AN ASSESSMENT OF THE ROLE OF FINANCIAL MARKET IN THE ECONOMY A CASE STUDY OF NIGERIAN STOCK EXCHANGE Â
ABSTRACT:Â Â Â Â Â Â Â Â Â Â Â Â Â
The Financial market consist of the Money Market, and the Capital Market. The Money Market is quite different from the Capital Market in the sense that, unlike the Capital Market, one cannot raise long-term capital from the Money Market.
The existence of money markets facilitate trading in short-term debt instruments to meet short-term needs of large users of funds such as governments, banks and similar institutions. Government treasury bills and similar securities, as well as company commercial bills, are examples of instruments traded in the money market. A wide range of financial institutions, including merchant banks, commercial banks, the central bank and other dealers operate in the money market. Public as well as private sector operators make use of various financial instruments to raise and invest short term funds which, if need be, can be quickly liquidated to satisfy short-term needs Unlike the Money market, the Capital market is that constituent of the Financial Market that facilitates the mobilization of long-term investment capital for the financing of business enterprises as well as Government long term investment projects. In other words, the term Capital Market refers to a specialized financial institution that provides a channel for the borrowing and lending of long-term funds (i.e over one year). It is a well-organized financial institution that facilitates the transfer of financial resources from those that have surplus funds (savers) to those that needed the use of these funds (i.e. Government and private sector businesses) to undertake long-term investment. Thus the Capital Market offers an opportunity for both private business people and Government to mobilize huge amounts of financial resources from the general public through the sale of financial securities The Capital Market is divided into two areas; the Primary Market and the Secondary Market. The Primary Market deals with the trading of new securities.
TABLE OF CONTENTÂ Â
Title Page
Certification
Dedication
Acknowledgment
Table of content
Abstract
CHAPTER ONE 3
INTRODUCTION 3
1.1 BACKGROUND OF THE STUDY 3
1.2 STATEMENT OF THE PROBLEM 7
1.3Â Â OBJECTIVE OF THE RESEARCH 10
1.4Â Â RESEARCH QUESTION 10
1.5Â Â RESEARCH HYPOTHESIS 10
1.6Â Â SIGNIFICANCE OF THE RESEARCH 11
1.7 SCOPE OF THE STUDY 11
1.8 DEFINITION OF TERMS 11
CHAPTER TWO 14
LITERATURE REVIEW 14
2.1 CONCEPTUAL ISSUES 14
2.2 NIGERIAN SECURITIES EXCHANGE AND THE NIGERIAN ECONOMY 18
FINANCIAL MARKET DEVELOPMENT AND ECONOMIC GROWTH 21
2.4 Critics of Financial Market Development and Economic Growth 25
OVERVIEW OF THE NIGERIAN FINANCIAL MARKET 30
2.6 STRUCTURE OF THE NIGERIAN FINANCIAL MARKET 37
2.7 RECENT DEVELOPMENT IN THE NIGERIA FINANCIAL EXCHANGE 42
2.8 CONTRIBUTIONS OF THE NIGERIAN FINANCIAL EXCHANGE TO THE NIGERIAN ECONOMY 46
2.9 THEORETICAL LITERATURE 48
CHALLENGES AND PROSPECTS OF THE NIGERIAN FINANCIAL EXCHANGE 52
CHAPTER THREE 56
RESEARCH METHODOLOGY 56
3.1  Introduction                                                            . 56
3.2 Research Design 56
3.3 Population of the Study 57
3.4 Sample size and sampling technique 57
3.5 Method of data collection 57
3.6 Research instrument 57
3.7 Validation of the Instrument 58
3.8Â Statistical methods 58
CHAPTER FOUR 59
DATA ANALYSIS AND INTERPRETATION 59
INTRODUCTION 59
DATA ANALYSIS 60
CHAPTER FIVE 69
FINDINGS AND RECOMMENDATIONS 69
5.1 Findings 69
5.2 Recommendation 70
QUESTIONNAIRE ADMINISTRATION 70
REFERENCE 73
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
By definition, a market is a place or a mechanism through which buyers and sellers exchange goods and services using a generally accepted medium of Exchange (i.e.Money). Thus, just like any other market, the Financial Market is a specialized market that is responsible for channeling financial resources from the surplus units (savers) to the deficit units (those who needed additional funds) to carry outsome form of economic activities. The Financial Market therefore constitute of all financial institutions that receive financial resources from the surplus units of the economy in the form of savings and transfer them to the deficits units through lending activities. This role of transferring financial resources from the surplus units to the deficit units is what is referred to as financial intermediation. Thus, aFinancial Market comprises of all institutions that play the role of financial intermediation. These set of institutions are therefore referred to as financial intermediaries. The businessman who needed some additional money to start his
business, the Government that needed more funds to undertake developmental projects, the student that needed a loan to pay his/her college fees, and the company that needed more finances to expand its operation will all find thefinancial Market a useful avenue to access additional funding.
The Financial market is divided into two main divisions, namely (i) the Money Market, and (ii) the Capital Market. The Money Market is quite different from theCapital Market in the sense that, unlike the Capital Market, one cannot raise long-term capital from the Money Market.
The existence of money markets facilitate trading in short-term debt instruments to meet short-term needs of large users of funds such as governments, banks and similar institutions. Government treasury bills and similar securities, as well ascompany commercial bills, are examples of instruments traded in the money market. A wide range of financial institutions, including merchant banks, commercial banks, the central bank and other dealers operate in the money market. Public as well as private sector operators make use ofvarious financial instruments to raise and invest short term funds which, if need be, can be quickly liquidated to satisfy short-term needs Unlike the Money market, the Capitalmarket is that constituent of the Financial Market that facilitates the mobilization of long-term investment capital for the financing of business enterprises as well as Government long term investment projects. In other words, the term Capital Market refers to a specialized financial institution that provides a channel for the borrowing and lending of long-term funds (i.eover one year). It is a well organized financial institution that facilitates the transfer of financial resources from those that have surplus funds (savers) to those that needed the use of these funds (i.e. Government and private sector businesses) to undertake long-term investment. Thus the Capital Market offers an opportunity for both private business people and Government to mobilize huge amounts of financial resources from the general public through the sale of financial securities The Capital Market is divided into two areas; the Primary Market and the Secondary Market. The Primary Market deals with the trading of new securities.
When a company issues securities for the first time (i.e. IPO) , they are traded in the Primary Market through the help of issuing houses , Dealing /Brokerage Firms, Investment Bankers and or Underwriters. The acronym IPO stands forInitial Public Offering,which means the first time a company is offering securities to the general public for subscription. The amount of money raised in the Primary market goes directly to the Issuing Company/Firm to finance its operations. Oncethe securities (shares) of a company are in the hands the general public, they can be traded in the Secondary Market to enhance liquidity amongst holders of such financial securities. Thus, the Secondary Market facilitates the buying and sellingof securities that are already in the hands of the general public (investors). Here, the term investor is used to refer to an individual or an institution that buys the securities (Shares) of a Company with the intent of making some financial returns. The Financial Exchange therefore is an organized financial platform that deals in transactions involving the buying and selling of financial securities in the Secondary Market. In short, the Financial Exchange does the work of a Secondary Market by facilitating a formal trading arrangement for financial securities.The research therefore seek to investigate the role of financial market in the economy with a case study of the Nigerian financial exchange.
1.2 STATEMENT OF THE PROBLEM
The Financial market consist of the Money Market, and the Capital Market. The Money Market is quite different from theCapital Market in the sense that, unlike the Capital Market, one cannot raise long-term capital from the Money Market.
The existence of money markets facilitate trading in short-term debt instruments to meet short-term needs of large users of funds such as governments, banks and similar institutions. Government treasury bills and similar securities, as well ascompany commercial bills, are examples of instruments traded in the money market. A wide range of financial institutions, including merchant banks, commercial banks, the central bank and other dealers operate in the money market. Public as well as private sector operators make use ofvarious financial instruments to raise and invest short term funds which, if need be, can be quickly liquidated to satisfy short-term needs Unlike the Money market, the Capitalmarket is that constituent of the Financial Market that facilitates the mobilization of long-term investment capital for the financing of business enterprises as well as Government long term investment projects. In other words, the term Capital Market refers to a specialized financial institution that provides a channel for the borrowing and lending of long-term funds (i.eover one year). It is a well organized financial institution that facilitates the transfer of financial resources from those that have surplus funds (savers) to those that needed the use of these funds (i.e. Government and private sector businesses) to undertake long-term investment. Thus the Capital Market offers an opportunity for both private business people and Government to mobilize huge amounts of financial resources from the general public through the sale of financial securities The Capital Market is divided into two areas; the Primary Market and the Secondary Market. The Primary Market deals with the trading of new securities.
When a company issues securities for the first time (i.e. IPO) , they are traded in the Primary Market through the help of issuing houses , Dealing /Brokerage Firms, Investment Bankers and or Underwriters. The acronym IPO stands for
Initial Public Offering,which means the first time a company is offering securities to the general public for subscription. The amount of money raised in the Primary market goes directly to the Issuing Company/Firm to finance its operations. Oncethe securities (shares) of a company are in the hands the general public, they can be traded in the Secondary Market to enhance liquidity amongst holders of such financial securities. Thus, the Secondary Market facilitates the buying and sellingof securities that are already in the hands of the general public (investors). Here, the term investor is used to refer to an individual or an institution that buys the securities (Shares) of a Company with the intent of making some financial returns. The Financial Exchange therefore is an organized financial platform that deals in transactions involving the buying and selling of financial securities in the Secondary Market. In short, the Financial Exchange does the work of a Secondary Market by facilitating a formal trading arrangement for financial securities.
However the activities of the secondary market is fast not impacting on the general public and on the economy at large. The effectiveness of investing in shares is fast depleting in the economy, many financial exchanges in Nigeria are no longer playing efficient roles in capital mobilization through the sale of shares. Therefore the problem confronting this research is to profer an assessment of the role of the capital market in the economy with a case study of the Nigerian financial exchange.
1.3Â Â OBJECTIVE OF THE RESEARCH
1 To determine the nature of the capital market
2 To determine the role of the capital market in the economy
3 To determine the nature and role of the Nigerian financial exchange
1.4Â Â RESEARCH QUESTION
1. What is the nature of the capital market?
2. What is the role of the capital market in the economy?
3. What is the nature and role of the Nigerian financial exchange in the economy?
1.5Â Â RESEARCH HYPOTHESIS
Ho: Impact of the Nigerian financial exchange on the economy is low.
Hi: Impact of the Nigerian financial exchange on the economy is high.
1.6Â Â SIGNIFICANCE OF THE RESEARCH
The research shall provide an assessment of the nature and role of the capital market in the economy. It shall elucidate the nature and role of the Nigerian financial exchange. It shall also serve as a source of information to managers and financial experts.
1.7 SCOPE OF THE STUDY
The study shall focus on the assessment of the role of financial market in the economy with a case appraisal of the role of the Nigerian financial exchange.
1.8 DEFINITION OF TERMS
FINANCIAL MARKET
Financial Market is a specialized market that is responsible for channelling financial resources from the surplus units ( savers) to the deficit units ( those who needed additional funds) to carry out some form of economic activities. The Financial Market therefore constitute of all financial institutions that receive financial resources from the surplus units of the economy in the form of savings and transfer them to the deficits units through lending activities.
FINANCIAL EXCHANGE: Financial Exchange therefore is an organized financial platform that deals in transactions involving the buying and selling of financial securities in the Secondary Market. In short, the Financial Exchange does the work of a Secondary Market by facilitating a formal trading arrangement for financial securities.
MONEY MARKET
The existence of money markets facilitate trading in short-term debt instruments to meet short-term needs of large users of funds such as governments, banks and similar institutions. Government treasury bills and similar securities, as well ascompany commercial bills, are examples of instruments traded in the money market. A wide range of financial institutions, including merchant banks, commercial banks, the central bank and other dealers operate in the money market.
CAPITALÂ MARKET
Capital Market refers to a specialized financial institution that provides a channel for the borrowing and lending of long-term funds (i.e.over one year). It is a well organized financial institution that facilitates the transfer of financial resources from those that have surplus funds (savers) to those that needed the use of these funds (i.e. Government and private sector businesses) to undertake long-term investment. Thusthe Capital Market offers an opportunity for both private business people and Government to mobilize huge amounts of financial resources from the general public through the sale of financial securities.
SECONDARY MARKETÂ
Secondary Market facilitates the buying and sellingof securities that are already in the hands of the general public (investors).
PRIMARY MARKET
Primary Market deals with the trading of new securities.When a company issues securities for the first time (i.e. IPO), they are traded in the Primary Market through the help of issuing houses, Dealing /Brokerage Firms, Investment Bankers and or Underwriters.
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