Impact of Money Market on Nigeria Economic Growth

Impact of money market on Nigeria economic growth 1981-2015, download full project material from chapter one to five with reference. money market on Nigeria economic growth examined money market instrument as an option for raising funds and regulating economic activities in the country.

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

Money markets remain a key instrument employed to jumpstart the economy and ensure growth and development of any Nation (Ajayi, 2008). Every nation requires a lot of local and foreign investments to attain sustainable economic growth and development

The financial markets are types of markets designed for the creation and disposition of financial assets. There are two sections of the financial markets in Nigeria, namely: money market and capital market (Central Bank of Nigeria-CBN, 2004; 2007). In every economy, there often exist financial imbalances and disequilibrium, which calls for the existence of financial markets. Financial markets are institution or arrangements which facilitate the exchange of financial assets such as; deposit and loans, stock and bonds, government securities etc. the market is broadly classified into money market and capital market. To Oloyede (as cited in Ezrim, 2005) organized money market is a market for short-term investible fund where short term financial instruments or liquid assets are bought and sold. Its major significance is that it is the machinery for the mobilization of the countries (financial) resources for economic growth.). Capital market on the other hand, provides long term capital to government and corporate bodies with maturity over a year, and often prone to greater risk of default.

Financial assets fall into three general categories namely: a) Money – issued by the Central Bank of a country on behalf of the Government of the country as paper currency and coins; b) Debt – issued by corporate and Government units; and c) Shares – issued by companies. Questions often abound, over the role of money market in accelerating economic growth. Their role in facilitating profitable open market operations is worth stressing (CBN, 2004; Ezirim, 2005). The Nigerian money market operations are said to be sub-optimal in terms of engineering desired growth in the economy. The observed sub-optimality of the Nigerian money market is blamed, in part, on poor performance of discount houses and other money market institutions (Ezirim, 2005). One of the objectives of setting up the Nigerian discount house is to facilitate sale in short–term securities and to promote an efficient money market. They were expected to cause the Nigerian money market to operate optimally.

The dominant players in money market are commercial banks and other itself provides the basis for operation, manipulation and execution of monetary policies, with discount houses intermediating funds between the central bank and other banks. Money market is the greatest indirect instrument used by central bank of Nigeria (CBN) to control commercials banks. The market provides short – term debt instruments used to finance the working capital of the firms. It provides mechanism for government to direct the economy towards the desired national objectives through the operation of monetary policy. Thus, it facilitates the pool of funds from surplus sector 10 of the economy to the deficit sector at a low interest rate (Ajayi, 2008).

Prior to independence in 1960, there was no organized money market as whatever existed was linked to London based money market. This economy agent who had surplus funds than they required, had no market to invest them in Nigeria. Thereby, leading to capital flight in country, as these funds are only invested oversea. Thus, leaving Nigerian firms with no funds for investment and consequently hindering economic growth. Numbers of reason abound for the establishment of Nigeria money market. It includes the provision of short term funds, to the public and private institutions, that need such financing for their working capital requirements. It provides an opportunities to banks and non – bank financial institution to use their surplus funds profitably. Above all, efficient monetary system is achieved through central bank of Nigeria (CBN) control of the banking system via; money market.

Given the significant role played by the money market; this work aim at a proper investigation of the market and hence make recommendation from the findings.

1.2       Statement of Problem

Money market as the market for short term mobilization of funds has contributed enormously in the mobilization of investible funds from the surplus sector to the deficit sector. Like, every other market, Nigeria money market has not been fully explored to its full potential in achieving economic growth and development, owing to an inefficient institutional framework (Adegbite, 2007). The inability to provide efficient mechanism for determination of prices of securities and interest that can be based on the realities of supply and demand for funds, and their abilities to make available different and adequate instrument to the market.

It is important to note that, the strategies adopted by the money market in financial intermediation has not impacted on the economy at large successful, this is due to the fact that interest rate mechanism has not been fully enhanced in Nigeria economy. This is however reflected in the inability of many programmes establish by government to achieve their targeted goals, resulting from poor local participation by this federal government established economic programmes, with hope to foster economic and financial development, such Structural Adjustment Programme (SAP) 1986, Vision 2010, Vision 2020, Millennium Development Goal (MDGs), National Economic Empowerment Development Strategy (NEEDS), State Economic Empowerment Development Strategy (SEEDS), and other development plans.

Adegbite (2007) argues that market is not allowed to operate independent of regular government interference. However, many studies on this topic often exclude government instruments in the market like, treasury bills in their investigation, which is seeing as one of the dominant player in the market. This research aims to close this gap in knowledge, by including government Treasury bill in the study.

1.3                   Research Question

In the course of this research work, this research question will be raised:

  1. To what extent does money market impacted the Nigeria economy?

1.3                   Objectives of the Study

This research work aimed at assessing the impact of Nigeria money market in accelerating Nigeria economic growth and development. The objectives will include:

  • To empirically investigate the relationship between Nigeria money market and Nigeria economy.

1.5                   Research Hypothesis

The research on the impact of Nigeria money market on economic growth has led the following hypothesis:

Ho:      Nigeria money market has no significant impact on economic growth of Nigeria.

HI:       Nigeria money market has a significant impact on the economic growth of Nigeria.

1.6                   Significance of the Study

This study on the impact of Nigeria money market on the economic growth of Nigeria will be of great value to the general public. Its finding will be useful to government and its agencies, monetary authorities, banks and other financial institutions. Others include:

  1. Business men, investors and individuals who are interested about the working of the market.
  2. Also, the study will be of great importance to other researchers interested in this field of study.

1.7                   Scope and Limitation of Study

This research study is designed to investigate the effectiveness of money market in ensuring economic growth in Nigeria economy, covering the period of 1981 – 2015. With special emphases on the money market and its numerous instruments employed.

However, the study no doubt will be constrained by number of factors to include; inadequate/reliabilities of data, as data over a particular phenomenon often varies from different source, thereby leading to inconsistent datas. Others are: Financial and time constraints that abound in the study making it default to give a better work than this one.

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