CHAPTER ONE

INTRODUCTION

1.0   INTRODUCTION

The Capital Market exists to provide long term capital to both government and co-operate bodies for incentives, socio-economical and infrastructural development purposes.

The Capital Market deals with financing instruments of long-term nature. These instruments include equities (ordinary shares) and bonds. The Capital Market is different from the money market in terms of the maturity profile of the instrument issued and traded.

The Money Market especially consists of short term instruments, often of less than one year maturity such as banker’s acceptance. Commercial papers and treasury bills.

The Capital Market operates at two-levels, the primary where new issues or securities are raised from the investing public, with proceed going to the issuer and the secondary market where old or outstanding securities are bought and sold.

These markets cannot operate in isolation without anyone approaching the Capital Market which shall provide long term financing is being complemented by various project financing ranging from the private sector (individuals AND companies). Here, the Capital Market appears good option since the banking industry is not the ideals source for long term funds.

The study adopts a different prospective by closely looking at the importance of Capital Market its institution on project financing for the development of the Nigerian economy.

Also, there are various sources of finance in every economy, developed, developing or undeveloped. Those sources include, the Capital and Money Markets. Money Market is an avenue for short –term finances. It provides a mechanism for meeting the liquidity needs of the lenders and the short term requirement of the borrowers. This is done through the trading of some market instruments, which include treasury bills, call money. Treasury certificate, certificate of deposit e.t.c.

This study will therefore attempt to appraise the role of the Nigerian Stock Exchange (NSE) being one of the most active operators of the Capital Market in the generation of finance for public and private projects and also in developing the Nigerian economy.

1.1      STATEMENT OF THE PROBLEMS

Since Capital Market is central to this study and also to the finance of public and private projects, as well as the development of the Nigerian economy as a whole.

Therefore, the problem, which this study seeks to solve, is concerned with the Nigerian Capital Market some of this problems associated with the market include:

i.            The problem of inadequate infrastructural facilities such as effective computerization telecommunication system that result into lower operational efficiency.

ii.          The market has not effectively mobilized savings and disbursed it among the various economic units in Nigeria.

iii.        The problem of awareness of Capital Market operations and activities over time.

iv.         Lack of the knowledge of the essence of Capital Market is an economy.

1.2      OBJECTIVES OF THE STUDY

The research is carried out to achieve the following objectives:

a.           In partial fulfillment for the award of Higher National Diploma in Banking and Finance.

b.          To know the impact of Capital Market on the development of the Nigerian economy.

c.           To analyze the benefit derived by both individual and government in Capital Market

d.          To have an insight knowledge of both the private and public projects.

e.           To determine the vital role played by the Nigerian Capital Market in the recapitalization of commercial bank in Nigeria.

f.            To give a through insight into the operations of the Nigeria Stock Exchange (NSE), so as to give a general knowledge to the public and thereby disprove the nation that Stock Exchange is an elite club for the few privilege.  

1.3      RESEARCH QUESTIONS

Order in to accomplish the purpose of the study, the research work will focus on the following questions:

i.            What has been the performance and contribution of the Nigerian Stock Exchange (NSE) in the realization of the development of the Nigerian economy?

ii.          What is the contribution of the Nigerian Stock Exchange (NSE) towards financing both private and public projects?

iii.        What is the contribution of the Nigerian Stock Exchange (NSE) to the gross fixed deposits formation?

1.4      RESEARCH HYPOTHESIS

Ho:  Capital Market does not contribute to the financing of public and private projects.

Hi:   Capital Market contributes to the financing of public and private projects.

Ho:  Nigerian Stock Exchange (NSE) does not influence gross fixed capital formation.

Hi:   Nigerian Stock Exchange (NSE) influence gross fixed capital formation.

Ho:  Sourcing fund through the Capital Market does not enhance co-operate development.

Hi:   Sourcing fund through the Capital Market enhance co-operate development.

1.5      SCOPE OF THE STUDY

The focal point of this study is the Nigerian Stock Exchange (NSE), highlighting its objectives and operating characteristics. The study is strictly restricted to the Lagos Office of the Nigerian Stock Exchange (NSE). This is due to the fact that most activities and dealings on the Nigerian Stock Exchange (NSE) take place on the Lagos floors.

1.6      SIGNIFICANCE OF THE STUDY

The significance of the study is multi-dimensional, it is intended to provide first hand information to prospective Ordinary Nigerians on the role of Capital Market and to educate them on what it takes to be a participant in the market.

Also, this study is going to be beneficial to the government, industrial sectors, as well as individual investors and the student alike.

1.7      LIMITATIONS OF THE STUDY

The limitation of they study is due to insufficient resources at the disposal of the researcher; such as financial constraint and the time constraint. The researcher has been able to confine or limit the study to the impact of Capital Market in project financing because the economy of Nigeria might be too large to assess or research, so that need to research projects financing as part of the whole economy.

1.8      DEFINITION OF TERMS

Bond: A bond is a certificate of indebtedness. Limited liability companies, government and others issue it in the Capital Market as a means of raising long term capital.

Capitalization: It refers to all the money that has been invested in the business.

Capital: A stock of money possessed by a person in form which may be invested from time to time.

Capital Market: This is a markets that exists for the mobilization and intermediation of long term funds between surplus and deficit units.

Deal: This is the agreement between buyers and sellers of shares about a single transaction.

Dealings: This is the process of selling and buying securities on the Nigerian Stock Exchange (NSE). A “deal” is stock when a bid matches an offer.

Dividend: This is the amount of a fund of company’s profit paid to the shareholders of a company.

Equity Capital: This refers to shareholders or owners investment or interest in an organization.

Equity: It is the residual of ownership over the asset of a company.

Guilt-Edge Security: Government security that yields interest, generally at low risk investment.

Going Public: This is a situation when a firm’s shares become available on a major exchange.

Listing: It is a synonymously used with the term quotation. It entitles the securities to be traded on the exchange.

First-Tier Security: It is a market where large companies are listed.

Second Tier Security: It is a market where small and medium size companies are listed.

Quotation: This is the price, which a given security is currently being traded on the stock exchange. The quoted price of securities varies from day to day depending on buying and selling interest.

Securities: These refers to financial instruments that yield income to the buyer (investor) such as buyer has a legal claim which can be in form of debts, as stock and bonds or in the ownership of an ordinary share in the issuing company.

Script Issue: It is also known as bonus issue, which means the insurance of share capital to existing shareholders of a company at no charge. Both issues increase the share capital of the company but no new fund is generated.

Shares: These are security investments indicating ownership in a business organization. There are two types of shares, ordinary and preference shares.

Stock: This refers to the legal capital of a company this is dividend to shares. They represent debt instrument in companies. They are usually multiples of shares.

Stock Exchange: It is a market mean for the trading of outstanding issues.

Central Securities Clearing System: It is a system which provides an integrated central depository, clearing and settlement for all stock market transactions.

Daily Official List: This is a document which is published daily by the authority of the council of the exchange, which contains information on all quoted companies with regard to price quoting, maturity date, etc.

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