There are various
channels by which monetary policy works. Monetary policy are carried by the
central bank of Nigeria to facilitate the regulation and control of the various
macroeconomic goals such as full employment, price stability, economic growth,
balance of payment equilibrium etc which is mostly facilitated by the
activities of the money market.
These controls of the CBN on the money market
affect the quantity of fund in the economy, where sales or purchase of Treasury
bill reduce or increase the stock of reserve money. On the relevant of money
and monetary policy in controlling economic activities, the monetarist view has
been divided into weak and strong monetarist thesis. The weak thesis is
compared with some aspects of the income – expenditure approach to the
determination of national economic activity discount from face value. The
amounts of discount are set by the agency and its duration ranges between three
months and a year. Like the federal agency discount note, short term municipal
security is a note issued by government when they are expecting receipt from
tax and other revenue either from sales of bound etc. It is both interest
bearing and discount notes. Although interest is a more common feature of the
note. Other instrument not traded by government in the market includes
Negotiable certificate of deposit, which is tradable instrument issued it is
issued in high quantities in 100’s. it has a maturity date of seven and a year.
On the other hand commercial papers
is a short term unsecured promissory notes. It is the second money market
instrument in terms of outstanding after treasury bills commercial papers are
issued by banks is issued at a discount from face value, which is matured at a
specific days. Unlike bankers acceptance which is used to facilitate
international trade. It is used munipal notes, federal agency discount notes.
Other negotiable note includes Banker’s acceptance, commercial papers, re –
purchase agreement etc.
However, Treasury bill was the first
money market instrument to be used in Nigeria. It was issued by the federal
government of Nigeria in April 1960 through the central bank of Nigeria.
Treasury bill is a debt obligation of the federal government. It is free of
default risk, though no stated interest on the bill but is issued at a discount
from face value. The returned earned from the bill is the difference a discount
issue price and free value paid on the bill at maturity. The maturity date
takes between three months, six months and a year.
Certificates of deposit are issued
by commercial banks at a discount on face value. The discount rate is
determined by the money market and the maturity is between three to twelve
months. They can be transferred from one person to another by endorsement,
whoever is the Bonafide holder than receive it at maturity (Agwu, 2006).
Federal agency discount notes which
like Treasury bill in that it is a short term credit, it bear no interest but
are rather offered at a discount development in an economy. They provide such
service as advisory role to the government, long – term credit facilities to
the public, facilitate the development of specific sector such as agricultural
sector, industries and trade etc. The first development bank in Nigeria is
Nigeria industrial development bank (NIDB) established in 1964 with the support
of the international bank for reconstruction and development. Other development
bank include; the Nigeria bank for commerce and industry (NBCI), Nigeria
agricultural and cooperative bank (NACB), the federal mortgage bank and the Nigeria export – import bank (NEXIM).
Other non – banks financial
institutions that operate in the financial market includes insurance companies,
discount houses, financial house, investment houses, stock broking firms etc.