Money
market does not exist in a vacuum. It operates in an economy. Firstly, the
fundamental problem facing any economy is scarcity. Put simply, there are not
enough goods and services available to satisfy all our wants. Consequently,
some method of allocating scare commodities must be employed.
market does not exist in a vacuum. It operates in an economy. Firstly, the
fundamental problem facing any economy is scarcity. Put simply, there are not
enough goods and services available to satisfy all our wants. Consequently,
some method of allocating scare commodities must be employed.
In
most economies, through a series of bids and offers made in the markets, goods
and services are allocated between the competing business uses to which they
may be put. Therefore, the decisions that people make are determined by the
alternatives that are available, and prices in the market give the information
on which exchange and substitution can be made. In a money economy, such
decisions are effectively carried out through credit instruments
most economies, through a series of bids and offers made in the markets, goods
and services are allocated between the competing business uses to which they
may be put. Therefore, the decisions that people make are determined by the
alternatives that are available, and prices in the market give the information
on which exchange and substitution can be made. In a money economy, such
decisions are effectively carried out through credit instruments
There
are two ways of looking at transactions in the markets for credit instruments.
They can be looked upon either as places for the buying and selling of the
credit instrument or as places for the lending and borrowing of funds
are two ways of looking at transactions in the markets for credit instruments.
They can be looked upon either as places for the buying and selling of the
credit instrument or as places for the lending and borrowing of funds
Many
different kinds of credit instruments exist, each representing a different kind
of loan. Each type of loan whether between individuals, banks, non bank
financial intermediaries, non financial co operations or government has its own
type of credit instrument and financial market. These separate credit market obviously
peculiarities, but they still can be classified as being primary markets or
secondary market
different kinds of credit instruments exist, each representing a different kind
of loan. Each type of loan whether between individuals, banks, non bank
financial intermediaries, non financial co operations or government has its own
type of credit instrument and financial market. These separate credit market obviously
peculiarities, but they still can be classified as being primary markets or
secondary market
1.
The primary market: is a market where credit instruments are sold and a
transaction where new credit is being extended. In this market, the initial
borrower of funds issues a claim and exchanges it for funds from the initial
lender. This is done chiefly by government and private corporations through an
investment banker or an underwriter
The primary market: is a market where credit instruments are sold and a
transaction where new credit is being extended. In this market, the initial
borrower of funds issues a claim and exchanges it for funds from the initial
lender. This is done chiefly by government and private corporations through an
investment banker or an underwriter
2.
Secondary market: they sell credit instruments and its transaction where
the holder of a credit extended, but the ownership of the credit has changed.
While the borrower of the funds remains the same, the lenders are changing as
the credit instrument is traded. Broken and dealers organize secondary markets.
Brokers are agents of investors. They earn a commission for the services of
bringing together those who wish to sell and those who wish to buy
Secondary market: they sell credit instruments and its transaction where
the holder of a credit extended, but the ownership of the credit has changed.
While the borrower of the funds remains the same, the lenders are changing as
the credit instrument is traded. Broken and dealers organize secondary markets.
Brokers are agents of investors. They earn a commission for the services of
bringing together those who wish to sell and those who wish to buy
Dealers on the other hand, buy and sell securities
for themselves, they make the market. By buying for and selling from their own
portfolios, dealers earn an income from the spread between the bid price, at
which they buy securities, and the offer prices, at which they sell them to buy
for themselves, they make the market. By buying for and selling from their own
portfolios, dealers earn an income from the spread between the bid price, at
which they buy securities, and the offer prices, at which they sell them to buy
A wide range of money market instruments exist in
the economy, each having peculiarities and market. Each of the instruments
indicates the following attributes
the economy, each having peculiarities and market. Each of the instruments
indicates the following attributes
·
The identity of the debtor(i.e. the one borrowing the money and
therefore the one responsible for paying back)
The identity of the debtor(i.e. the one borrowing the money and
therefore the one responsible for paying back)
·
The amount of the debt (specifically, the amount to be paid back at
maturity)
The amount of the debt (specifically, the amount to be paid back at
maturity)
·
The arrangement as to maturity (i.e when the dept is to be repaid), and
The arrangement as to maturity (i.e when the dept is to be repaid), and
·
If interest payments are to be made, what those payment are and when
they are to be paid
If interest payments are to be made, what those payment are and when
they are to be paid
Money
market instruments are broadly classified as being negotiable and non
negotiable, but this distinction should not be confused with whether or not
they can be marketed. Both negotiable and non negotiable instruments are
marketable and therefore can be used to transfer debt from one person to
another. The difference lies in the rights of those who are partly to the
transactions when the dept is made and when it is transferred
market instruments are broadly classified as being negotiable and non
negotiable, but this distinction should not be confused with whether or not
they can be marketed. Both negotiable and non negotiable instruments are
marketable and therefore can be used to transfer debt from one person to
another. The difference lies in the rights of those who are partly to the
transactions when the dept is made and when it is transferred
In the
case of negotiable paper, special negotiable instruments laws cover the rights
of the parties. Therefore, money market instruments can be grouped as follows:
case of negotiable paper, special negotiable instruments laws cover the rights
of the parties. Therefore, money market instruments can be grouped as follows:
a.
Government through central bank can issue treasury bills (91 days), and
Government through central bank can issue treasury bills (91 days), and
b.
Treasury notes (1-10years)
Treasury notes (1-10years)
The private sector can also issue:
a.
Commercial papers (CPs) (1-180 days or less). These are promissory notes
to source funds
Commercial papers (CPs) (1-180 days or less). These are promissory notes
to source funds
The bank can issue bankers’ investment
certificates, which can also be negotiated
certificates, which can also be negotiated
Finally,
deposits in the financial houses are also regarded as money market instruments.
Inter bank placement rate are currently used as money market instrument. This
is when a bank gives fund to a needy bank (sometimes over night funding). The
rates are called inter bank
deposits in the financial houses are also regarded as money market instruments.
Inter bank placement rate are currently used as money market instrument. This
is when a bank gives fund to a needy bank (sometimes over night funding). The
rates are called inter bank
The
Nigerian interbank money market which is the more visible segment of the
overall money market, collapsed during 1993 when a large number of banks could
no longer honour inter banks obligations.
Nigerian interbank money market which is the more visible segment of the
overall money market, collapsed during 1993 when a large number of banks could
no longer honour inter banks obligations.
Reasons
for bank collapse
for bank collapse
1.
The collapse was preceded by the demise of myriads of finance companies,
which ceased operations. Their key officiers having in several cases, first
fled the country. Many banks became visibly distressed
The collapse was preceded by the demise of myriads of finance companies,
which ceased operations. Their key officiers having in several cases, first
fled the country. Many banks became visibly distressed
2.
Also contributory to the demise was the inability of some of the banks
to evaluate properly relevant financial data as it affects the operation of the
borrowing banks
Also contributory to the demise was the inability of some of the banks
to evaluate properly relevant financial data as it affects the operation of the
borrowing banks
3.
Thirdly, some of these banks have administrative problems, poor
management structure and personnel and these also affected their ability to
mange resources at their disposal
Thirdly, some of these banks have administrative problems, poor
management structure and personnel and these also affected their ability to
mange resources at their disposal
From
the foregoing, it would be seen that the primary role of the money market,
which is the provision of liquidity to economic units, was put to question.
Government is usually the largest economic unit in the economy; the primary
role of the money market is therefore to provide liquidity to economic units,
government inclusive
the foregoing, it would be seen that the primary role of the money market,
which is the provision of liquidity to economic units, was put to question.
Government is usually the largest economic unit in the economy; the primary
role of the money market is therefore to provide liquidity to economic units,
government inclusive
Roles
of the money market
of the money market
This
can therefore be summarized as follows
can therefore be summarized as follows
·
To provide liquidity to economic units in the country
To provide liquidity to economic units in the country
·
To provide liquidity to government
To provide liquidity to government
·
Also to states and local government
Also to states and local government
Through
the process of providing this liquidity function, the market acquires some
breadth and depth and is able to provide liquidity to the rest o the economy. Such
liquidity is usually provided by primary dealers, which include, but are not
necessarily limited to, discount houses
the process of providing this liquidity function, the market acquires some
breadth and depth and is able to provide liquidity to the rest o the economy. Such
liquidity is usually provided by primary dealers, which include, but are not
necessarily limited to, discount houses
In
Nigeria, law assigned the role of primary dealership to the CBN as the
underwriter not only of treasury bills but also of government stock. Secondly,
the inadequacy of the structure has also meant that the function can never be
performed optimally and government has had to borrow more and more form the
CBN. A proper framework should be provided for houses. On them will rest the
responsibility for underwriting treasury bills issues and hence of harnessing
fund for financial government
Nigeria, law assigned the role of primary dealership to the CBN as the
underwriter not only of treasury bills but also of government stock. Secondly,
the inadequacy of the structure has also meant that the function can never be
performed optimally and government has had to borrow more and more form the
CBN. A proper framework should be provided for houses. On them will rest the
responsibility for underwriting treasury bills issues and hence of harnessing
fund for financial government
Apart
from Federal Government needing money to finance her projects, state
government, local government and rural municipalities or councils also have need
for credit. As things are now, they have to rely largely on their own resources
or on bank facilities
from Federal Government needing money to finance her projects, state
government, local government and rural municipalities or councils also have need
for credit. As things are now, they have to rely largely on their own resources
or on bank facilities
Since
their resources flow in unevenly, and the stream of income that flows in cannot
be determined with a view to having a projected income plan. Hence in times of
plenty the temptation of placing funds in large commercial bank’s current
account with little or no returns at all or simply lose them to aggressive
finance houses promising mouth watering rates of return
their resources flow in unevenly, and the stream of income that flows in cannot
be determined with a view to having a projected income plan. Hence in times of
plenty the temptation of placing funds in large commercial bank’s current
account with little or no returns at all or simply lose them to aggressive
finance houses promising mouth watering rates of return
Thus,
the money market is left to provide liquidity for the short term instruments.
Any failure of this limited money market mechanism therefore portends disaster
for any economy
the money market is left to provide liquidity for the short term instruments.
Any failure of this limited money market mechanism therefore portends disaster
for any economy
Distress
signal in finance houses
signal in finance houses
One
important and crucial feature of the money market is the mutual trust and confidence
that must exist among players for there to be active market. The money market
thrives on trust, particularly of the depositor in the custodian or recipients’
ability and willingness to honour his obligation as mutually agreed. This is
why the motto of the Money Market Association of Nigeria is ‘Our word is our
bond’.
important and crucial feature of the money market is the mutual trust and confidence
that must exist among players for there to be active market. The money market
thrives on trust, particularly of the depositor in the custodian or recipients’
ability and willingness to honour his obligation as mutually agreed. This is
why the motto of the Money Market Association of Nigeria is ‘Our word is our
bond’.
Default
may be defined as failure to repay a deposit or loans as and when due. It may
also mean failure to or non performance by one party to carry out an obligation
under the mutual agreed terms and conditions of the transactions be it oral or
written. The result of such default is instability in the finance industry.
Defaults are caused in the main by the following factors
may be defined as failure to repay a deposit or loans as and when due. It may
also mean failure to or non performance by one party to carry out an obligation
under the mutual agreed terms and conditions of the transactions be it oral or
written. The result of such default is instability in the finance industry.
Defaults are caused in the main by the following factors
A.
liquidity problem
liquidity problem
Right
from the age of the goldsmith, the crux of banking has always been the ability
to do profitable business with customers’ deposits without impairing the
ability to meet these liabilities upon demand by depositors. This is the
essence of liquidity management and its reserve, credit ceiling, capital risk
ration etc
from the age of the goldsmith, the crux of banking has always been the ability
to do profitable business with customers’ deposits without impairing the
ability to meet these liabilities upon demand by depositors. This is the
essence of liquidity management and its reserve, credit ceiling, capital risk
ration etc
Some
of the banks in Nigeria have liquidity problems, thus putting innocent
depositors at the grave risk of loosing their lifetime savings. Savannah Bank
is a perfect example. Professionals doing business must take time to evaluate
their partner carefully not only for their own sake but for the sake of their
customers and shareholders who expect maximum returns in their investments
of the banks in Nigeria have liquidity problems, thus putting innocent
depositors at the grave risk of loosing their lifetime savings. Savannah Bank
is a perfect example. Professionals doing business must take time to evaluate
their partner carefully not only for their own sake but for the sake of their
customers and shareholders who expect maximum returns in their investments
B.
asset quality problem
asset quality problem
According
to Bode Agusto, the quickest way for a bank to go of out business is through bad
loans. Bad loans result in repaid asset shrinkage, erosion of capital and
profits and this order on the ability to repay depositors fund. Any bank with a
large portfolio or bad loans will soon become insolvent and illiquid
to Bode Agusto, the quickest way for a bank to go of out business is through bad
loans. Bad loans result in repaid asset shrinkage, erosion of capital and
profits and this order on the ability to repay depositors fund. Any bank with a
large portfolio or bad loans will soon become insolvent and illiquid
C.
Others
Others
Operational
controls, business focus, quality of ownership and management are usually of
vital importance. Financial intermediation is a serious business or sober
minded individuals. Liquidity and capital ratio, cash reserves, credit ceiling,
capital risks ratio etc are all part of the rules designed to prevent banks
from falling into the slippery terrain of illiquidity
controls, business focus, quality of ownership and management are usually of
vital importance. Financial intermediation is a serious business or sober
minded individuals. Liquidity and capital ratio, cash reserves, credit ceiling,
capital risks ratio etc are all part of the rules designed to prevent banks
from falling into the slippery terrain of illiquidity
In
the case of our environment, causes of illiquidity could be categorized into
two broad areas i.e. environmental factors and internal factors
the case of our environment, causes of illiquidity could be categorized into
two broad areas i.e. environmental factors and internal factors
1.
Environmental factors: the factors under this heading that could lead to
banks, finance house illiquidity are as follows:-
Environmental factors: the factors under this heading that could lead to
banks, finance house illiquidity are as follows:-
i.
Unfavourable policies: in 1994, the monetary policies announced worsened
the liquidity position our banks. Now in the 21st century, the
worsening present liquidity crunch in the system is largely an offshoot of
policy failure and inconsistence on the part of the authorities. Such policy
inconsistency could be seen in retrospect, when suddenly the government funds
were withdrawn from banks in 1989. That action greatly affected the liquidity
position of many banks.
Unfavourable policies: in 1994, the monetary policies announced worsened
the liquidity position our banks. Now in the 21st century, the
worsening present liquidity crunch in the system is largely an offshoot of
policy failure and inconsistence on the part of the authorities. Such policy
inconsistency could be seen in retrospect, when suddenly the government funds
were withdrawn from banks in 1989. That action greatly affected the liquidity
position of many banks.
ii.
Secondly, the CBN sometimes sell securities to banks in an attempt to
mop up excess liquidity in the economy. Stabilization securities are interest
yielding securities with low yields- since it was a monetary policy instrument
to curtail money supply
Secondly, the CBN sometimes sell securities to banks in an attempt to
mop up excess liquidity in the economy. Stabilization securities are interest
yielding securities with low yields- since it was a monetary policy instrument
to curtail money supply
A
situation where by banks are forced to buy stabilization securities with low
interest rate affects the banks’ portfolio. It further constrained their
portfolio and many banks are having continued to withdraw huge sums of money
from the market.
situation where by banks are forced to buy stabilization securities with low
interest rate affects the banks’ portfolio. It further constrained their
portfolio and many banks are having continued to withdraw huge sums of money
from the market.
2.
Internal factors
Internal factors
These are important factors militating against distresses finance houses
could be internal. They include:
could be internal. They include:
·
Internal factors: structural and professional deficiencies and other
factors within the control of the institutions concerned
Internal factors: structural and professional deficiencies and other
factors within the control of the institutions concerned
·
Poor management: also inclusive are ineffective and poor management.
This is the most critical factors among bank/finance house failure. The current
report of the NDIC says and described the bane of distressed bans as their huge
accumulation of non performing risk assets
Poor management: also inclusive are ineffective and poor management.
This is the most critical factors among bank/finance house failure. The current
report of the NDIC says and described the bane of distressed bans as their huge
accumulation of non performing risk assets
·
Shortage of skill: the recent explosion in the depth and breath of the
money markets operations has resulted in a dire shortage of skilled and
experienced manpower. In a desperate bid to fill the ensuing vacancies in the
top management, people are given positions and responsibilities for which they
blacked the requisite know-how and training. Another reason attributable is
many money managers penchant for buying demonstration goods such as flashy cars,
living on imported life styles with borrowed funds. Some money market operators
exhibited lust for foreign goods with a class of touch and may were seen
renovating their private home with mouth watering amounts not having regard to
the high interest to be paid on borrowed funds, all in the false belief that
the funds will be flowing in an endless stream
Shortage of skill: the recent explosion in the depth and breath of the
money markets operations has resulted in a dire shortage of skilled and
experienced manpower. In a desperate bid to fill the ensuing vacancies in the
top management, people are given positions and responsibilities for which they
blacked the requisite know-how and training. Another reason attributable is
many money managers penchant for buying demonstration goods such as flashy cars,
living on imported life styles with borrowed funds. Some money market operators
exhibited lust for foreign goods with a class of touch and may were seen
renovating their private home with mouth watering amounts not having regard to
the high interest to be paid on borrowed funds, all in the false belief that
the funds will be flowing in an endless stream
·
Corruption: corruption and abuse was very rampant in the money market.
Practitioners were fond of internal abuse such as forgeries and frauds. Unscrupulous
people saw the liberalization policy of government as an avenue to make
illegitimate money
Corruption: corruption and abuse was very rampant in the money market.
Practitioners were fond of internal abuse such as forgeries and frauds. Unscrupulous
people saw the liberalization policy of government as an avenue to make
illegitimate money
·
Under capitalization: again, many finance houses and money market
players were under capitalized. This under capitalization compounded their
already serious conditions. This added to their over exposure to risk assets.
Under capitalization: again, many finance houses and money market
players were under capitalized. This under capitalization compounded their
already serious conditions. This added to their over exposure to risk assets.
·
Power tussle: finally, some of these bank’s managements and boards were
immediately after being licensed engaged in bitter power struggles. Some
shamelessly diverted depositor’s fund for their personal interest and fled the
country
Power tussle: finally, some of these bank’s managements and boards were
immediately after being licensed engaged in bitter power struggles. Some
shamelessly diverted depositor’s fund for their personal interest and fled the
country
No doubt, this act of looting of the treasury must have done
incalculable damage to the image of the industry. Now a lot of panic signals
have been transmitted and depositors are no longer willing to part with their
funds
incalculable damage to the image of the industry. Now a lot of panic signals
have been transmitted and depositors are no longer willing to part with their
funds
Negative
consequences:
consequences:
The
consequences of the sad experiences as above enumerated are:
consequences of the sad experiences as above enumerated are:
·
That this daredevil has eroded confidence in the Nigerian money market
That this daredevil has eroded confidence in the Nigerian money market
·
It has further worsened our sociocultural degradation and our identity
as a people is now in question
It has further worsened our sociocultural degradation and our identity
as a people is now in question
Discount
houses
houses
In
appreciation of the above, government through the CBN, resolved in 1993 to
establish discount houses. This stand of the government then resulted in
licensing and establishing of three discount houses.
appreciation of the above, government through the CBN, resolved in 1993 to
establish discount houses. This stand of the government then resulted in
licensing and establishing of three discount houses.
Functions
of discount houses
of discount houses
1.
Discount houses are financial institutions, which intermediate funds
among banks. They invest mainly in risk free short term financial instrument’s
and assist financial instructions like insurance companies, mortgage bank,
financial houses, investment houses, thrift and cooperative societies, to
effectively manage their idle cash balance by bringing together surplus and
deficit units in the money market through financial intermediations
Discount houses are financial institutions, which intermediate funds
among banks. They invest mainly in risk free short term financial instrument’s
and assist financial instructions like insurance companies, mortgage bank,
financial houses, investment houses, thrift and cooperative societies, to
effectively manage their idle cash balance by bringing together surplus and
deficit units in the money market through financial intermediations
2.
Discount houses stand between the central bank and the licensed banks.
This implies that banks in need of short term funds should first exhaust the
available facilities at the discount houses before having recourse to the
central bank
Discount houses stand between the central bank and the licensed banks.
This implies that banks in need of short term funds should first exhaust the
available facilities at the discount houses before having recourse to the
central bank
3.
Discount houses in Nigeria are charged with the role of primary dealers
in treasury securities and the provision of discount facilities to bank in need
of funds. This means that discount house with their large cash balance perform
the role of underwriting issues of treasury securities. The conspicuous absence
of these institutions that could discharge this function in Nigeria after the
excessive withdrawals of government funds from commercial banks represents a
tremendous gap in our money market arrangements
Discount houses in Nigeria are charged with the role of primary dealers
in treasury securities and the provision of discount facilities to bank in need
of funds. This means that discount house with their large cash balance perform
the role of underwriting issues of treasury securities. The conspicuous absence
of these institutions that could discharge this function in Nigeria after the
excessive withdrawals of government funds from commercial banks represents a
tremendous gap in our money market arrangements
4.
The CBN Decree provides that the bank could delegate the function of
underwriting the issues of treasury securities to an agent. Operationally, the
CBN has issued guidelines to enable banks and other financial institutions to
establish discount houses, which could act as private agents for underwriting
government securities. Therefore, aside from the intermediary role to be
provided to banks as earlier on mentioned, such houses facilitate the solution
of the debt management issues of the federal government
The CBN Decree provides that the bank could delegate the function of
underwriting the issues of treasury securities to an agent. Operationally, the
CBN has issued guidelines to enable banks and other financial institutions to
establish discount houses, which could act as private agents for underwriting
government securities. Therefore, aside from the intermediary role to be
provided to banks as earlier on mentioned, such houses facilitate the solution
of the debt management issues of the federal government
5.
They also assist in minimizing the incidence of monetary instability in
the economy
They also assist in minimizing the incidence of monetary instability in
the economy
Having
the above scenario, it is worthy to mention therefore that the murky waters in
the money market should improve. For instance, available data on holdings of
treasury hill and certificates in spite of the safety of the securities
the above scenario, it is worthy to mention therefore that the murky waters in
the money market should improve. For instance, available data on holdings of
treasury hill and certificates in spite of the safety of the securities
The
proportion of issues of treasury bills taken up by banks has been so low that
it cannot be counted upon to provide the primary finance for underwriting
treasury securities. The aversion of banks to holding of treasury securities
has resulted in a disproportionately large holding of the securities by the
establishment of discount houses in Nigeria is therefore one of the steps by
monetary authorities to strengthen the financial sector with a view to
increasing efficiency in the use of the resources available to banks as well as
equipping the sector for improved performance in the financing of treasury securities
proportion of issues of treasury bills taken up by banks has been so low that
it cannot be counted upon to provide the primary finance for underwriting
treasury securities. The aversion of banks to holding of treasury securities
has resulted in a disproportionately large holding of the securities by the
establishment of discount houses in Nigeria is therefore one of the steps by
monetary authorities to strengthen the financial sector with a view to
increasing efficiency in the use of the resources available to banks as well as
equipping the sector for improved performance in the financing of treasury securities
Opportunities
From
the synopsis of what money market investment is and its attendant
characteristics, it is necessary here draw attention to their terrain of
opportunities that have not been exploited in the money market investments
the synopsis of what money market investment is and its attendant
characteristics, it is necessary here draw attention to their terrain of
opportunities that have not been exploited in the money market investments
Some
securities traded in the money market are under subscribed and these securities
are first class securities. The Nigerian Treasury bill satisfies this
condition. Therefore, the apex bank in its continued effort to develop the
money market and create an avenue for investment of short term fund, introduced
the Nigerian Treasury bill in April 1960
securities traded in the money market are under subscribed and these securities
are first class securities. The Nigerian Treasury bill satisfies this
condition. Therefore, the apex bank in its continued effort to develop the
money market and create an avenue for investment of short term fund, introduced
the Nigerian Treasury bill in April 1960
The
Treasury bill has remained the most popular short term debt instrument in the
country since then. Initial consideration was given to placing the Treasury
bill on tender, but with no existing money market mechanism and a great disparity
in the size and expertise of banks, it was decided that fixed discount method
would be more orderly
Treasury bill has remained the most popular short term debt instrument in the
country since then. Initial consideration was given to placing the Treasury
bill on tender, but with no existing money market mechanism and a great disparity
in the size and expertise of banks, it was decided that fixed discount method
would be more orderly
Following
the popularity of the bill with the investors, the legal limits were raised to
20% and 40% in 1961 and 1962 respectively while the frequency of issue was
increased from monthly to forty night, and then to weekly. The weekly issue
every Thursday has been retained
the popularity of the bill with the investors, the legal limits were raised to
20% and 40% in 1961 and 1962 respectively while the frequency of issue was
increased from monthly to forty night, and then to weekly. The weekly issue
every Thursday has been retained
Historical
Development
Development
In
the early stage, the bills were issued in denominations of N2,000 and multiples
thereof. The minimum unit of issue was later reduced to N1, 000 in order to
expand the coverage of holders
the early stage, the bills were issued in denominations of N2,000 and multiples
thereof. The minimum unit of issue was later reduced to N1, 000 in order to
expand the coverage of holders
Secondly,
in developing the money market instruments and increasing the range of
available money market instruments was the introduction of treasury
certificates, with maturities of one and two years, under the Treasury
certificate Decree No. 40 of 1968. The level of certificates outstanding in any
financial year is limited to a maximum of 60% of estimated gross revenue of
Federal Government
in developing the money market instruments and increasing the range of
available money market instruments was the introduction of treasury
certificates, with maturities of one and two years, under the Treasury
certificate Decree No. 40 of 1968. The level of certificates outstanding in any
financial year is limited to a maximum of 60% of estimated gross revenue of
Federal Government
Thirdly,
the first Development Stock, the Federation of Nigeria Development loan of a
million pounds (sterling)(N4million) was in May 1959. Actual subscription and
allotment exceeded the amount floated, and 2.35 million pounds (N4.7million)
was allotted. The second development loan stock floated by the CBN in 1961 was
for a relatively substantial amount of 10million pounds (20 million) with a
maturity speed of between six and 25years
the first Development Stock, the Federation of Nigeria Development loan of a
million pounds (sterling)(N4million) was in May 1959. Actual subscription and
allotment exceeded the amount floated, and 2.35 million pounds (N4.7million)
was allotted. The second development loan stock floated by the CBN in 1961 was
for a relatively substantial amount of 10million pounds (20 million) with a
maturity speed of between six and 25years
In
fact, since 1961, the issue of Federal Government Stock has become an annual
undertaking. Right from the onset, the CBN provided a secondary market in the
stocks where potential buyers and seller could strike their bargain. When the
Lagos Stock Exchange was opened in June 1961 all transaction in Government
stocks were transferred from the CBN to the Exchange
fact, since 1961, the issue of Federal Government Stock has become an annual
undertaking. Right from the onset, the CBN provided a secondary market in the
stocks where potential buyers and seller could strike their bargain. When the
Lagos Stock Exchange was opened in June 1961 all transaction in Government
stocks were transferred from the CBN to the Exchange
It
is note worthy that Government stocks outstanding rose persistently from
N24.7million in 1951 to N1, 819.0million in 1977. Each of the issue was made
with two; three of four maturities speed in order to cater for the varying
tastes of the major institutional investors – pension and provident funds,
commercial banks, insurance companies, and other thrift institutions.
is note worthy that Government stocks outstanding rose persistently from
N24.7million in 1951 to N1, 819.0million in 1977. Each of the issue was made
with two; three of four maturities speed in order to cater for the varying
tastes of the major institutional investors – pension and provident funds,
commercial banks, insurance companies, and other thrift institutions.
The
CBN ensured from the outset, through the provision of a sinking funds, that
necessary resources were made readily available for stock redemption. This
guarantees safety and returns on the investment; the investment in government
stocks cannot fail.
CBN ensured from the outset, through the provision of a sinking funds, that
necessary resources were made readily available for stock redemption. This
guarantees safety and returns on the investment; the investment in government
stocks cannot fail.
Prior
to the liberation of interest rates of 1987, the administered government
securities issue rate where believed to have been generally below what would
have emerged from the competitive market. Consequently, one cannot but accept a
priority, that administered rates would have made government instrument less
attractive. However, there is ample evidence that show that there are many
other factors, which determine banks investment in government securities.
to the liberation of interest rates of 1987, the administered government
securities issue rate where believed to have been generally below what would
have emerged from the competitive market. Consequently, one cannot but accept a
priority, that administered rates would have made government instrument less
attractive. However, there is ample evidence that show that there are many
other factors, which determine banks investment in government securities.
For
example, in the six-year period, 1974 to 1979, when issue rates were at their
lowest, commercial banks investment in treasury bills remained stable in
volume. Their share of the total outstanding was also highest in the period,
ranging from 42 to 83% far above CBN holdings. By contrast, the sharp rise in
the issue rates of government securities under the current auction system does
appear to have made these securities more attractive.
example, in the six-year period, 1974 to 1979, when issue rates were at their
lowest, commercial banks investment in treasury bills remained stable in
volume. Their share of the total outstanding was also highest in the period,
ranging from 42 to 83% far above CBN holdings. By contrast, the sharp rise in
the issue rates of government securities under the current auction system does
appear to have made these securities more attractive.
