1.1 BACKGROUND
OF THE STUDY
Globally, money markets remain a key
instrument employed to jump start the economy and ensure growth and development
of any Nation (Ajayi, 2008). In every economy,
there often exist financial imbalances and disequilibrium, which calls for the
existence of financial markets. Financial markets are institution or
arrangements which facilitate the exchange of financial assets such as; deposit
and loans, stock and bonds, government securities etc.
the market is broadly
classified into money market and capital market. Money market is a series of
closely connected markets, which deals with short – term funds; highly liquid,
and having its maturity less than a year (Agwu 2004). Capital market on the
other hand, provides long term capital to government and corporate bodies with
maturity over a year, and often prone to greater risk of default.
Questions often abound, over the
role of money market in accelerating economic growth. The dominant players in
money market are commercial banks and other itself provides the basis for
operation, manipulation and execution of monetary policies, with discount
houses intermediating funds between the central bank and other banks. Money
market is the greatest indirect instrument used by central bank of Nigeria
(CBN) to control commercials banks. The market provides short – term debt
instruments used to finance the working capital of the firms. It provides
mechanism for government to direct the economy towards the desired national objectives
through the operation of monetary policy. Thus, it facilitates the pool of
funds from surplus sector 10 of the economy to the deficit sector at a low
interest rate (Ajayi, 2008).
Prior to independence in 1960, there
was no organized money market as whatever existed was linked to London based
money market. This economy agent who had surplus funds than they required, had
no market to invest them in Nigeria. Thereby, leading to capital flight in
country, as these funds are only invested oversea. Thus, leaving Nigerian firms
with no funds for investment and consequently hindering economic growth.
Numbers of reason abound for the establishment of Nigeria money market. It
includes the provision of short term funds, to the public and private
institutions, that need such financing for their working capital requirements.
It provides an opportunities to banks and non – bank financial institution to
use their surplus funds profitably. Above all, efficient monetary system is
achieved through central bank of Nigeria (CBN) control of the banking system
via; money market.
STATEMENT OF PROBLEM
It is a well known
fact that, money market plays a very significant role in accelerating economic
growth in any economy. Like, every other market, Nigeria money market has not
been fully explored to its full potential in achieving economic growth and
development, owing to an inefficient institutional framework (Adegbite, 2007).
The inability to provide efficient mechanism for determination of prices of
securities and interest that can be based on the realities of supply and demand
for funds, and their abilities to make available different and adequate
instrument to the market. One would wonder, if the strategies adopted by the
money market in financial intermediation successful; or have money market
operation impacted on the economic growth.
Provides studies show
that, government has not been making adequate effort to capitalize the market,
which impedes the market considerably in performing its primary role of
development. Other studies, shows that the market is actually playing a
significant role in accelerating economic growth in the country. However, all
these studies often exclude government instruments like, treasury bills in
their investigation, which is seeing as one of the dominant player in the
market. This research aim to close this gap in knowledge, by including
government Treasury bill in the study.
1.3 OBJECTIVES OF THE STUDY
This research work aimed at
assessing the impact of Nigeria money market in accelerating economic growth
and development. The objectives will include:
1. To
investigate the impact of money market on economic growth.
2. To
evaluate the success of the money market in financial intermediation between
surplus and deficit units in the economy.
1.4 RESEARCH QUESTION
In the course of this research work,
the following research questions will be raised:
a. Thus the Nigeria money markets impact
the economy?
b. How
successful is the Nigeria money market in its financial intermediation?
1.5 RESEARCH
HYPOTHESIS
The research on the impact of
Nigeria money market on economic growth has led the following hypothesis:
Ho: The Nigeria money market has no
significant impact on economic growth.
HI: the
Nigeria money market has a significant impact on economic growth.
1.6 SIGNIFICANCE
OF THE STUDY
This study will be of great value to
the general public. Its finding will be useful to government, monetary
authorities, banks and other financial institutions. Others include:
a. Business
men, investors and individuals who are interested about the working of the
market.
b. Also,
the study will be of great importance to other researchers interested in this
field of study.
1.7 SCOPE
AND LIMITATION OF STUDY
This research study is designed to
investigate the effectiveness of monetary policies in ensuring economic growth,
covering the period of 1981 – 2011. With special emphases on the money market
and its numerous instruments employed.
However, the study no doubt will be
constrained by number of factors to include; inadequate/reliabilities of data,
as data over a particular phenomenon often varies from different source. Others
are: Financial and time constraints that abound in the study making it default
to give a better work than this one.