, J. E. and M.J. Gruber, 1997. Modern Portfolio Theory and Investment Analysis. 5th Edn., Wiley and Sons Pte Ltd., Singapore. Elton, E.J., M.J. Gruber, S.J. Brown and W.N. Goetzmann, 2007. Modern Portfolio Theory and Investment Analysis. John Wiley and Sons, Inc. Fama, F.E. and R.K. French 2003. The Capital Asset Pricing Model: Theory and Evidence. Retrieved from: Getmansky, M., 2004. The Life Cycle of Hedge Funds: Fund Flows, Size and Performance. MIT Sloan School of Management, Cambridge. Grinold, R.C. and R.N. Kahn, 2000. Active Portfolio Management: A Quantitative Approach for Providing Superior Returns and Controlling Risk. McGraw-Hill, New York. Jensen, M.C., 1969. Risk, the pricing of capital assets, and the evaluation of investment portfolios. J. Bus., 42(2): 167-247. Kerr, E., 1997. Capital Asset Pricing Model- Basic Concepts, in Financial Management Study Notes. Retrievedfrom:C:\Minein Flash\CAPM\ek422.htm, (Accessed on: April 21, 2006). Kevin, S., 2001. Portfolio Management. Prentice Hall, New Delhi.

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How To Write Chapter Three Of Your Research Project (Research Methodology)

  • Methodology In Research Paper


    Chapter three of the research project or the research methodology is another significant part of the research project writing. In developing the chapter three of the research project, you state the purpose of research, research method you wish to adopt, the instruments to be used, where you will collect your data, types of data collection, and how you collected it.

    This chapter explains the different methods to be used in the research project. Here you mention the procedures and strategies you will employ in the study such as research design, study design in research, research area (area of the study), the population of the study, etc. You also tell the reader your research design methods, why you chose a particular method, method of analysis, how you planned to analyze your data.

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    Method vs Methodology

    I think the most appropriate in methods versus methodology is to think in terms of their inter-connectedness and relationship between both. You should not beging thinking so much about research methods without thinking of developing a research methodology.

    Metodologia or methodology is the consideration of your research objectives and the most effective method and approach to meet those objectives. That is to say that methodology in research paper is the first step in planning a research project work.

    Design Methodology: Methodological Approach

    Example of methodology in research paper, you are attempting to identify the influence of personality on a road accident, you may wish to look at different personality types, you may also look at accident records from the FRSC, you may also wish to look at the personality of drivers that are accident victims, once you adopt this method, you are already doing a survey, and that becomes your metodologia or methodology.

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    The following subjects may or may not be in the order required by a particular institution of higher education, but all of the subjects constitute a defensible in metodologia or methodology chapter.

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