THE ROLE OF STOCK EXCHANGE IN THE DEVELOPMENT OF CAPITAL MARKET (A CASE STUDY OF NIGERIA STOCK EXCHANGE)


THE ROLE OF STOCK EXCHANGE IN THE DEVELOPMENT OF CAPITAL MARKET (A CASE STUDY OF NIGERIA STOCK EXCHANGE)  

ABSTRACT

A case study of Nigeria, the contribution  of stock  exchange  in the banking  sector and in economic  well being of the general public.

In a nutshell, the stock exchange aims to provide an atmosphere where buyer and sellers of securities  meet to buy  and sells  shares (securities)

The importance of stock exchange  cannot  be over emphasized  in the banking  sector and even it performs prominent roles in Nigeria  economy at large. In developing our economy  in Nigeria in Banking sector, with  stock exchange  had came into being so as to perform this active part in  banking  and Nigeria  as well, in view of the above, the stock exchange  market aimed at motivating and encourage the Investor, Brokers as well  as the general public  to have improvement in their aims of buying and selling securities, through  proper usage of the instrument  used in the stock exchange market.           

TABLE OF CONTENTS

Title page 

Certification 

Dedication 

Acknowledgement 

Abstract

Table of content 

CHAPTER ONE

1.0 Introduction 1-2 

1.1 Background of the Study 2-5

1.2 Objective of the Study 5-6

1.3 Scope of the Study 6-7

1.4 Statement of the Problem 7-8

1.5 Research  Hypothesis 8-9

1.6 Limitation of the Study 9

1.7 Delimitation of the Study 9

1.8 Significant of the Study 10

1.9 Definition of Terms 10-14

CHAPTER TWO: 

2.0Literature Review

2.1 The Capital Market 15-16

2.2 Reasons for Establishment of the Nigeria Capital Market 16-17

2.3 Function of the Nigeria capital market 17-18

2.4 Composition of capital market 18-27

2.5 Nigeria stock exchange 27-28

2.6 Development of stock exchange in Nigeria 28-27

2.7 Function of the Nigeria stock exchange 27-34

2.8 Instrument Used in Stock Exchange 34-36

CHAPTER THREE

3.1 Introduction 37

3.2 Research Design 37-39

3.3 Method of Data Collection 39-34

3.4 Sampling Population 40-42

3.5 Research instrument 42-43

3.6 Questionnaire Design 43

CHAPTER FOUR

4.1 Introduction 44

4.2 Data Analysis and Presentation 44-45

4.3 Interpretation of Data and Analysis 45-58

4.4 General Comments 58- 

CHAPTER FIVE 

5.0 Summary Conclusion and Recommendation 

5.1 Summary

5.2 Conclusion

5.3 Recommendation 

Appendix

References 

INTRODUCTION

The capital market is a market which  deals in long – term loans. It supplies industry with fixed  and working capital  and finances medium- term  and long term  borrowing  of the federal, state and local governments.

The capital  market deals in ordinary  stocks and shares and debentures of corporations and bond and securities  of government and it should  be noted that the fund which flow into the capital market come from individuals  who have savings to invest.

In another  sense the stock exchange plays an important  role in the economy, it determine the economics health of the country  and has a pivotal  role  in mobilizing  resources for the  development of capital market. It is  patient to know that the capital market functions through stock exchange market under the stock  exchange of every country.

A case study of  Nigeria stock exchange, the contribution  of stock exchange in the banking sector  and in the economic will being  of the public 

In a nut shell, the tock exchange aims to provide an atmosphere when buyer and seller of securities must to buy and sell shoves (securities) the study on the role of stock exchange in the development of capital market will focus on:

(a) the role  of stock  exchange  in Nigeria and the capital  market

(b) history  of Nigeria stock exchange and it past operations 

(c) Effect and important of stock exchange as a unit of capital market on the industrial development.

(d) Impact on the  investor and issues of the securities

(e) Nature of the capital market and exchange in the capital market operations.

(f) Participant in the capital market

(g) Problem  of Nigeria stock  exchange in the capital  market operations 

Statement of the problem 

The focus of the study will be to identify the role of stock.

Stock exchange in the development of capital market, and Nigeria stock exchange will be the case- study. In the course of the study answer will provided to the following.

a. What are the role of stock exchange in Nigeria in the capital market

b. What is the historical background of stock exchange and review of their operation in the past.

c. What are the effect and importance of stock exchange as a unit of capital market on industrial development.

d. What are the  participant in the capital market and exchange in the capital market operation

e. Who are participant in the capital market and exchange in the capital  market operation.

f. What  is the nature and who are the participant of the capital market

g. What are the limitation  of problems  of Nigeria stock  exchange  in the capital market  operation

Aims and objective of the study 

It is important to know that every country how their own stock exchange which contribute and determine the economy of respective country. This research work will only cover Nigeria stock exchange and it role in the development of the Nigerian capital market. By so doing, the main reason for embarking on these studies is to derived answer to the statement of the problems, which will fill the existing knowledge gap.

The aims and objective of this study include:

a. to focus on the examination of the role  of stock exchange  in Nigeria, and the  capital  market.

b. To show the history of stock exchange and review of their operation in the past.

c. To bring into time light the effect and important of stock exchange as a unit of capital market on the industrial development.

d. To show the significant impact of the investor and issue of securities

e. To know the nature of participant of the capital  market  and exchange in the capital market operation.

f. To know the nature and participant  of the capital market.

g. To  bring out limitation of problems of Nigeria stock exchange in the capital market operation.

Statement of hypothesis

The general hypothesis that will be tested in the study of the research  is as follow

Ho: the role of stock exchange has not develop the capital  market

Hi: the role of stock exchange has developed the capital  market

Ho: the  stock exchange  performs no function to the country

Hi: the stock exchange perform  functions to the country.

Research  methodology  

Base on the topic, the study will use primary and secondary  sources of information as well as other psychological devices;

The primary sources will include:

⦁ Response  from questionnaire

⦁ Materials  from the case study materials,

⦁ Materials  from the internet.

The secondary  source will include

⦁ Text books 

and  the psychological devices  will be to studying their behavior  scenically and much emphasis  will be places on the  questionnaire  as it will cover a wider  population  than when other instrument (s) are  being  for the same purpose

question: list of  question will be drawn for respondent to answer. The study will avoid difficult and ambiguous question, the question will be simple and  straight  forward and rooms for the expression of views / findings of respondents (s) regarding the study will be created

a complete presentation of population from which it is drawn a sample, well be precisely  be part of the population, as it is a subject of the entire population of any kind.

Definition of terms/ concepts 

 In the  stud emphasis  may be placed on some wards and may be used repeatedly which it meaning they differ from English dictionary meanings, such  wards and short meaning  needed to be know to started  below for these proposed/ study:

1 the  capital market which is the market that deal with long- term fund 

2 stock  market  operators: these are those  that are included in the operation  of the stock market such as jobber, stock brokers, investment  advisers, and issuing houses  etc

3 prim market which is regarded as the original  or the main market

4 second tier  securities market which is segment of capital  market where small  companies operate.

5 Ordinary  and reference shares: ordinary shows are common shares  and generally carry no fixed rate while the preference share usually  have fixed rate of dividend and their  holders are paid if company makes profit

6 To mention few other could be bulls, bear, stag and others which the meaning will be in details in the study.

⦁ plans and organization of the study

the research  work will be divided into five chapters. Each chapter contain  the following:

chapter one will have the background of the study, objective of the study, scope of the study, statement  of the problem, research  hypothesis, limitation of the study , significant  of the study and definition of  terms

chapter two will b theoretical frame work which will forces on the laterally review of Nigeria stock exchange  and capital market, reason  for establishment of the Nigeria capital market, composition of  capital market, Nigeria stock exchange, development of stock exchange  in Nigeria, functions of the stock exchange  and instrument use in stock exchange.

Chapter three will state briefly the analysis  of various method used in data collected and emphasized on research design, method of data collecting sampling  population, questionnaire design.

While  the chapter four will contain  introduction, data analysis and presentation, interpretation of data and analysis, testing of hypothesis  and general comment.

And finally chapter five will discuss summary, conclusion  recommendation and  suggestion for further studies

Bibliography reference 

The will state the list of materials text books journal  magazine  consulted in the writing  of the proposal  and those that will be use to write the main project.

CHAPTER  ONE

1.0 INTRODUCTION 

1.1 background of the study 

The  Nigeria stock exchange provide a market where holding of existing “ quoted” shares wishing  for sell; such share be sold by making contact with  individual and institution  which are interested in buying  and selling of shares, stocks bonds and security. Also  any one who has surplus  fund after current  living expenses  and a reserve for an emergency  might decide to invest such surplus fund in security.

The stock exchange  is otherwise known as “ security market” the stock  exchange  play on important  roe in the economy in mobilizing resources  for development of capital market, the stock exchange  provides facilities for bringing together suppliers and users of capital

Security Market: 

A stock exchange therefore, is a market where large / small shares of companies and government securities  are traded.

Former director general of the Nigeria stock exchange apostle H.I Alike describe  the stock exchange  as the corner stone  in the nations capital  formation and the achieving of the engine of the financial institution   resolve for example.

Nigeria security  and exchange commission (N.S.E.C) of public  enterprise, savers, underwrite issuing houses, fund user, stock brokers, security registers.

The establishment of the exchange in 1960 market the informal  birth of Nigeria capital market which serves  as a range of purpose including the following.

i Mobilization  of savings  from numerous economics units of economic growth and development.

ii Provision of adequate liquidity to investor.

iii Broad of the ownership base of Assets as well as the creation of private sector.

iv Provision  of alternative source of fund for government other than taxation.

v Encouragement  of more efficient allocation of new investment through price mechanism

vi Encouragement of more efficient of given amount of tangible  wealth through changes in the composition and ownership wealth

vii Promotion  of rapid changes that exist to link together  sellers and buyer of quoted investment. They help to widen there base of ownership of public companies. Stock  liquidity  also provides especially  for making it easy  for government and industries to raise fund (s) for  development of their  programmes.

1.2 OBJECTIVE OF THE STUDY 

The main aims of the research  work are as follows:

i To focus on the examination of the role of stock exchange in Nigeria in the development  of capital  market.

ii To  show the  history of  stock  exchange and review of their operation  in the past 

iii To bring into limelight  the effect and importance of stock exchange as a unit  of capital  market on industrial development 

iv To show significant impact on the investor and issues of the securities 

v To know the nature and participant of the capital  and exchange  in the capital  market operation

vi To know the nature of participant in the capital market.

vii To bring out limitation of problems of Nigeria stock exchange in the capital  market operation.

1.3 Scope Of The Study 

With available data on the Nigeria  stock exchange system the case study will focuses its attention on the management and role of the stock exchange system.

This  research work was not carried out without difficulties, many of the limitation which is considered very important are listed below:

⦁ Financial  Problem: considering  the global  economic melt down and devastating  economic  problems  confronted by non- political  aligns  in the country, the researcher  is confronted with financial  inadequacy  due to other academic  commitment  which involves  money, to say categorically  that the cost used in caring out this research  work involves thousand (s) of naira. It is not an over statement

⦁ Time Factor: Another  prominent  obstacle  faces by the researcher is that of time factor. Talk about the time took to travel, planning  organizing  and collecting of materials to be used for the write-up 

⦁ Transportation  Problem: During the period of carrying  out this research  work in collection of  data the researcher spent a lot of money on the cost of transport fare (s)  and on some occasion the researcher will have to “trek” 

1.4 STATEMENT OF THE PROBLEM 

The presentation  is mainly concerned with the role of stock  exchange  in the development of capital market in Nigeria stock exchange.

In this research  work, the role of stock exchange in Nigeria stock exchange shall be thoroughly  examined with particular emphasis on the following

⦁ Exchange rate problem the unstable nature of the exchange rate is a major headache to the Nigeria stock exchange prior to march 1992, exchange  rates were still easy  and investors could be able  to invest their money

⦁ The number of companies trading on the floors  is alarmingly affected by the operation of the exchange

1.5 RESEARCH HYPOTHESIS  

The following  hypothesis is considered as the basis of the question  to  be answered for the purpose of the study 

Ho: The role of stock exchange  has not developed the capital  market 

Hi: The role of stock exchange has developed the capital market.

Ho: The stock exchange marker perform no function to the country 

Hi: The stock  exchange market perform function  to thee country

1.6 LIMITATION OF THE STUDY 

It is normal for human being to be face with certain problems in the achievement  of a particular  objectives which should be  considered  challenges, therefore  there are numerous difficulties  confronted with in carrying  out this research  work which  can be trained to lack of finance  to various companies for adequate  information gathering which might have enriched the research work.

1.7 Delimitation  Of The Study 

The  research work covers the evolution and historical background as well as role of stock exchange in the development of capital market focuses on Nigeria stock exchange as case study

1.8 SIGNIFICANT  OF THE STUDY 

The importance  of a well developed stock market and its role in the banks recapitalization cannot be over emphasized, hence, this study is aimed at examining and analyzing  the roles or impact of Nigeria  stock exchange on the assets base of banks it aimed at assisting  prospective researcher  into the factors that led to the mergers and acquisition of the consolidation of banks.

1.9 DEFINITION OF TERM 

The  capital  market: This is the market which deals with long term funds. The most important  role play in this market is the stock exchange, while the regulatory institution is the Nigeria securities and exchange commission it is  a market place where listed securities such as bond, debentures   stocks and  shares of varying type are bought  and sold

A stock  exchange is established  to act as catalyst of business expansion or growth.

Stock market operators: The stock market operator involves the following:

⦁ Jobbers

⦁ Stock  Brokers 

⦁ Investment  Advisers

⦁ Issuing Houses

Jobbers: The jobbers otherwise known as market makers are independent dealers i.e. they trade on their account and bear the risk of price fluctuation. They do no receive  commission  the jobbers  returns depend on the spread between bid and offer prices.

The function of the  jobber includes  maintaining a continuous and  orderly market with the aim of ensuring  that securities  are readily available  and trade and prevailing  market prices.

Stock Brokers: These are member of the exchange who buy and sell securities on behalf of the investment public

They also sponsor  issues to the stock exchange  for listing an also  underwrite  and handle primary  distribution  of securities.

Investment Advisers: these are non- registered members of the exchange  who perform functions similar  to stock brokers. Not being  members of the exchange, they cannot sponsor  issues to the stock  exchange for listing

Issuing  House: These are agent who arrange the issues of securities on behalf of the governments or firms  intending to raise money from the investing public. Merchant banks  or stock broker do this job.

Prime market:  Is regarded as the original or the main market deals in fully listed share or quoted on the stock exchange

Second tier securities  market: This is a segment of capital market where small companies  operates

The bull and the bear  market:

Bulls is an investor who believes that the market price are certain to go up. Bull means upward trend. In the  context of the stock market, it means the market is going up and doing well as reflected in share prices.

Bears (s)   is an investor  who believes that the market prices  are certain to  go down. Bear trend means that the  market is going down and not doing well 

Stag (s) is a male deer, In the context  of shares, it refers to equities.  with potentials of upward movement  in price. Therefore  on  investor desirous  of making profit form now issues of shares  buys the  shares before they are listed and sells them at a higher price.

Investment: simple means of  giving up cash now is exchange for the promise of more cash in the future.

Shares (s): it represent evidence of investment interest of a person in a company and government establishment

Ordinary and preference share:   The UK term for a share in the equity of a company. The US equivalent term is common stock. The holder of an ordinary share is entitle to share  in any distribution of dividend in proportion to number of  share hold. Ordinary shares usually but not invariably  entitles their holders to vote at company meetings. They are contrasted with debentures and preference shares. Debenture holder normally have a fixed   entitlement to interest    but no vote provided  the interest is paid and any other conditions are compiled with preference share holders have not vote but must be paid heir dividend before any distribution to ordinary shareholder  is allows. In the event  of winding  up a company, ordinary shareholder is rank last in any claim to company assets, but get in unlimited part of any residual there is after paying off the others .

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THE ROLE OF STOCK EXCHANGE IN THE DEVELOPMENT OF CAPITAL MARKET (A CASE STUDY OF NIGERIA STOCK EXCHANGE)



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