The Role of the Money Market in the Nigerian Economy
Chapter One
OBJECTIVES OF THE STUDY
Since there is no doubt that money market serve as one of the major basis for assessing the economic health of a country.
Moreover, that the activities are influenced by the position of the countries foreign reserve, balance of payment and the state of the economy in general it is now necessary to do the following:
- See the results of money market on the rural and urban business transactions.
- To evaluate the scope of money market.
- Understand the conditions under which money market can operate effectively.
- Ascertaining its impact on the financial development of the nation.
- To draw attention of the government and the entire borrowers and lenders to the need of expecting money market to have a sizeable and rapidly increasing positive effects on the process of developing the less developed countries in the foreseeable future.
- To highlight task facing money market and its major participate which must be accomplished in the economy.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
THEORETICAL FRAMEWORK
Modern growth theory identifies two specific channels through which the financial sector might affect long-term growth: through its impact on capital accumulation (including human as well as physical capital) and through the rate of technological progress. These effects, nevertheless, occur from the intermediation role of the financial institutions, which enable the financial sector to mobilize savings for investment, facilitate and promote inflows of foreign capital such as foreign direct investment (FDI), portfolio investment and bonds, and remittances, and optimize the allocation of capital between contending issues by ensuring that capital goes to its most productive use (Kolawole, 2012). The current rekindling of interest in the nexus between financial intermediation and economic growth is the offshoot of new development in the theory of growth, especially the new endogenous growth theory, in which growth was characterized to be self-sustaining and amply influenced by initial conditions. Thus, the market is said to have both level and rate effects (Levine, 1991). However, theoretical literature offers conflicting prediction about the role of financial markets, and by extension the money market in promoting economic growth. Policymakers are divided also as to whether the Nigerian money market contributes to or hinders economic growth and development in the country. Advocates of money market-induced economic growth believe that the money market promotes economic growth by facilitating trading in short-term debt instruments to meet short term needs of large users of funds such as governments, banks, and similar institutions (Jalloh, 2009). Schumpeter (1934) states that the development of the financial institution is a necessary precondition for economic development. He argues that for an economy to develop, both the financial institutions and entrepreneurs must be available in sufficient number. This view was corroborated by Haley and Schall (1973) when they asserted that the banking sector enhances economic activities and promotes economic growth by providing reliable payments system, mobilization of saving, allocating credit, and diversifying risks. Similar conclusions have been reached by Adam (1998); Goldsmith (1969); King & Levine (1992); Levine (1996); & Nwosu and Hamman (2008). Adam (1998) argues that financial deregulation can be associated with increased deposit or higher credit availability and economic growth. This is because increased credit availability results in more credit allocations which lead to higher investment and growth. Other proponents of money market promotes economic growth, argues that money market plays a key role in bank’s liquidity management and the transmission of monetary policy. By providing the appropriate instruments and partner for liquidity trading, the money market allows the refinancing of short and medium term positions and facilitates the mitigation of business liquidity risks. The banking system and the money market represent the exclusive setting in which monetary policy operates. The advocates went further to assert that a developed, active, and efficient interbank market and the money market enhance the efficiency of central bank’s monetary policy and the transmission of its impulses into the economy. Thus, the development of the money market smoothen the progress of the financial intermediation and boost lending to the economy, and improves the country’s economic and social welfare (Nwosu & Hamman, 2008).
However, opponents of the above deposition claim that the Nigerian money market is faced with myriads of challenges that could hinder economic growth rather than promote it. Olofin and Udoma (2011) discovered an indirect relationship between financial markets and economic growth through banking sector domestic credit to the economy. They found out that the impact of financial structure which captures both capital market-based and bank-based financial development indicators shows an indirect effect on aggregate domestic investment and economic growth. Other studies also show that the Nigerian money market is shallow when compared with the money markets in some advanced and emerging countries (Ehigiamusoe, 2012; & Onoh, 2002). They asserted that several challenges confront the Nigerian Money market which prevents it from contributing to the growth and development of the country. Also, as a principal component of index of economic freedom, open markets (OM) influences economic growth just as Powell (2003) is of the view that growth is driven by increase in economic freedom. A transparent and open financial system ensures fairness in access to financing and promotes entrepreneurship which in turn enhances economic growth.
Reform of the Money Market in Nigeria
The importance of the money market to the growth and development of the Nigerian economy in general cannot be over-emphasized. This is because the market acts as intermediation to channel funds from the surplus side to the deficit side of the Nigerian population for short term investments mainly in trade and commerce. Thus, the development of the money market smoothens the progress of financial intermediation and boosts lending to economy (Ikpefan & Osabuohien, 2012).Money markets play a key role in banks’ liquidity management and the transmission of monetary policy, control of money supply and demand-pull inflation, determination of short-run interest rate (Ekmekcioglu, 2013).
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine the role of money market in the Nigerian Economy. Staff of CBN, Abuja form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the role of money market in the Nigeria economy. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of money market in the Nigeria economy
Summary
This study was on the role of money market in the Nigeria economy. Five objectives were raised which included: See the results of money market on the rural and urban business transactions, to evaluate the scope of money market, understand the conditions under which money market can operate effectively, ascertaining its impact on the financial development of the nation, to draw attention of the government and the entire borrowers and lenders to the need of expecting money market to have a sizeable and rapidly increasing positive effects on the process of developing the less developed countries in the foreseeable future and to highlight task facing money market and its major participate which must be accomplished in the economy. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from CBN staffs, Abuja. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
The Nigeria money market has over the years grown into a market with significant force for mobilizing funds for investment in Nigeria. The development of the market led to increase in the confidence reposed on the market by both local and foreign companies as well as investors. The money market is a key component of the financial system as it is the fulcrum of monetary operations conducted by the central bank in its pursuit of monetary policy objectives. It is a market for short-term funds with maturity ranging from overnight to one year and includes financial instruments that are deemed to be close substitutes of money. Findings in this study have shown that money market value has positive and significant effect on GDP. It also revealed that Treasury bill rate has negative but significant effect on GDP. Furthermore, Treasury bill outstanding has positive but insignificant effect on GDP . In conclusion, the money market in Nigeria is an important part of the economy and as a financial market constant reform is necessary to make it more efficient in order for GDP to respond to its activities
Recommendation
It is recommended that the current reforms in the money market should be sustained given that the Nigeria money market has a significant role to play in channelling resources for investment and productive purposes. The Nigerian money market should be packaged in line with the current globalization trend. The internationalization of the Nigerian money market will allow a flow of foreign investment into the economy and that way enhancing the industrialization process. The money market authorities should increase the number of tradable instruments in the market.
References
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- Ehigiamusoe, U. K. (2013). The link between money market and economic growth in Nigeria: Vector error correction model approach. International Journal of Social, Behavioral, Educational, Economic and Management Engineering, 7(12), pp.1799-1807.
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