ABSTRACT
The study investigated the effect of money market instruments on economic growth of Nigeria using annual secondary time series data from 2000 to 2016 sourced from the CBN statistical bulletin. The money market instruments considered in the study are treasury certificate, Treasury bill, commercial papers and banker's acceptance and economic growth was proxied by real GDP. The multiple regression analysis was used to analyze the data collected. The results showed that treasury bills, certificate of deposit and banker's acceptance were the significant money market instruments that affected economic growth 'in Nigeria. Consequently, it was recommended that government should create the appropriate macroeconomic policies and legal framework towards sustaining the money market for productive activities, investments and the ultimate goal of economic growth in Nigeria.
TABLE
OF CONTENTS
Cover Page
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgement v
Table of Contents vi
List of Tables ix
Abstract x
CHAPTER ONE
INTRODUCTION
1.1 Background of the study 1
1.2
Statement of the problem 3
1.3
Objectives of the study 4
1.4
Research question 5
1.5
Research Hypothesis 5
1.6
Significance of the study 5
1.7
Scope of the Study 6
CHAPTER TWO LITERATURE REVIEW
2.1 Conceptual
Framework 7
2.1.1
Concept of Money Market
Instrument 7
2.1.1.1
Characteristics of Money Market 8
2.1.1.2
Functions of Money Market 11
2.1.1.3
Importance of Money Market 13
2.1.1.4
Instruments Traded in the Money Market . 14
2.1.1.5
Developed Money Market 16
2.1.2
Specific roles of Money Market
in the Economy 18
2.1.3
Money Market in Nigeria 21
2.1.4
Money Market and Economic
Growth 22
2.2 Theoretical Framework 24
2.2.1
The Classical View on the
Theory of Money 24
2.2.2
Modern Growth Theory 25
2.2.3 Financial Intermediation Theory 26
2.3 Empirical review 27
CHAPTER THREE
RESEARCH METHODOLOGY
3.1
Research Design 34
3.2
Study Area
34
3.3
Sources of Data Collection 34
3.4
Method of Data Analysis
34
3.5
Model Specification 35
CHAPTER FOUR
PRESENTATION OF DATA, ANALYSIS AND DISCUSSION
4.1 Presentation of Data
36
4.2 Data Analysis and Presentation of
Results 3 6
4.2.1 Descriptive Statistics 37
4.2.2 Regression Analysis 38
4.2.2.1 Hypotheses Testing and
Discussion of Findings 40
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
Summary of Findings
42
5.1
Conclusion 42
5.2
Recommendations 43
References 44
Appendix 46
Lists of Tables
Table 4.1 Annual time
series data 36
Table 4.2 Descriptive
statistics 37
Table 4.3 Regression Results
(Dependent variable, RGDP) 38
CHAPTER ONE
INTRODUCTION
1.1Background of the Study
The Nigerian money market consists of financial
intermediaries which is an offshoot of the financial market and financial
institutions that regulate the flow of funds through the micro economy (Ikpefan
and Osabuohien, 2012). In Nigeria, the Federal Government through the Central
Bank manages the money market as an institution and has contributed immensely
to the money market operations. Money
market, by definition, is a market for short term funds or credits
(Ehigiamusoe, 2013). Nwankwo (1988). In the money market, the instruments
traded have short and medium term maturity ranging from three (3) months up to
two (2) years or less. The money market is the market for mobilization of short
term funds for economic development which embraces the Commercial Banks, the
Micro Finance Banks, and the Central Bank of Nigeria (Anyanwu, 1990). According
to Ihemeje (2009), the money market is a mechanism whereby entrepreneurs desire
to acquire and invest their fund in short term economic variables for their
business. It is imperative for entrepreneurs and private sectors to look
outwards for additional sources of funds to close the gaps in the availability
of fund in the commercial banks. In this circumstance, the Nigerian money
market which is an institution appears a good option for entrepreneurs bit not
ideal source of short term loan due to their high interest rate charged in the
Nigerian scenario. Relatively, few institutions make use of the facilities
provided by the Nigerian money market due to resource gaps. The monetary policy
is a method to control the business of the money market fluctuations as
operated by the Central Bank (Ihemeje, 2011). The Central Bank adopts a number
of methods to control the quantity and quality of credit and to control the
expansion of money supply during a boom. The Central Bank raises its bank
rates, sells securities in the open market to raise the reserve ratio and
adopts a number of selective credit control measures, fiscal policies,
borrowings, etc. By this efforts, are made to control excess money supply in
the Nigerian economy. To control the Nigerian economy during recession or
depression, the Central Bank follows an easy or cheap monetary policy by
increasing the reserves of the commercial banks. It reduces rates and interest
of banks. It is however important to note that monetary policy is not so effective
as to control the period of boom and depression. If the boom is due to
cost-push inflation, it may not be effective in controlling inflation,
aggregate demand, output, income and employment opportunity.
In Nigeria, as far as Inflation is concerned,
the experience of the business man and the success of monetary policy is
doubtful (Ihemeje, 2011). In such a situation, the businessman do not have any
inclination to borrow even when the interest rate is reduced. Several firms and institutions operate in a
money market. These include the Central Bank, the Commercial banks, the
Merchant banks, the Discount houses, the Acceptance houses as well as other
individuals and institutions with surplus liquid resources. Each of these
participants plays a significant role in the operations of the money market
(Ehigiamusoe, 2013). For instance, the Central Bank is the apex authority in
the market. It therefore controls the activities of the market to ensure
orderly operations. In periods of monetary stringency, the Central Bank can
rediscount eligible bills for the commercial banks (CBN, 2004). It is in this
capacity that it performs the function of lender of last resort. The commercial
banks are the largest repositories of liquid funds (Nwosu and Hamman 2008,
Ehigiamusoe, 2013). They therefore provide the bulk of the liquidity in the
market. The discount houses as well as other dealers on the short term credits
instruments perform specific functions in the market.
The products marketed in this market are
high quality short term credit instruments such as treasury certificates, Treasury
Bills, commercial papers, call money, ways and means advances and banker’s unit
fund. According to Puri (2012), these instruments involve minimal risk, this is
because they mature within one year and more importantly because they are
issued by obligors of highest credit rating. The development of the money market smoothen the
progress of the financial intermediation and boost lending to the economy, and
improves the country’s economic and social welfare
(Friedman, 2000b). Well-developed money markets exist in developed countries,
particularly in the high income ones, while those in the low income countries
mirror the state of their development. In the latter, the markets are narrow,
poorly integrated, and in some instances, non-existent in the real sense of it (Ihemeje, 2011).The
level of development of a money market serves as a barometer for measuring the
level of development of the economy. They assert that the degree and tempo of development
of one reflects the spate of development of the other.
1.2 Statement of the Problem
The emergence of the Nigerian
Financial Market is believed to have over the years given rise to the money
market in the Nigerian economy. Potential investors and creditors, invest and
raise short term and medium term credit from the money market. A normal investor
is however risk averse and will only be prepared to part with his money if and
only if the expected returns are higher than the risk expected.
Notwithstanding the rate at which the
investing entrepreneur and the services provided by the money market is low;
that means both the taker and the giver is facing challenges.
Well-developed money
markets exist in developed countries, particularly in the high income ones,
while those in the low income countries mirror the state of their development.
In the latter, the markets are narrow, poorly integrated, and in some instances,
non-existent in the real sense of it (Nwosu and Hamman, 2008).The level of
development of a money market serves as a barometer for measuring the level of
development of the economy. They assert that the degree and tempo of
development of one reflects the spate of development of the other. The money
market is one of the categorizations of the money market. The other category is
the capital market. While the money market deals in short-term funds, the
capital market deals in long-terms loanable funds (Anyanwu, 1996). The basis of
distinction between the money and capital market lies in the degree of
liquidity of instruments bought and sold in each of the markets.
In developing economies like Nigeria
money markets are still underdeveloped as such the absence of a well-developed
money market in these countries poses a challenge in pooling funds large enough
to fund private enterprises (Ehigiamusoe, 2013). Despite that in recent times the Nigeria money market has
witnessed robust reforms and expansion, there are still some problems and
challenges which the market is confronted with. The Nigeria money market is
still superficial when compared to her contemporaries in some advanced and
emerging economies; it is also characterized by immature secondary market, undiversified
instruments, lack of proper coordination in the issuance of debt instruments,
inadequate and deficient information flow among others (Nwosu and Hamman, 2008). Can it be concluded
therefore that money market instrument contribute or hamper economic growth in
Nigeria? This is the question which previous studies have not fully answered.
It is therefore the crux of this study to answer this question by examining the
relationship between money market instrument and economic growth in Nigeria.
1.3 Objective of the Study
The
broad objectives of this study is to examine the effect of money market instruments
on the Nigerian Economy. While the specific objectives are:
1.
Examine the effect of Treasury Certificate on the
Nigerian economic growth
2.
Examine the effect of Treasury Bill on the Nigerian
economic growth
3. Ascertain
if Certificate of Deposit contributes significantly to the Nigerian economic
growth
4. Examine the effect of Bankers
Acceptance on the Nigerian economic growth
1.4 Research
Questions
The following research questions
guides this study:
1.
How does Treasury Certificate contribute to the
Nigerian economic growth?
2.
What is the extent of the effect of Treasury
Bill on the Nigerian economic growth?
3.
To what extent does Certificate of Deposit
contribute to the Nigerian economic growth?
4.
How far has Banker’s Acceptance affected the
Nigerian economic growth?
1.5 Research Hypothesis
Based on the research
questions the following research hypotheses are formulated by the research.
Ho1: Treasury
Certificate has no significant effect on the Nigerian economic growth.
Ho2: Treasury Bill has no significant effect on the
Nigerian
economic growth.
Ho3: Certificate of Deposit has no significant effect
on the Nigerian economic growth.
Ho4: Bankers Acceptance has no significant effect on the Nigerian
economic growth.
1.6 Significance of the Study
1. The study will be relevant and beneficial to
all financial institutions, investors and Nigerians at large as an alarm is
sounded on the money market existence and its activities.
2. It will help the CBN and
Commercial Bank managers to solve the problems and challenges of the money
market in Nigeria.
3. The study will educate
scholars and students in developing an insight for a new area of study and
literature review.
4. Finally and not the least,
the research will empirically help institutions and investors to know when and
how to access funds from the operators of the money market at a favourable
interest rate.
1.7 Scope of the Study
This
study covers the effect of Money Market instruments on economic growth of Nigeria
between the periods of 2000 to 2016. The period was chosen based on the
availability of data that would enable us investigate the said effect. Money
market instruments selected were Treasury Bills and bankers acceptance.
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