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1.1 BACKGROUND OF THE STUDY
The term financial institution the general believe of people that one is referring to a particular place where buyers and sellers meet to transact business with one another. Whereas some people are of the opinion that financial institution needs not to be a physical meeting place but instead a consensus of mind over buying and selling of valuable terms, based on both opinions expressed above, one can deduce that to strike a bargain or a deal, there is the need to bring together a seller and a buyer. In other words, there is the need to bring someone with surplus funds or commodities together with another deficit funds or commodities. As we have commodity market where people exchange their merchandise for money so also we have financial market where people exchange their surplus funds for financial instruments.
Financial instrument are title document meant for obtaining the payment of money that are debt instruments and securities like treasury bills, bill of exchange, debenture stocks, equities etc.
Financial market therefore is a market where short – term and long term funds are raised or a market for sale and purchase of bonds or debts instrument, it is a market for all negotiable financial instrument, including market for short – term securities as well as for long term debts and equities financial market embraces both money market and capital market.
Before independence and the establishment of the central bank of Nigeria, financial institution in Nigeria was predominantly dominated by foreigners consequently, there was no organized domestic money market where people with surplus funds could exchange them with needy indigenous investors to facilitates trade and production. The only place for investment of funds was the London market hence those with surplus fund had to repatriate them to London for investment. With this practice, funds needed for economy development in Nigeria were exported abroad. The indigenous entrepreneur had no market to raise funds needed for smooth operation of their business, similarly, the government has no effective machinery to mobilize resources to finance its planned projects especially to develop the infrastructural facilities necessary for economy development. Also, an effective machinery for monetary policy and control was not put in place.
1.2 STATEMENT OF THE PROBLEM
Several years people have been trying to give reason as regards to the effect of monetary policy in Nigeria both in private and public organization. The monetary public problem is also compounded by the fact that rapid rate of increasing in money supply and liquid assets was by far not running that of total output in the economy as most investment expenditure were confined mainly to public infrastructure project and direct non – production industry of the private sector, rising income lead to increase in domestic demand for imports which caused increasing deficit in the balance of payment with a consequential lost of foreign exchange.
1.3 PURPOSE OF THE STUDY
The purpose of the study is:
1. To find out how the commercial bank react to monetary policy measures.
2. To find out whether monetary policy should be encouraged to bring about effective monetary control.
3. To find out whether monetary policy has a direct or indirect role in the banking sector in the economy
4. To identify the effect of monetary policy on banks performance
1.5 RESEARCH QUESTION
1. Does monetary policy contributes to the economic development of Nigeria?
2. Does lack of application of monetary policy has any effect to financial institutions?
3. Is it true that monetary policy plays a vital role on Nigeria economy?
4. Did monetary policy have any impact to the development of the county (ies) financial institutions?
5. Does implementation of monetary policy contribute to the development of the Nigeria banks?
1.5 SIGNIFICANCE OF THE STUDY
The study is significant in a number of ways as follows:-
1. The government will be better placed to review its monetary policies which will positively improve the economy
2. To students, the research work will assist those who which to take a career in banking and finance, economic to advance their understanding on monetary policies
3. All businessmen and women, managers in business organizations, bankers across the country and as well any individual that read through this project work.
4. Finally, the research will serve as a reference materials for future researchers on similar topic by providing them with some index on monetary policy and its effect on the Nigeria economy
1.6 SCOPE OF THE STUDY
The study covered the effect of monetary policy on financial institutions in Nigeria. The study is limited to first bank plc Ozoro for ease assessment of relevant information for the study.
1.7 DEFINITION OF TECHNICAL TERMS
1 Market:- A situation where buyer and sellers are in communication punch arising goods with each other.
2 Monetary Policy:- In economics this refers to a governmental position on the regulation of the amount of spending power available in an economy and the cost of borrowing money
3 Financial Institution:- These are established business set up for money transactions e.g. bank issuing house etc
4 Money:- Anything that is generally accepted as a medium of exchange for goods and services, “Cambridge 1947”
5 Deficit:- The result of an expenditure excess of income lack or inadequate amount of spending
6 Surplus:- This is the excess of income over expenditure in a business such as man – profit making business
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