Impact of Bond Market on Financial Development
CHAPTER ONE
OBJECTIVE OF THE STUDY
The objectives of the study are;
- To ascertain the impact of bond market on financial development
- To ascertain the impact of bond market on Nigeria economy
- To ascertain the relationship between bond market and financial development
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Bond Market Development
A bond is a debt instrument. Simply, it is a loan in which the terms, pay-back date and interest rates are detailed in a legal document. In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and is obliged to pay interest (coupon) and repay the principal at a later date. It is a formal contract to repay borrowed money with interest at fixed intervals. Bonds are also referred to as fixed income securities (Kengen, 2009). A bond market is where debt securities are issued and traded. The bond market primarily includes government-issued securities and corporate debt securities, and it facilitates the transfer of capital from savers to the issuers or organizations that require capital for government projects, business expansions and ongoing operations. A bond market is alternatively referred to as a debt, credit or fixed-income market. It is driven by the same risk and return tradeoffs as the stock market. Most trading in the bond market occurs over the counter through organized electronic trading networks and is composed of the primary market (through which debt securities are issued and sold by borrowers to lenders) and the secondary market (through which investors buy and sell previously issued debt securities among themselves). Successful development of a bond market requires a number of conditions such as a developed money market, effective information disclosure system, favourable macroeconomic policies, market participation, favourable tax policies, a diversified investor base, appropriate trading system, effective financial system and a sound legal and regulatory framework (Ngugi and Afande, 2015). By reducing the riskiness of buying and selling bonds, liquidity makes market participation more attractive, which has a bearing both on prices and on the ability of the market to process information efficiently. Liquidity is the ability to buy or sell both quickly and without substantially moving prices (Clarke, 1998). Securities market depth refers to the ability to transact at the current market price and is particularly important when large volumes are involved. Both liquidity and market depth ultimately dictate the success or failure of a market (Clarke, 1998).Therefore; bond market development can be construed to be the level of market’s depth and liquidity. According to Levine and Zervos (1998), size and liquidity indicators are good predictors of a deep market. In a study to determine the effect of capital market deepening on the economic growth of Kenya, Murayi (2014), adopted five independent variables for capital market deepening, divided into size variables and liquidity variables. These were stock market size and market capitalization ratio for size while liquidity ratios included value traded ratio, stock market turnover ratio and bond turnover ratio. Bond market development can therefore be measured in terms of size and liquidity using bond market size and market turnover ratio respectively. It is hypothesized that a market that exhibits high liquidity, high efficiency and low volatility is more preferred as it facilitates participation by firms and investors. Such characteristics reflect on the soundness of the institutional structures and the policy environment. It is also hypothesized that growth of Treasury bond market is a prerequisite for development of corporate bonds market. (Ngugi and Agoti, 2007)
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to impact of bond market on financial development
Sources of data collection
Data were collected from two main sources namely:
Primary source and Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain impact of bond market on financial development
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 bond market on financial development
Summary
This study was on impact of bond market on financial development. Three objectives were raised which included: To ascertain the impact of bond market on financial development, to ascertain the impact of bond market on Nigeria economy, to ascertain the relationship between bond market and financial development. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of CBN, Lagos state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up human resource managers, economists, customer care officers and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
From the findings, both bond market variables of size and liquidity have significant positive relationship with financial development. It can therefore be concluded that bond market has a significant positive effect on economic growth in Nigeria.
Recommendation
The Capital Markets Authority should also hasten the introduction of the new products into the capital markets such as derivative instruments (bond options, futures, swaps) and have necessary regulatory framework in place to make the bond market even more vibrant
REFERENCES
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