An Assessment of the Role of the Financial Market in the Economy
Chapter One
OBJECTIVE OF THE STUDY
The study has the main specific objective which is to ascertain the role of the Financial Market on the Nigerian economy and to appraise the awareness or otherwise of the existence of the stock market by showing its impact in the business world. Other specific objectives were raised:
- To determine the relationship between the Financial Marketand Nigerian Economy;
- To determine or rather to evaluate if the deficiencies of the market affect the Nigerian Economy;
- To establish the effect of the Nigerian stock exchange crisis on the Nigerian Financial Market;
- To ascertain if there are challenges for the Nigerian stock exchange in developing the Financial Market;
- To determine the role of the Financial market in developing the Nigerian Economy.
CHAPTER TWO
LITERATURE REVIEW
WALL STREET- WHERE IT ALLBEGAN
Securities are traded in a variety of forms and in diverse trading places. Wall Street is where it all began (The New York Institute Of Finance; 1992), but one will see the Nigerian financial market place this day bears tiny resemblances to its origin there. According to the Institute, prior to the revolution, New York City’s leading merchants met regular under a buttonwood tree located at what is this day the corner of Wall and Broad Streets. These primeval merchants traded in commodities such as furs, tobacco, and currencies and provided services such as insuring ships’ cargoes.
As companies were organized to conduct different types of commercial activities such as banking, retail trade or shipping, an informal market in shares of these companies developed among merchants who controlled them. Twenty four of these primeval merchants or stockbrokers as they came to be called entered into a formal agreement on March 17, 1792, to trade only among themselves and to maintain concurred-on commission rates. This marked the founding of what is this day the New York Stock Exchange (NYSE).
THE NIGERIAN FINANCIAL MARKET
The Financial Market, according to Professor Ndi Okereke Onyiuke (2010), is fabricated up of markets and institutions, which assist the issuance and secondary trading of long-term financial instruments. She argued that the Financial Market unlike the money market which functions basically to wage short-term funds provides funds to industries and government to meet their long-term capital requirements, such as funding of fixed investments-buildings, plants, machinery, bridges etc.
Emekekwue P.(1996,22), defined the Financial Market as that part of the financial market that provides facilities for transfer of medium and long term funds to the various economic units.
Adekanye F.(1986,25), defined the Financial Market as that of the financial market from which large companies and private enterprises attract long-term investment funds through a network of financial institutions and stockbrokers licensed to perform Financial Market functions.
The networks of financial institutions that participate in the Financial Market are namely:
- Nigerian Stock
- Insurance companies
- Nigerian Securities and Exchange Commission(SEC)
- Discount Houses/ Stock broking firms
- Merchant
- Development
- Pension funds.
- Central Bank of Nigeria(CBN).
- Investment
THE ROLES OF THE NIGERIAN Financial Market
The Nigerian Financial Market is a market for sourcing of medium and long- term funds by both the government and private sectors of the economy. The strategic roles of the Financial Market in the allocation of scarce financial resources for rapid economic growth and development of any nation is well documented. For example, Oladejo R. (2003) enumerates the gains of the Nigerian Financial Market as follows:
- Helps the economy to increase capital formation;
- Provides funds to government and companies at more captivating terms;
- It also provides the necessary elements to manage financial risks and
- Ensures continuity of the enterprise long after the
In the book “The guide to investing in emerging securities market”, Dr. B. Persuade (1990), further enumerates the role of Financial Markets in economic development to include:
- It provides additional channels for encouraging and mobilizing domestic savings for productive investments and substitute bank deposits, real estate investment and financing of consumption
- It fosters the growth of the domestic financial services sector and various firms of institutional savings such as life insurance and
- It provides savers with superior endorsement than most debt instruments against inflation and currency depreciation and thus alleviates two of the major reasons encouraging the flight of domestic capital abroad as well as providing captivating automobile for repatriating flight.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
This chapter will focus on the procedures for collection and analysis of data. Having reviewed the related literature on the impact of the Financial Market on the Nigerian economy with emphasis on the role of the Nigerian Stock Exchange, the researcher’s attention will now move to the methods of data collection and analysis called methodology.
Research methodology according to Baridman (1990:20) should wage a detailed statement of methods used in collection of data; why those methods were chosen and not others.
The research work is a case study in which the Nigerian stock exchange was singled out as a representative of the Financial Market. The choice of the stock exchange as the case study is justified by the singular, critical and unique position of it in the development of the real financial and socio-economic structure of the economy.
RESEARCH DESIGN
The researcher employed various methods and procedures to achieve the objectives of the research. The researcher obtained information from both primary sources and secondary sources. Primary sources include oral interviews, direct observation and administration of questionnaires. Secondary sources which are the desk research include materials obtained from journals, newspapers, annual reports, magazines, seminar papers, unpublished thesis, World Wide Web and electronic media.
The data collated were placed into useable form through editing, tabulating and analysis. In editing, non-relevant data were discarded and the relevant data were tabulated so that statistics could be developed from them. The data were subjected to analysis and the research formed interpretation from the result.
SOURCES OF DATA
As mentioned above, the researcher made use of both primary and secondary sources of data for this study.
Primary Data
Primary data were gathered by the researcher through personal observation, oral interview and administration of questionnaire. The questionnaire contained both structured and unstructured questions to probe into the research problem.
Secondary Data
Secondary data also known as desk research was used. The researcher also got information through secondary data. And such information was got from the Newspapers, Internet, Books, Annual reports, Seminar papers, Journals, press released by the Stock Exchange Commission, Central Banks of Nigeria, Nigerian Securities and Exchange Commission and other vital documents regarding the Nigerian stock market.
METHOD OF DATA COLLECTION
This refers to the research instruments used by the researcher to collect whatever data was needed. The research instruments used in this work include: questionnaire, interview schedule and desk research.
CHAPTER FOUR
PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter would be used to present and analyze the various tools employed by the researcher to help it gather information regarding the subject matter. The tools as mentioned earlier are:
- Questionnaire
- Interview
- Direct
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
SUMMARY OFFINDINGS
From the data collected and analyzed, the following parts can be noted:
- A good number of population were not satisfied with activities of the exchange due to poor information dissemination thereby leading to low patronage and apathy. And when they are disseminated, they are either too technical or scanty for the ordinary person to
- The participators are the few rich corporations and individuals who can afford to pay for the huge cost usually associated with the listing and other transaction in the
- The public lacked confidence in the activities of the exchange as those who have invested in shares and other stocks for years could not boast of receiving any reasonable returns on their said
- Pricing policy is weighed by feelings and reputation of the company and not on the basis of demand and
- The exchange was also noticed to be monotonous in nature as the stocks of the banking sub-sector for years dominated transactions on the floor of the exchange.
- The people have not appreciated so well the roles and functions of the exchange in economic development and what they stand to gain from patronizing the
- Most people like to either raise funds or invest through the banks due to the rigors involved in going through the stock
CONCLUSION
It can be concluded that a good number of people do not make use of the exchange due to the following reasons:
- Ignorance is a major impediment on the part of individuals and rigorous quotation requirements at the
- Crisis of integrity that rocked the Market as a result of the imbroglio in the Nigerian stock exchange (NSE) has had far reaching
- Existence of other institutions which seems more convenient for fund seekers than the
In summation, despite the numerous problems confronting the exchange, it is pertinent to affirm that the market has bright future prospects and would emerge the best in sub-Sahara Africa, if the proposed steps are strictly adhered to.
RECOMMENDATIONS
From the above findings, the following recommendations can be made:
- The cost and stringent requirement involved in listing and registration should be drastically reduced to attract more people to the
- The management of the Stock Exchange should intensify its efforts to enlighten the people especially at the grassroots on the numerous gains they stand to get from patronizing the
- The current over the counter market (OTC) transactions should be encouraged.
- Transparency and accountability should be engendered to be the watch- word and both the management and operators of the exchange should conform to this order. Every form of window dressing of the financial statements by companies should be
- The exchange should be professionalized and should not be an all comer’s
- Reforms that should endear foreigners and citizens as well should be introduced immediately.
- The pricing policy should be based on the forces of demand and supply mechanism rather than on sentiments and reputation of
- Information made available should be more explicit to allow for informed decision.
- Awareness regarding the impact of the market on economic development should be encouraged by organizing seminars, symposium etc and by employing the mass media to accelerate this
- The government should ensure some level of political stability to enable investors both foreigners and local investors patronize the stock
The Nigerian stock exchange market is a very important vehicle that could enhance the much-desired socio-economic development of this country. And this feat could only be achieved by hiring the right people, technology and stable socio- political environment.
BIBLIOGRAPHY
- Adeojo and Wole Adewunmi (1982), “Banking and Finance in Nigeria”, Graham Burni Pp. 25.
- Adekanye F. (1986), “The Elements of Banking in Nigeria”, Graham Burn: Pp. 25. Alile, H. and Anoa A. L. (986), “The Nigerian Stock Market in Operation”, Lagos, Jeromalarho and Associates Pp. 14.
- Alile H. I. “The Impact of Nigeria Stock Exchange in the Economic Development of Nigeria”, A Paper Presented at a Seminar Organized by the Lagos Chamber of Commerce. Vanguard Newspapers (1988) Pp. 28.
- Agbana G. (2009), “Foot Path to Financial Market Competitiveness Engages Stakeholders”. The Guardian Newspapers, Sept 19, 2009 P. 14.
- Central Bank of Nigeria Statistical Bulletin (1995) Volume 6 No. 1 (June). Emekekwue, Patrick (1996:25), “Corporate Financial Management” Enugu. African Bureau of Education Sciences.
- Falegan, S. B. (1981:241), “Nigeria Financial System” Lagos.
- Okigbo P. N. C. (1981:90), “Nigeria Financial System Structure and Growth” Essex U. K. Longman Group Ltd.
- Onyiuke Ndi Okereke J. (2010), “Overview of the Nigerian Financial Market” A Seminar Paper Presented in UNEC, Enugu.