EVALUATION OF THE DYNAMIC EFFECTS OF IDLE CASH HOLDING IN A DEVELOPMENT ECONOMY(A CASH STUDY OF OGBETE MAIN MARKET)



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EVALUATION OF THE DYNAMIC EFFECTS OF IDLE CASH HOLDING IN A DEVELOPMENT ECONOMY(A CASH STUDY OF OGBETE MAIN MARKET)



CHAPTER ONE

INTRODUCTION

1.0 BACKGROUND INFORMATION OF THE SUBJECT MATTER

In a developing economy like ours, a sizeable amount of money is held in excess of normal need. This excess money is held is idle, because it does not produce any income, The business communities, individuals, household etc are holding a great proportion of this idle money. The involvement in the evil of boarding cash has a very serious effect on the financial institutions. The banking system ability of creating deposit money is constrained or hampered. The banks can only create small amount of deposit money, which is not enough to satisfy the teeming population seeking for loan. As a result of this, the interest rate will increase proportionately. Prices will increase while on the other hand demand will reduce increase in unemployment rate and drastic fall in national income. The industrial sector is also affected because they depend on commercial and merchant banks loan for effective production and expansion. The consequences of bank not wholly honoring loan realest has put these industries in a light corner by producing below capacity, low quality product and retrenchment as an available means of production cost cut measure or to bread even Economic growth and development of any nation is a combination of many variable ie price, inflation deflation employment and interest rate. This variable. Money is the prime mover of economic development as a result of its relationship with economic activities. Increase in the volume of money supply in the economy will definitely bring a remarkable change in the interest rate. This effect will lead to increase investment, employment, national income and expansion of industries. With increase in awareness and effective mobilization of idle cash held by these prime agents of the economic activities, the ability of creating deposit will be enhanced. Banks can now meet the loadable demands of the entire economy wholly

1.1 STATEMENT OF PROBLEMS

The availability of capital is the most outstanding factor to consider in assessing the workability feasibility, survival and its ability to met business expenses as and when due. Are business organizations able to finance their business activities? If not what is responsible for this? Is it the inability of banks to give enough loans.? With the increasing number of banks every day there is the assertion that banks are not able to meet the Loanable demand of theses business organization, both small and big organization. Why have these apex institution failed to meet up to the financial needs of these yearning organization? Is it that enormous amount of money is held idle in the pocket purses and homes of public. What factors are responsible for high interest rate, unemployment, inflation etc? have the reasons of holding money ie transaction speculative and precautionary motives actually justified the need for continued holding of cash? What has been done by government and financial institutions towards solving these problem? The research will therefore analyze the problems facing the effective mobilization of idle cash held by the public with greater emphasis on ogbete main market. In line with this research the effects of idle cash holding to the economy in general and the holder in particular, will not be left out Recommendation based on the findings will be made to rebuild the relationship between banks and business communities.

1.2 OBJECTIVE OF THE STUDY

The objectives of the study is centered on

1. Examining the extend or level of relationship between banks and the businessmen

2. Finding out the cost of holding cash relative to demand deposit and the consequences involve in holding money.

3. Determining what the financial institution has been doing in respect to mobilizing these idle cash and channeling them to the productive sector of the economy.

1.3 HYPOTHESIS

The following hypothesis will be focused and tested on:

1. Idle cash holding and economic activities are not related.

2. Idle cash did not contribute to the factors responsible for rising interest rate

1.4 SIGNIFICANCE OF THE STUDY

The idle of this study I aimed at the determination of the dynamic effects of idle cash holding in a developing economy like Nigeria and Enugu business communities is particular. Precisely, on completion of this research it will provide:

1. An insight into the size of idle cash hold which does not contribute to the economic growths and development of the economy.

2. A means solving the liquidity problem of banks

3. Government with the knowledge of the effectiveness of banks activities and reveal areas of loop- hold that need arrest.

4. The business communities the economic advantages of making use of banks.

5. Solution to the problem of literature on idle cash on Enugu, which is scarcely available.

1.5 SCOPE OF STUDY

The research is limited to only Enugu business communities an important city in Enugu state. Discussions in most aspects affect Nigeria economic position and other countries.

1.6 LIMITATOIONS OF THE STUDY

In the course of this research work, 1 encountered some numerous problems as

1. FINANCE: As a result of lack of finance 1 the researcher was unable to visit ogbete market as often as possible. As a student one is faced with many problems that gulp all the money give for the exercise.

2. TIME: Thee time given for the study is rather too small and short as the researcher is faced with other school activities and lectures in other courses during the period of the study. A research of this nature that is expected to give an in depth preview should require a concentration of time and efforts.

3. ACCOMMODATION: The researcher had neither a relation nor friend resident at the surrounding of ogbete main market. This made it difficult for a permanent stay around Ogbete.

4. LITERATURE: There is hardly enough literature or material concerning the implication of idle cash holding in Enugu state and this serves as a major constraint. Finance and accommodation made it possible to limit research to what is only obtainable in Enugu library.

5. TRANSPORTATION SYSTEM POBLEM The research being carried out in main Enugu metropolis transport cost is high coupled with incessant fuel scarcity it was a problem at the period of this research

1.7 DEFINITION OF TERMS

1. MONEY: Money is anything used to facilitate transition. In other word, money is anything that is generally acceptable as an instrument for settling debts and carrying out different transaction. Money must function as a standard of differed payment store of value unit of account and medium of exchange. Moreover before money can perform this function effectively it must have some characteristic as general acceptability divisibility etc. Different commodities that have various time and culture served as money paper gold silver mental cigarettes etc.

2. FINANCIAL INSTITUTION: This is an organization or institution that acts as a middle may in order to being lenders and borrowers together making available, Loanable funds to those willing to pay for the cost.

3. BANK: This is a financial institution whose main motive is to maximize profit through the maximization of deposit and extension of loans and advances to the economy. Banks pays interest to fund owners and change interest on; loans extended to fund users.

4. CASH: This is the aggregate amount of notes and coins held in the bank branches, head offices and also the amount that are in the hand of the public

5. BANKING HABITS: This portrays the degree of responsive of the public in a given territory to the use of banking facilities available to them. In another words, it is seen as the rate at which the populace makes use of banks.

6. IDLE CASH: cash that is put into unproductive use because it does not contribute anything to the holder. This sis also an accumulation of currency in excess of the normal needs usually motivated by fear of future scarcity

7. ECONOMIC GROWTH AND DEVELOPMENT: Economic growth is the process of increasing national output and income per head of a nation. It demonstrates the extent to which real national output head has increased Economic development is where a country real per capital gross national product of income increases over a sustained period of time. It is also the desirable change in the economic and social super structure of the society.

Citation - Reference

All Project Materials Inc. (2020). EVALUATION OF THE DYNAMIC EFFECTS OF IDLE CASH HOLDING IN A DEVELOPMENT ECONOMY(A CASH STUDY OF OGBETE MAIN MARKET). Available at: https://researchcub.info/department/paper-7335.html. [Accessed: ].

EVALUATION OF THE DYNAMIC EFFECTS OF IDLE CASH HOLDING IN A DEVELOPMENT ECONOMY(A CASH STUDY OF OGBETE MAIN MARKET)


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The availability of capital is the most outstanding factor to consider in assessing the workability feasibility, survival and its ability to met business expenses as and when due. Are business organizations able to finance their business activities? If not what is responsible for this? Is it the inability of banks to give enough loans.? With the increasing number of banks every day there is the assertion that banks are not able to meet the Loanable demand of theses business organization, both small and big organization. Why have these apex institution failed to meet up to the financial needs of these yearning organization? Is it that enormous amount of money is held idle in the pocket purses and homes of public. What factors are responsible for high interest rate, unemployment, inflation etc? have the reasons of holding money ie transaction speculative and precautionary motives actually justified the need for continued holding of cash? What has been done by government and financial institutions towards solving these problem? The research will therefore analyze the problems facing the effective mobilization of idle cash held by the public with greater emphasis on ogbete main market. In line with this research the effects of idle cash holding to the economy in general and the holder in particular, will not be left out Recommendation based on the findings will be made to rebuild the relationship between banks and business communities... Click here for more

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