A CASE STUDY OF THE NIGERIAN STOCK EXCHANGE, ONITSHA, ANAMBRA STATE.
ABSTRACT
The research work was undertaken to
asses the impact of inflation on the Nigerian capital markets. The work
was intended to achieve the following objectives; to evaluate the way
inflation affects the shares of quoted companies in Nigerian Stock
Exchange and to examine the impact of inflation on the price of
securities in the Nigerian capital markets. Relevant data were data
collected from both the primary and secondary sources. Questionnaires
were the main primary data collection instrument employed while data
from various relevant publications constituted the sources of secondary
data. Upon the analysis of data, the findings were draw; that inflation
reduces the purchasing power of any currency, which directly affects the
activities of Nigerian Stock Exchange; that inflation really reduces
the amount of patronage of the shares of quoted companies. On the basis
of the findings, it was recommended that management of Nigerian Stock
Exchange should thoroughly stand up to the challenge of checking
inflationary trend in the exchange while the government should introduce
the price control board and monitor other sectors of the economy whose
activities are likely to spring up inflation
CHARTER ONE
1.0 INTRODUCTION
1.1 BACK GROUND OF THE STUDY
This study is a modest attempt at a lucid
explication of the perceived impact of inflation on the Nigerian
capital market. Inflation has been defined by many economics. According
to Ile (1990:160), he said that inflation is a contentious upward
movement in the general price level. It can also be defined as an
intermittent rise in the general level of prices.
Inflation may involve a steady but
moderate annual rise in the general price level up to about 5%. Here,
the volume of purchasing power is persistently running out of the output
of goods and services so that there is a continuous tendency for price
commodities and factors of production fail to increase with the demand
for them. These types of inflation can be persistent rise in general
price level. It is a situation of too much money chasing too few goods.
At period, the value of money, because of
excessive creation of money results in high increase in price. This
type of inflation is described as galloping inflation, money losses its
function as a store of value and its medium of exchange function may be
affected as people are unwilling to accept it.
According to OBASIKENE (2003) she noted
that capital market is a market for buying and selling of long term
funds. The Nigeria capital market is of two categories namely;
- Primary market
- Secondary market
PRIMARY MARKET: this is
the market for the issuance of new securities (securities are document/
papers that are given to show that money was borrowed) the securities
sold in the market are being issued into the market for the first time.
SECONDARY MARKET: Is a market for trading of old securities. Old securities are securities that are already in existence.
1.2 STATEMENT OF THE PROBLEM
To avoid the ugly situation of
inflationary trend in Nigeria, the following problems are stated in the
study to find solution, which will help reduce the impact of inflation
in the Nigerian capital market. The management of the Nigeria stock
exchange has done nothing in checking inflationary trend in the Nigerian
capital market. The government has not done anything to monitor other
sector of the economy whose activities are likely to spring up
inflation. Also government failed to extend the bank loan to important
sector of economy.
Thus, the problem of this study is to investigate the important of inflation on the Nigerian capital market.
1.3 OBJECTIVES OF THE STUDY
This study is designed towards achieving the following major objectives:
- To evaluate the way inflation affects the shares of quoted companies in Nigerian Stock Exchange.
- To determine the effect of inflation on the ability of the economy to purchase securities in the Nigerian capital market.
- To ascertain whether the inflationary trends affects the Nigerian Capital Market Operation adversely.
- To examine the level of inflation in Nigeria.
- To examine the impact of inflation on the price of securities in the Nigerian Capital market.
1.4 RESEARCH QUESTIONS
The research questions for work will be based on the following:
- To what extent does inflation affect the shares of quoted companies in the Nigerian Stock Exchange?
- To what extent does inflation effect the purchasing of securities in the Nigerian capital market?
- How far does an inflationary trend in Nigeria affect the Nigerian Capital market?
- What impact does inflation have on the price of securities?
1.5 FORMULATION OF HYPOTHESIS
The following have been put forward
tentatively for the purpose of developing evidence for or against the
preposition in question.
- Ho: Nigerian Stock Exchange staff perception is that inflation does not affect the shares of quoted companies
- Ho: Nigerian Stock Exchange staff perception is that inflation has no affect on the pricing of securities on the Nigerian Capital Market.
- Ho: Nigerian Stock Exchange staff perception is that inflationary trends in Nigeria do not affect the Nigerian Capital Market.
- Ho: Nigerian Stock Exchange staff perception is that the inflationary trend in Nigeria does affect the Nigerian capital market operations.
1.6 SIGNIFICANCE OF THE STUDY
The beneficiaries of the research work are as follows:
- This study is significant to all the students of banking and finance to enable them know more about the impact of inflation on the Nigerian capital market. Also to students of other departments who may be interested in carrying out further research study on capital market.
- Investor of long-term capital:- lender and borrowers of long term basis will drive assistance from this work, as it will enable them to do their homework very well before investing.
- Management of Nigerian stock exchanges in better policy formation.
1.7 SCOPE OF THE STUDY
This research area and dimension of
coverage are based on the effect of inflation on Nigerian capital market
operations. The work extends to the inflationary impact on the various
aims of the Nigerian capital market. The work also covers the existing
forces that influence the activities within the capital market.
We have Nigerian stock exchange all over
the country but for the sake of this study. Nigerian Stock Exchange
Onitsha was covered.
1.8 LIMITATIONS OF THE STUDY
The researcher is also affected by the
usual constraints and problems prominent in similar researchers in
Nigeria. These constraints were summarized below;
- FINANCE: This created a lot of problems to researcher in cause of carrying out proper investigation of the research, but this was not enough because of other uses in which it is been put to.
- TIME CONSTRAINTS: The time available for the research work was very limited with other assignment and preparation for examination has caused a barrier to the research findings.
- DEARTH OF STATISTICAL DATA INFORMATION: As a result of lack of documental data, the research work appears to be some how written for easy understanding.
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