1.1 BACKGROUND OF THE STUDY
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 Stock 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 Stock 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 stock 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 Stock 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 Stock 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 stock 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 stock exchange.
1.3 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 stock exchange in the economy
1.4 OBJECTIVE OF THE RESEARCH
- To determine the nature of the capital market
- To determine the role of the capital market in the economy
- To determine the nature and role of the Nigerian stock exchange
1.5 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 stock exchange
It shall also serve as a source of information to managers and financial experts.
1.6 STATEMENT OF THE HYPOTHESIS
- Ho sale of shares in the Nigerian stock exchange is low
Hi sales of shares in the Nigerian stock exchange is high
2 Ho capital formation in Nigerian stock exchange is low
Hi capital formation in Nigerian stock
Exchange is high
3Ho impact of the Nigerian stock exchange
On the economy is low
Hi impact of the Nigerian stock exchange on the economy is high
- 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 stock exchange
- Definition of terms
FINANCIAL MARKET DEFINED
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.
STOCK EXCHANGE DEFINED
Stock 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 Stock 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 DEFINED
Secondary Market facilitates the buying and selling
of securities that are already in the hands of the general public (investors).
PRIMARY MARKET DEFINED
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.