CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

By definition, a market is a place or a mechanism through which buyers and sellers exchange goods and services using a generally accepted medium of Exchange (i.e.Money). Thus, just like any other market, the Financial Market is a specialized market that is responsible for channeling financial resources from the surplus units (savers) to the deficit units (those who needed additional funds) to carry out some form of economic activities. The Financial Market therefore constitute of all financial institutions that receive financial resources from the surplus units of the economy in the form of savings and transfer them to the deficits units through lending activities. This role of transferring financial resources from the surplus units to the deficit units is what is referred to as financial intermediation. Thus, a Financial Market comprises of all institutions that play the role of financial intermediation. These set of institutions are therefore referred to as financial intermediaries. The businessman who needed some additional money to start his

business, the Government that needed more funds to undertake developmental projects, the student that needed a loan to pay his/her college fees, and the company that needed more finances to expand its operation will all find the financial Market a useful avenue to access additional funding.

The Financial market is divided into two main divisions, namely (i) the Money Market, and (ii) the Capital Market. The Money Market is quite different from the Capital Market in the sense that, unlike the Capital Market, one cannot raise long-term capital from the Money Market.

The existence of money markets facilitate trading in short-term debt instruments to meet short-term needs of large users of funds such as governments, banks and similar institutions. Government treasury bills and similar securities, as well as company commercial bills, are examples of instruments traded in the money market. A wide range of financial institutions, including merchant banks, commercial banks, the central bank and other dealers operate in the money market. Public as well as private sector operators make use of various financial instruments to raise and invest short term funds which, if need be, can be quickly liquidated to satisfy short-term needs Unlike the Money market, the Capital market is that constituent of the Financial Market that facilitates the mobilization of long-term investment capital for the financing of business enterprises as well as Government long term investment projects. In other words, the term Capital Market refers to a specialized financial institution that provides a channel for the borrowing and lending of long-term funds (i.e over one year). It is a well organized financial institution that facilitates the transfer of financial resources from those that have surplus funds (savers) to those that needed the use of these funds (i.e. Government and private sector businesses) to undertake long-term investment. Thus the Capital Market offers an opportunity for both private business people and Government to mobilize huge amounts of financial resources from the general public through the sale of financial securities The Capital Market is divided into two areas; the Primary Market and the Secondary Market. The Primary Market deals with the trading of new securities.

When a company issues securities for the first time (i.e. IPO) , they are traded in the Primary Market through the help of issuing houses , Dealing /Brokerage Firms, Investment Bankers and or Underwriters. The acronym IPO stands for Initial Public Offering, which means the first time a company is offering securities to the general public for subscription. The amount of money raised in the Primary market goes directly to the Issuing Company/Firm to finance its operations. Once the securities (shares) of a company are in the hands the general public, they can be traded in the Secondary Market to enhance liquidity amongst holders of such financial securities. Thus, the Secondary Market facilitates the buying and selling of securities that are already in the hands of the general public (investors). Here, the term investor is used to refer to an individual or an institution that buys the securities (Shares) of a Company with the intent of making some financial returns. The Financial Exchange therefore is an organized financial platform that deals in transactions involving the buying and selling of financial securities in the Secondary Market. In short, the Financial Exchange does the work of a Secondary Market by facilitating a formal trading arrangement for financial securities. The research therefore seek to investigate the role of financial market in the economy with a case study of the Nigerian financial exchange.

1.2 STATEMENT OF THE PROBLEM

The Financial market  consist of  the Money Market, and  the Capital Market. The Money Market is quite different from the Capital Market in the sense that, unlike the Capital Market, one cannot raise long-term capital from the Money Market.

The existence of money markets facilitate trading in short-term debt instruments to meet short-term needs of large users of funds such as governments, banks and similar institutions. Government treasury bills and similar securities, as well as company commercial bills, are examples of instruments traded in the money market. A wide range of financial institutions, including merchant banks, commercial banks, the central bank and other dealers operate in the money market. Public as well as private sector operators make use of various financial instruments to raise and invest short term funds which, if need be, can be quickly liquidated to satisfy short-term needs Unlike the Money market, the Capital market is that constituent of the Financial Market that facilitates the mobilization of long-term investment capital for the financing of business enterprises as well as Government long term investment projects. In other words, the term Capital Market refers to a specialized financial institution that provides a channel for the borrowing and lending of long-term funds (i.e over one year). It is a well organized financial institution that facilitates the transfer of financial resources from those that have surplus funds (savers) to those that needed the use of these funds (i.e. Government and private sector businesses) to undertake long-term investment. Thus the Capital Market offers an opportunity for both private business people and Government to mobilize huge amounts of financial resources from the general public through the sale of financial securities The Capital Market is divided into two areas; the Primary Market and the Secondary Market. The Primary Market deals with the trading of new securities.

When a company issues securities for the first time (i.e. IPO) , they are traded in the Primary Market through the help of issuing houses , Dealing /Brokerage Firms, Investment Bankers and or Underwriters. The acronym IPO stands for

Initial Public Offering,which means the first time a company is offering securities to the general public for subscription. The amount of money raised in the Primary market goes directly to the Issuing Company/Firm to finance its operations. Once the securities (shares) of a company are in the hands the general public, they can be traded in the Secondary Market to enhance liquidity amongst holders of such financial securities. Thus, the Secondary Market facilitates the buying and selling of securities that are already in the hands of the general public (investors). Here, the term investor is used to refer to an individual or an institution that buys the securities (Shares) of a Company with the intent of making some financial returns. The Financial Exchange therefore is an organized financial platform that deals in transactions involving the buying and selling of financial securities in the Secondary Market. In short, the Financial Exchange does the work of a Secondary Market by facilitating a formal trading arrangement for financial securities.

However the activities of the secondary market is fast not impacting on the general public and on the economy at large. The effectiveness of investing in shares is fast depleting in the economy, many financial exchanges in Nigeria are no longer playing efficient roles in capital mobilization through the sale of shares. Therefore the problem confronting this research is to profer an assessment of the role of the capital market in the economy with a case study of the Nigerian financial exchange.

1.3   OBJECTIVE OF THE RESEARCH

1         To determine the nature of the capital market

2         To determine the role of the capital market in the economy

3         To determine the nature and role of the Nigerian financial exchange

1.4   RESEARCH QUESTION

1.     What is the nature of the capital market?

2.     What is the  role of the capital market in the economy?

3.     What is the nature and role of the Nigerian financial exchange in the economy?

1.5   RESEARCH HYPOTHESIS

Ho: Impact of the Nigerian financial exchange on the economy is low.

Hi:  Impact of the Nigerian financial exchange on the economy is high.

1.6   SIGNIFICANCE OF THE RESEARCH

The research shall provide an assessment of the nature and role of the capital market in the economy. It shall elucidate the nature and role of the Nigerian financial exchange. It shall also serve as a source of information to managers and financial experts.

1.7   SCOPE OF THE STUDY

The study shall focus on the assessment of the role of financial market in the economy with a case appraisal of the role of the Nigerian financial exchange.

1.8   DEFINITION OF TERMS

FINANCIAL MARKET

Financial Market is a specialized market that is responsible for channelling financial resources from the surplus units ( savers) to the deficit units ( those who needed additional funds) to carry out some form of economic activities. The Financial Market therefore constitute of all financial institutions that receive financial resources from the surplus units of the economy in the form of savings and transfer them to the deficits units through lending activities.

FINANCIAL EXCHANGE: Financial Exchange therefore is an organized financial platform that deals in transactions involving the buying and selling of financial securities in the Secondary Market. In short, the Financial Exchange does the work of a Secondary Market by facilitating a formal trading arrangement for financial securities.

MONEY MARKET

The existence of money markets facilitate trading in short-term debt instruments to meet short-term needs of large users of funds such as governments, banks and similar institutions. Government treasury bills and similar securities, as well as company commercial bills, are examples of instruments traded in the money market. A wide range of financial institutions, including merchant banks, commercial banks, the central bank and other dealers operate in the money market.

CAPITAL  MARKET

Capital Market refers to a specialized financial institution that provides a channel for the borrowing and lending of long-term funds (i.e.over one year). It is a well organized financial institution that facilitates the transfer of financial resources from those that have surplus funds (savers) to those that needed the use of these funds (i.e. Government and private sector businesses) to undertake long-term investment. Thusthe Capital Market offers an opportunity for both private business people and Government to mobilize huge amounts of financial resources from the general public through the sale of financial securities.

SECONDARY MARKET

Secondary Market facilitates the buying and selling of securities that are already in the hands of the general public (investors).

PRIMARY MARKET

Primary Market deals with the trading of new securities. When a company issues securities for the first time (i.e. IPO), they are traded in the Primary Market through the help of issuing houses, Dealing /Brokerage Firms, Investment Bankers and or Underwriters.

You either get what you want or your money back. T&C Apply

Talk to us right now: (+234)906-451-7926 (Call/WhatsApp)

---