MATRIC NO: NO72627724







I NAMES, humbly declare that this work entitled “FINANCIAL MARKET AS A TOOL FOR ECONOMIC DEVELOPMENT:  A STUDY OF NIGERIAN STOCK EXCHANGE” is as a result of my research effort carried out in a school of management science, National Open University of Nigeria, under the supervision of Dr. O.O Adeleye.

I further wish to declare that to the best of my knowledge and belief it contains no material previously published  or written by another person which to a substantial extent has been accepted for the award of any other degree from any university or other institute of higher learning except where due acknowledgement has been made in the text.



This is to certify that this research project entitled FINANCIAL MARKET AS A TOOL FOR ECONOMIC DEVELOPMENT: A STUDY OF THE NIGERIAN STOCK EXCHANGE was carried out by NAME. in the school of management sciences, National Open University of Nigeria, for the award of Master of Business Administration.


______________________________                 _________________________

Dr. O.O Adeleye                                                            Date

Project Supervisor


______________________________                 _________________________

Programme Leader                                                                  Date


______________________________                 _________________________

External Examiner                                                                   Date


______________________________                 _________________________

Dean, School of Management Science                                        Date




This project is dedicated to God Almighty.





Title page                                                                                           i

Declaration                                                                                        ii

Certification                                                                                       iii

Dedication                                                                                         iv

Acknowledgement                                                                             v

Table of Content                                                                                vi-ix

Abstract                                                                                             x

Chapter One

1.0              Introduction                                                                             1

1.1              Background of the Study                                                          2

1.11            Market in the financial system                                         5

1.12            Financial Market instrument                                           6

1.13            Regulatory institutions                                                    7

1.2              Statement of Problem                                                     7

1.3              Research Questions                                                         8

1.4              Research Hypothesis                                                       8

1.5              Purpose of the study                                                       9

1.6              Significance of the study                                                 9

1.7              Scope of the study                                                          10

1.8              Research Methodology                                                   11

1.9              Definition of Terms                                                        11



Chapter Two

2.0              Literature Review                                                           14

Functions of financial of Market                                     15

Types of financial Market                                               17

Money Market                                                                18

Participants in money market                                          19

2.1              Major money market instruments                                    23

2.11            Treasury Bills                                                                 23

2.12            Bankers Acceptance (BA)                                               24

2.13            Call money                                                                     26

2.14            Commercial Paper                                                           27

2.15            Negotiable certificate of Deposit (NCD’S)                      27

2.16            Treasury certificates                                                        29

2.17            Commercial Bills                                                            30

2.18            Banker’s Unit Fund                                                        30

2.2              Activities in the money market                                        31

2.3              Nigerian Stock Exchange                                                          31

2.4              Central Bank of Nigeria                                                  39

2.5              Problems of Nigerian Money Market                               40

2.51            Money Market Calculations                                            42

2.6              The market for institutionalized capital funds                  47

2.7              Significance of the money Market                                   49

2.8              Capital Market                                                                50

2.9              The Nigerian Capital Market Regulatory bodies              58

2.10             Capital Market Investment                                              58

2.11            Capital Market Securities                                                          59

2.12            Market Participants                                                         63

2.13            Stock Market Legislation                                                          65

2.14            Interest Rate Securities                                                    66



Research Methodology

3.0              Introduction                                                                             70

3.1              Research Design and Method                                          70

3.2              Population of Study                                                       71

3.3              Procedure For sample Selection/Size                               71

3.4              Instrumentation                                                              72

3.5              Pilot or Pre Test of Instrument                                        72

3.6              Administration of the Instrument                                    73

3.7              Procedure for data Analysis                                            73

3.8              Data Collection Procedure                                              73

3.9              Problem Encountered In The Research Methodology      75



4.0              Data Analysis And Findings                                           76

4.1              Presentation & Analysis of Data                                      76

4.2              Test of Hypothesis                                                                    94



5.0              Summary, Recommendations and Conclusion                101

5.1              Summary of Findings                                                     101

5.2              Policy Recommendation                                                 101

5.3              Conclusion from study                                                   102

5.4              Implication of the study for management                        103

And Policy recommendation

5.5              Suggestions for further studies                                        103


















This research project is on “Financial Market as a tool for economic Development”. (A study of Nigeria Stock Exchange). The study used both primary and secondary sources of data collection. Statistical tools like frequency distribution, tables, percentages and chi-square (x2) were used in the analysis of data and test of hypothesis. The research among others made the following findings; There is no significant relationship between financial market and economic development in Nigeria. An adequate provision of resources (human and non-human) does not make financial market activities successful. Poverty and low income negatively affect investments in the capital and money market. The research makes the following recommendations based on statement of the problem, that the inconsistent monetary and fiscal policies of government in general negatively affect financial institutions e.g. (banks. In particular, transactions in money market in the economy when reviewed will promote stability and investments in the economy. The inadequate resources (human and non-human) needed to conduct operations in the money market by any institutional investors (e.g.  Banks), slows down their pace in developing the financial industries and efficiency in the performance of the financial market.







The development process in developing countries have been constrained by shortage of productive factors; a critical aspect been capital and business financing has in recent times assumed a position of great importance to corporate growth.

The Nigeria financial system which consists of the money market and capital market exists to cater for the fund requirement of both the private and public sectors.

However, the performance of the money market which comprises of commercial bank which are often seen as inadequate due to the problems of high interest rates on loans, lack of prerequisite collateral on the part of the borrower, a neglect of the small scale industries in terms of loan disbursement due to the fact that he banks consider them to be high risk ventures.

The inadequacy of the bank in providing funds in sufficient amount serves as a challenge to the capital market in meeting the financial needs of organizations irrespective of its size.

The capital market therefore is the market which exists for the  mobilizations and intermediation of long terms funds between surplus and deficit economic units. The law of demand and supply applies to this market like any other market and the central features of capital market is the level of price at which transactions take place.

In this case, nothing can be said about the capital market without the body that regulates the market activities bringing about the development which is to be critically analyzed.






A financial market is a mechanism that allows people to easily buy and sell financial securities (Such as stock and bonds), commodities (Such as precious metals or agricultural goods) and other such items of value. The financial market has evolved significantly over time and has undergone various innovations to improve liquidity.

A financial market is also described as any market place where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial markets are typically defined by having transparent pricing, basic regulations on trading, costs and fees, and market forces determining the prices of securities that trades.

Financial markets can be found in nearly every nations in the world. Some are very small, with only a few participants, while others like3 the New York Stock Exchange (NYSE) and the forex markets- Trade trillions of dollars daily.

Investors have access to a large number of financial markets and exchange representing a vast array of financial products. Some of these markets have always been open to private investors; others remained the exclusive domain of major international banks and financial professionals until the very end of the twentieth century.

In economics, the term “Market” means the aggregate of possible buyers and sellers of a product or services and the transaction between them. It  is also sometimes used for what are more strictly exchanges, and organizations that facilitate the trade in financial securities, e.g., the stock or commodity exchange.

A market is one of the many varieties of systems, institutions, procedure, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including



labour) in exchange for money from buyers. It can be said that a market is the process by which the prices of goods and services are established.

For a market to be competitive there must be more than a single buyer or seller. It has been suggested that two people may trade, but it takes at least three persons to have a market, so that there is competition in at least one of its two sides, buyer and sellers. A market with a single seller and multiple buyers is a monopoly. A market with a single buyer and multiple sellers is a monopoly.

Market vary in form, scale (Volume and geographic reach), location, and types of participants, as well as the types of goods and services traded. Example include:

  • Physical retail markets, such as local public markets, farmers’ market, street markets, flea markets, bazaars, and other public marketplaces; shopping centres and shopping malls
  • Physical wholesales markets
  • (Non-Physical) internet markets (See electronics commerce)
  • Ad hoc auctions market
  • Markets for intermediate goods used in production of other goods and services
  • Labour Market
  • International currency and commodity markets
  • Stock markets, for the exchange of shares in corporations
  • Artificial markets created by regulation to exchange rights for derivations that have been designed to ameliorates externalities, such as pollutions permits, Illegal market such as the market for illicit drugs, arms or pirated products.

In mainstreams economics, the concept of a market is any structures that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services for money is a transaction. Market participants consist of all he buyers and sellers of a good who influence its price. This influence is a major study of economics and has given rise to several theories and models concerning the basic markets allow any tradable item to be evaluated and priced. A Market emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights of services and goods.

A market is not necessarily a physical and geographically identifiable place, and goods traded are not necessarily physical goods, Trading might take place over the telephone / electronically, and goods traded might be knowledge, etc.

Transactions in the market are determined by price mechanism which expresses itself by the demand and supply of the goods or services. The financial market can therefore be divided into different subtypes:

  • Capital market: A capital market is one in which individual and institutions trade financial securities. Organizations and institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets.

Any government or corporation requires capital (Funds) To finance its operations and to engage in its own long term investments. To do this, a company raises money through the sale of securities – stocks and bonds in the company name. These are bought and sold In the capital markets.

  • Money markets: the money markets is a segment of the financial market in which financial instrument with high liquidity and very short maturities are traded. The money market is used by participant as a means for borrowing and lending in the negotiable certificates of deposit (CDs), banker’s acceptances, U.S treasury bills, commercial papers, municipal notes, euro, dollars, federal funds and repurchase agreement (Repos).Money market investment are also called cash investments because of their short maturities.

The money market is used by a wide array of participants, from a company raising money by selling commercial paper into the market to an investor purchasing CDs as a safe place to park money in the short term. The money market is typically seen as a safe place to put money due to the highly liquid nature of the securities and short maturities. Because they are extremely conservative, money market securities consist of, there are risks in the money market that any investor needs to be aware of including the risk of default on securities such as commercial paper.

  • Commodity markets: A commodity market is a market that trades in primary rather than manufactured products. Soft commodities are agricultural products such as wheat, coffee, cocoa and sugar. Hard Commodities are mined, such as (Gold, Rubber and oil). Investors access about 50 Major commodity markets worldwide with purely financial transaction increasingly outnumbering physical trades in which goods are delivered. Futures contracts are the oldest way of investing in commodities.
  • Derivatives market: The derivative is named so for a reason: its Value is derived from its underlying asset or assets. A Derivative is a contract, But in this case the contract price is determined by the market price of the core assets. If that sounds complicated, its because it is .

The derivatives market adds yet another layer of complexity and is therefore not ideal for inexperienced traders looking to speculate.

  • Future Markets: Market in which participants can buy and sell commodities and their future delivery contracts. A Future market provides a medium for the complementary activities of hedging and speculation, necessary for dampening wild fluctuation in the prices caused by gluts and shortages.
  • Insurance market: Insurance Market facilities the redistribution of Various Risks.
  • Foreign exchange market: Foreign Exchange market (Forex, FX, or Currency Market) is a global decentralized market for the trading of currencies. The main participants in this market are the larger international banks.



Investors and organization have different needs, and in trying to fulfil these needs, opposite needs are matched. Where needs are matched on a large scale, markets for those needs develop. Trading in these markets is determined through price mechanism. There are also different markets in the system, such as: The financial market, Product Market, Service Market.

The Different markets In a country’s financial system are not isolated but they interact electronically with each other. The revolution in computer

and ICT, markets the world over are busy and do interact on a large scale.

Financial market can be classified into different categories depending on the characteristics of the market or instruments traded or used. Securities created by institutions in the market normally pay interest on the nominal amount, that is, the amount shown on the certificate or contracted by way of divided or interest.

The interested bearing securities market is split into the Capital and the money market.

  • Capital market is the market for the issue and trading of Long term
  • Money market is that for short term securities.

When goods such as financial instrument are traded in the market, there are certain different in the transactions done in the market such as:

The timing difference between the close of the transaction and the delivery of transaction and the settlement for the items traded. And the difference in the certainty, that the other party will honour the transaction.



The instruments traded in the financial market include:

  1. Equity shares, placements, introductions – in the primary market
  2. Bonuses/right issues – in the secondary market
  3. Bankers’ Acceptance
  4. Commercial papers
  5. Treasury Bills
  6. Certificates of Deposit
  7. Government Bonds / Stock
  8. Derivatives instrument



The regulatory institutions of the financial market in Nigeria are:

–        Central Bank of Nigeria (CBN)

–        Securities and Exchange Commission (SEC)

–        Nigerian Stock Exchange (NSE)

–        Nigeria Deposit insurance commission (NDIC)

The legislation/Legal instruments governing the operations of the financial market in Nigeria are:

–        Companies and Allied Matters Act 1990 (As amended )

–        Investment and securities Act – 1999 (As amended )

–        Central Bank of Nigeria Act – 1991 (As amended )

–        Banks and other Financial Institutions Act – 1991 (As amended )

–        Nigerian investment Promotion Commission Act 1995 (As amended )

–        Foreign Exchange ( Miscellaneous Provision Act – 1995)



There are problems that are associated with the topic understudy “ Financial Market as a tool for Economic Development ‘ Financial market as a tool for Economic Development” these are:

Capital Market in Nigeria is unable to perform its traditional role effectively (Promotion of the market to respond to the socio economic development need of the nation). Its Inability to perform its obligations as required, undermine the efforts of the entrepreneur, private and public sectors, thus effecting the growth pace of the nation socially and economically.

Small companies and new companies, face different problems in making use of money and capital market in relation to access to finance and lack of encouragement from the capital market in setting up Nigeria’s Domestic funds, Foreign funds and venture funds, smaller and new companies  suffered greatly from inability to raise required finance, due to various reasons, high interest rate;; stringent listing condition and failure  to provide charge (Floating, specific) on the purpose of Loan. If a bank lending rate is reduced and the institutional development is encouraged it will enhance rapid economic development.

Money market operators are unable to secure depositors against inflation and currency depreciation. This problem has discouraged the populace from saving their excess income thus limiting the ability of wealth creation in the country. There is a need to maintain stability in the value of the currency and its purchasing power.


  1. What is the extent to which the Securities and Exchange Commission / Nigeria Stock Exchange has achieved their roles in the financial market of the Nigeria Economy?
  2. What are functions of the securities and exchange Commission as a Stipulated in the constitution, he power of the commission and its performance.

iii.      What are the effect of the regulatory institutions and the legal instruments governing the operations of the financial markets in Nigeria?

  1. A financial market is a “mechanism” – how does this affect the transactions in the capital and money markets?
  2. What are the issues and problems associated with the Nigeria Stock Exchange, the main participants in the Nigeria stock Exchange and the level of Trading in the Stock Exchange?



HO; Financial market cannot be used as a tool to improve the economic development.

HO; Financial market can be used as a tool to improve the economic development.


HO; Financial market has no positive influence in an economic development.

HO; financial market has positive influence in an economic development.



  1. The aim of the study is to consider the financial market as tool for Economic development.
  2. To examine the extent to which the securities and Exchange Commission and the Nigerian Stock Exchange has achieved their roles in Capital Market of Nigeria economy.

iii.       To examine the functions of the Securities and Exchange Commission as stipulated in the constitution, power and its performance.

  1. To examine the risk taking in the financial transactions in the economy.
  2. To examine the roles financial market plays in the economy, that is, financial status.


Apart from fulfilling the academics requirements, it also has the following significance.

  1. It enhances the effect of capital and money market of the Nigeria economy, especially as a tool for economic development.
  2. To test the criticism that financial market has less to do as a tool for economic development.

iii.       It serves as a pivot on which future studies will evolve.

  1. It enhances the financial status of the Nigeria economic system under the capital and money markets.
  2. To encourage large enterprises to gain access into public listing.
  3. Also to serve as a useful guide to future research on the real of the theoretical framework.

vii.      The outcome of the research work will assist that regards, since the problem of investment decision has continue to grow.

viii.     This situation suggests that the present investors, prospective investors, financial analysts, and all other interested persons in the financial market.



The scope of the study is limited by the regulatory roles being played by the capital and money markets under the financial market, and the role of the regulatory institutions in the financial market in Nigeria.



Methodology is the systematic, theoretical analysis of the methods applied to a field of study. It comprises the theoretical analysis of the body of methods and principles associated with a branch of knowledge. Typically, it encompasses concepts such as paradigm, theoretical model, phases and quantitative or qualitative techniques.

A methodology does not set out to provide solutions – it is, therefore, not same thing as a method. Instead, it offers the theoretical underpinning for understanding which method, set of  methods or so called “best practices” can be applied to specific case, for example, to calculate a specific result.



MARKET: A market is a place where buyers and sellers of a particular product or service are found. A market need not be a physical location.

FINANCE: Finance, involves the management, creation and study of money, banking, credit, investments, assets and liabilities. Students become familiar with financial systems, which include the public, private and government spaces. They also study financial instruments related to countless assets and liabilities.

COMMODITY: A physical substance such as food, grains, and metals, which is interchangeable with another product of the same type, and which investors buy and sell, usually through future contracts. The price of the commodity is subject to supply and demand. Risk is actually the reason exchange trading of the basic agricultural products began.

ECONOMICS: Economics is the science which studies human behavior as a relationship between given ends and scarce means which have alternative uses.

INSTITUTION: An institution is social structure in which people cooperate and which influences the behavior of people and the way they live.

INFRASTRUCTURE: The basic physical system of a country’s or community’s population, including roads, utilities water, sewage, etc. These systems are considered essential for enabling productivity in the economy. Developing infrastructure often requires large initial investment, but the economies of scale tend to be significant.

MONEY: Money is primarily a medium of exchange or means of exchange. It is a way for a person to trade what he has for what he wants. Ideal money has three critical characteristics: it acts as a medium of exchange; it is an economic good; and it is a means of economic calculation.

MONOPOLY: A situation in which a single company owns all or nearly all of the market for a given type of product or service. This would happen in the case that there is a barrier to entry into the industry that allows single company to operate without competition.

MONOPSONY: A market similar to a monopoly except that large buyer not seller controls a large proportion of the market and drives the prices down sometimes referred to as the buyer’s monopoly.

BUYER: A buyer is any person who contracts to acquire an asset in return for some form of consideration. A buyer’s primary responsibility is obtaining the highest quality goods at the lowest coast.

SELLER: A party that makes offers or contracts to make a sale to an actual or potential buyer also called vendor.

SUPPLY: The total amount of a product(good or service) available for purchase at any specified price.

DEMAND: An economic principle that describes a consumer’s desire and willingness to pay a price for a specified good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa.

CERTIFICATE OF DEPOSIT (CDs): A savings certificate entitling the bearer to receive interest. A CD bears a maturity date , a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years.

INSURANCE: Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk of a management primarily used to hedge against the risk of a contingent, uncertain loss.

EQUITY: An ownership interest in a corporation in the form of common stock or preferred stock.