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IMPACT OF THE MONEY
MARKET IN THE GROWTH OF NIGERIA IN ECONOMY
ABSTRACT
This project work reviewed the role of
the Nigerian money market in the economic development of Nigeria. Based on the
research work carried out we are able to identify the various effect it has in
the economic development of the Nigerian economy.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1 Background of the
Study
1.2 Research Problem
1.3 Objectives of the
Study
1.4 Research
Hypothesis
1.5 Significance of
the Study
1.6 Scope of the
Study
1.7 Limitation of the
Study
CHAPTER TWO:
LITERATURE REVIEW
2.1 The Concept –
Money Market
2.2 Money Market
Instruments
2.3 The Money Market
and Economic Development
2.4 Structure of the
Nigerian Money Market
2.5 Performance of
the Nigerian Money Market
2.6 Problems of the
Nigerian Money Market
CHAPTER THREE: METHODOLOGY
3.1 Introduction
3.2 Research Design
3.3 Sources of Data
3.4 Model
Specification
3.5 Method of
Analysis
3.6 Limitation of the
Study
CHAPTER FOUR: DATA PRESENTATION AND
ANALYSIS
4.1 Performance
Evaluation of the Nigerian Money Market
4.2 Regression
Analysis
4.3 Hypothesis
Testing
CHAPTER FIVE: SUMMARY OF FINDINGS,
CONCLUSION AND
RECOMMENDATIONS
5.1 Introduction
5.2 Summary of
Findings
5.3 Policy
Recommendations
5.4 Conclusion
BIBLIOGRAPHY
APPENDIX
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
The financial system
of any financial company provide the catalyst through financial intermediation
for productive activities to ensure economic growth and development Olowo
(2008).
The Nigerian
financial sector is undoubtedly the most important in the political economic
system because it provides the necessary lubricant that keeps the wheel of the
economy turning and it is an engine for economic growth. The sector provides
fund for investment and also allocates these funds for investment and also
allocates these funds as efficiently as possible to those project that offers
best returns to fund owners. The well being of the sector to a very large
extent determines a growing economy. However, if the sector happens to be weak,
the economy suffers for it.
There are various
financial market which are institutional arrangement that facilitates the
intermediation of funds in an economy. The market which deals with sort term
funds and the capital market that is for long term dealings in loanable funds
Anyanwu (1996). The basic of distinction between eh money market and the
capital market lies in the degree of liquidity of instrument bought and sold in
each of the market which can be subdivided into the primary and secondary
market is concerned with raising of new fund, the secondary market exist for
the sale and purchasing of existing securities. Therefore enabling savers who
purchased securities when they had surplus to recover their money when they are
in need of cash Afolabi (1991).
The major concern for
the study is the money market, the money market represent the short end of the
financial system which provide short term investment having a maturity date of
less than one year. Also the money market is an intermediary for short term
financial asset that are close substitute for money in Nigerian money market as
established by the Central Bank of Nigeria primarily for mobilizing domestic
savings for productive investments as well as providing government with funds
to enable implement programmes. Nibeabuchi (2004).
The Nigeria money
market offers opportunity for trading in the short term instrument which are
very liquid and have negligible risk and the money market also provides the
basis for implementation of monetary policy. The types of instrument traded are
treasury bill, treasury certificate, commercial paper, bankers acceptance etc.
commercial papers are the dominant players in the market while the market
provides the basis of operations, manipulation and execution of monetary policy
(indirect instrument) with discount houses intermediary between the Central
Bank and other banks where the former is playing the role of the lender of last
resort to the market. Jhingan (2004).
The role of the money
market in the development of the economy cannot be overemphasized as the money
market plays a key role in banks liquidity management and transmission of money
policy by providing the appropriate instrument and partners for liquidity
trading, the money market allows re-financing of short term positions and
facilitates the mitigation of business liquidity.
However, a developed
money market has different types of near asset in large number such as
promissory note, treasury bill etc. as the number of near money asset
increases, the more developed the money market becomes. The market also
attracts adequate funds and easy access to financial sources from within an
outside the country.
Thus the development
of the money market smoothens the progress of financial intermediation and
boost lending to economy which in turn improves the country’s economy and
brings about development in its economic activities.
1.2
RESEARCH PROBLEM
The Nigerian economy
is based on the money which is designed as a means of liquidity adjustment and
also a potential path for development. Therefore the money market needs to be
infused with more liquidity to ensure safety for investors in order to help
fund economic development.
The largest problem
with the market is corruption of the system that even transparency cannot fix,
provision of more regulation will be appropriate.
Iyiegbuniwe (2005)
pointed out that although the Nigerian money market has experienced significant
growth, both in breadth of securities as well as the volume of trading since
the liberalization of the financial system since 1986, it still needs to be
deepened further to achieve the required vibrancy that is expected of a money
market. This does not mean that the money market is inefficient, it goes a long
way to explain that there is serious need to evaluate its performance in
relation to its contribution to economic development of the country.
Therefore, the
Nigerian money market should be deep and broad to be able to absorb large
volume of transaction without substantial effect on security prices and
interest. The above defining feature of the market demands that, there exist
many active market participation such that the transaction of an individual
investor will have just little impact on security prices and interest rate. It
also requires that there are different varieties of securities to ensure that
there is always alternative (other options) investment instrument available to
be able to satisfy the respective return and risk of investors.
Therefore, a deep and
broad market which is very efficient in information and operations including an
adequate regulation and more liquidity will contribute to the development of
the Nigerian economy.
1.3
OBJECTIVES OF THE STUDY
The main objective of
this study is to examine the role of the money market in the economic
development of Nigeria. Some other objectives are written below:
1. To
examine if the Nigerian money market has developed.
2. To
examine the relationship between the money market and the economic development
in Nigeria.
1.4
RESEARCH HYPOTHESIS
1. H0:
The Nigerian money market has not developed
2. H1:
The Nigerian money market does not contribute to the economic development of
the Nigerian economy.
1.5
SIGNIFICANCE OF THE STUDY
1. The
study will explore the effectiveness and usefulness of the money market to the economy.
2. The
study will be a reference material for further study on the market and the
economic development of Nigeria.
3. The
result of the study will contribute to practical knowledge, the existing body
knowledge advancement and stability of the Nigerian economy.
4. The
bank and other financial sectors of the economy will be well guided in the
effect of the money market to the development of the Nigeria economy.
5. It
will provide various policy recommendations to policy makers on ways to use money
market instrument more effectively in the developing Nigerian economy.
1.6
SCOPE OF THE STUDY
The study cannot
cover all the areas of the financial sector, it is therefore limited to the
money market, its instruments and policies and regulation used by the
government to stabilize its road to economic development.
The empirical
investigation of the role of money market in the development of the Nigerian
economy shall be restricted to the period from 1980-2009.
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