Impact Of Money Market On Economic Growth of Nigeria

Impact Of Money Market On Economic Growth of Nigeria

Impact Of Money Market On Economic Growth of Nigeria

The government agencies, financial institution and non-financial business enterprises need to obtain funds to finance their activities. This money is often obtained from the financial market. The term financial market that deals with stocks and bonds, but Omits the money market.

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The above groups can obtain funds from a number of places within the market place such as they may offer participation or Ownership shares (equities) for sale in the EQUITY MARKET or they may procure funds through direct loans or through the issuance of debt instruments in the MONEY MARKET.

The money market is however known and described as a wholesale market for low risk highly liquid, short-term IOUs. In truth the money market is not just one market but a series of closely connected markets. This segment of the financial market bring together large economic units that have borrowing needs for short term period with those that have large sums to lend. The money market has both a primary and a secondary market.

In the primary market, short-term funds are obtained quickly and easily at interest rates that vary according to the credit standing of the borrower, the nature of the borrowing instrument, the source of funds etc. In almost all money market instruments, a secondary market also exist where claims are traded at interest rates that result from the interplay of supply and demand for those instruments. The money market is unlike the other markets such as the supermarkets, commodity markets, stock market etc. that operate from a centralized specific locations. This is not so with the money market. All one needs is a desk, a telephone with multiple line and a license to do business. There is no physical location requirements for a money market, even at financial institution with substantial operations in the money market. The location of money market operations is often referred to simply as the money market desk”

PARTICIPANTS IN THE MONEY MARKET.

Meanwhile, the money market includes the commercial banks, acceptance house, discount house and central bank of Nigeria. This study is looking at commercial bank as one of the money market in Nigeria.

Banking activities started in Nigeria in 1872 with the African banking corporation which was charged with the responsibility of distributing bank of England notes for the British treasury. The Bank of British West Africa (Now First bank) was set up in 1894, and the second commercial bank after that was the Barclays bank, which was established in 1917 now known as Union bank.

The First Bank Up till now was the major importer of currency from the British treasury during the colonial days, First Bank was called the bank of British West Africa and was an agent of the west Africa currency board.

The surviving indigenous bank in Nigeria is National Bank of Nigeria, which came into existence in 1933.

Because of inability of indigenous bank public confidence became eroded. The reason at that time were inadequate capital, poor management, absence of banking regulations and inappropriate record keeping, in this type of research work, one cannot but mention some of the commercial bank functions such as Acceptance and safe keeping of deposit, granting loans and overdraft to their customers, management of customers investment, acting as executors and trustee of wills, providing faculties of foreign exchange and important document to travellers and also the provision of business statues reports and references.

INSTRUMENT TRADED IN THE MONEY MARKET

There are many classes of instruments that are traded in money market. But we will highlight the most important ones. Three of these instruments that represent claims to Federal, State and Local Government Revenue funds are treasury bills, Federal agency discount notes and principal notes. Other instruments are negotiable certificate of deposit, commercial paper, bankers acceptance and repurchases agreements. These are instruments of non governmental institutions like commercial banks other financial institutions and non financial businesses and firms that play important roles in the money market.

TREASURY BILLS: Treasury bill or T. Bill as they are often called are debt obligations of the federal government. As liabilities of the federal government these obligations are generally considered to be free of default risk. T. bills have no coupon or stated interest, but they are issued at a discount from the face value. The return earned is the difference between the discount issue prince and the face value which is paid by the Treasury at the bills maturity.

Treasury bills are issued with 91-day (3 months) 182-days (6 month) and 364 day (1 year) maturities. Because of low risk and short maturity of these instruments, T. bill are active investments for many financial market participants.

FEDERAL AGENCY DISCOUNT NOTES: The Nigeria government like other government around the world, attempt to foster certain favoured activities such as housing, education and farming. One may it can help these activities is by providing them with access to an inexpensive source of funds. Because Government debt is of such low default risk it carries along interest rate and the resulting cost savings can be passed along to the favoured activities. Like the T. bills, agency discount notes bear no interest but are offered at a discount from face value. Unlike the T. bills the amount of discount is set by the agency. Major investors in agency discount notes are money market mutual funds and commercial banks. Other investors include insurance companies, pension funds, thrifts and even some individuals.

SHORT TERM MUNICIPAL SECURITIES: Some times, the state and Local government have temporary needs for cash for example, when anticipating the receipt of tax and other revenues prior to the sales of bonds. To meet this need, they issue short-term municipal securities. These securities are issued in two forms – The interest bearing note and the discount notes, of the two, the interest bearing note are more common. The interest bearing note often carry a variable the interest payment that is often the same as the open market rate, such as the treasury yield.

NEGOTIABLE CERTIFICATE OF DEPOSIT: These are tradable instruments issued by banks with stated interest rate over a fixed period if time like many other money market securities negotiable certificate of deposit (NCD`s) are issued in denominations of N100.00 and higher NCDs have maturities from 7 days to 12 months with most transactions in the range of 1-3 months maturity period. Most NCDs features a fixed interest rate at maturity.

There are four general classes of NCDs of differing rates of interest, risk and liquidity, Domestic CDs are issued by Nigeria banks domestically while Eurodollar CDs are issued abroad by foreign and off-shore branches of foreign banks operating in Nigeria. They are dominated in U.S dollas with maturities ranging from 1-2 months, while most have fixed interest rates Generally most of the Eurodollar CDs are issued in London. The center for the Eurodollar market YANKEE CDs are NCDs issued in the U.S by branches of foreign banks. Thrift CDs are issued by large saving and loan associations.

THE RELATIONSHIP BETWEEN THE MONEY MARKET AND THE LEVEL OF ECONOMIC ACTIVITY

There are two main sources of finance available to business internal and external.

Impact Of Money Market On Economic Growth of Nigeria

To place an order for the Complete Project Material, pay N5,000 to

GTBank (Guaranty Trust Bank)
Account Name – Chudi-Oji Chukwuka
Account No – 0044157183

Then text the name of the Project topic, email address and your names to 08060565721.  

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