Posts Tagged ‘Exchange’

Money Market Advantages Amidst Volatility

Money Market Advantages Amidst Volatility

Foreign Exchange Market (FOREX) is the arena where a nation’s currency is exchanged for that of another at a mutually agreed rate. All currencies are traded in pairs, and each is assigned with an abbreviation. (E.g: USD = United States Dollar, GBP = Great British Pound). Exchange rate fluctuations are usually caused by actual monetary flows as well as anticipations on global economic situations. Profits and losses are dependent on the fluctuations in the exchange rate between the two currencies.

In today’s volatile money market environment the traditional forms of investing are rightfully inviting more scrutiny and caution. The New Year has brought with it an impending sense of tough times to come. The FTSE 100 dropped below 6000 points for the first time in almost two years, a performance that was mirrored by Dow Jones, Hang Seng and other major indices around the world. Now more than ever investors are focusing on alternative avenues to channel those hard earned funds.

FOREX is a serious game. Play it with the pros.

Forex trading involves substantial risk of loss, and may not be suitable for everyone.

Advantages of Trading Forex

It may be difficult to imagine that there is market that is not only growing, but is also renowned for its flexibility and liquidity. Forex is flexible in the sense that it has no central trading location or exchange with traders, sellers and buyers in the traditional sense; most of the trading is conducted via a global ETS (electronic trading system) that operate 24hrs a day. Concurrently, liquidity is a powerful attraction to any investor as it suggests the freedom to enter or exit the market at anytime. These advantages subsequently enable investors to respond to any new adverse or positive information immediately. A luxury not afforded by the more traditional forms of risk.

Also, in forex trading, a small margin deposit can control a much larger total forex contract value. This obviously gives investors the ability to make extraordinary profits with relatively minimal risk. Unlike with other forms of risk where numerous factors affect the unit prices, (a good example of course is the recent sub-prime crisis in the US) the chief aim and focus of any good forex investor is to manage as best as possible the varying risks associated with fluctuations in worldwide currencies. With the current trepidation that characterises traditional forms of investments, it is no surprise that there has been a big growth in regulated firms that offer forex investment contracts to cunning individual investors.

It must be said however that a good understanding of the relationship between freely transferable currencies is required in order to dabble into this exciting arena. The concept really is quite simple. Currency exchange rates fluctuate, investors who trade in the forex market hope to profit from those fluctuations. Investors should always be aware though that as with any other form of investment, investors who consult with a financial adviser limit their exposure to excessive fluctuations. A general rule of all investment tools that carry a degree of risk is that investors should input funds that they can generally afford to lose without affecting their finances adversely. Risk capital should be seen as disposable income for any discerning investor.

Here’s to a profitable future for you all

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Money exchange currency ‘Yen’ most solid record

Money exchange currency ‘Yen’ most solid record

Yen  exchange rate moved strongest record on December 17, amid rumors that the company and the insurance industry in Japan. Money must be immediately returned to the reconstruction and pay claims. The Bank of Japan to accelerate the infusion of liquidity into the money market to add another top 6 trillion yen (U.S. $ 76,000 million), while the Minister of Finance and Governor of the Bank AG -7 countries prepare national discussions on the 18th. On financial and economic impact of great earthquake disaster – tsunami. Min – nuclear crisis in Japan, however, the Minister denied that Japan came out. No need to leave the G -7 operating together to stop the surge of the yen.

Reuters news agency reported. Trading in Electronic Money Exchange DBS Asia on the morning of Thursday It appears that there are over one Yen, up just 76.25 yen to apply it to redeem $ 1 rise from levels close to 4% the day before and also record the appreciation of each other ever recorded. The record was made at 79.75 yen on April 19, 1995 Though later on the Thursday Japanese currency will weaken to the level of 79 yen per dollar neighborhood. Atmosphere of trading volume and volatility changes in relatively fast. Light of the money exchange rate

The same time, the Tokyo Stock Exchange early on Thursday in the Nikkei share index was down over 4% weight before rebounded back off the market and have some negative 1.4%.

Due to the uneasy about the critical nuclear power full loan Shima Daiichi, which was an explosion and fire, including four times after the earthquake sizes severity to 9.0 and cause a tidal wave tsunami height of 10 meters. collapse swept northeast coast of Japan’s three great disasters compounded 3 stacked like this makes the stock exchanges rate in the world dive severely Equivalent to the amount of money to shrink, it is several hundred million dollars. But while the yen exchange rate to soar higher in opposite directions.

Some dealers indicate that The strong Japanese currency this Because they want to jump up. When a player on the market in some cases seems to be buying the yen winch. They speculate that because the Japanese companies to send funds back to the country. For use in the reconstruction are also anticipated the same time, speculation that well. Their insurance company of Japan. Will be forced to bring money home as well. Prepared to pay compensation for damage from a massive earthquake.

Also described another along one of their traders in the market that From selling shares that are to hard on 14 and 15, past their banks and foreign institutional investors has a higher role in the purchase of shares which Level is very low cost. Thus, these banks are having a busy raising cash to pay the Yen. Account for the purchase of the same time after the earthquake. The Bank of Japan, they are not willing to lend. With concerns that may have come to cash out quickly unpacked This condition has forced foreign institutional investors rely on the market forwards and swaps market to buy yen to pay money account. This has contributed to the yen appreciated strongly.

The Minister and the Governor of the Central Bank of the seven leading industrial countries of the world (G -7), it is scheduled to discuss the meeting Special Effects Lawrence at 7:00 pm Tokyo time today. (meet at 05.00 am in Thailand) by several news sources said. To have a dialogue about the impact of financial and economic disaster due to the financial markets in Japan, while expected to speculation that. Japan might be re State measures to intervene in the market with the purpose to extract. The yen dropped.

Trading In New York Stock Exchange Market

Trading In New York Stock Exchange Market

The NYSE can trace its roots to 1792, however it did not become known as the New York Stock Exchange until 1817 when the organization drafted a constitution. In early times is composed of 5 rooms which were used for trading but today the trading center has expanded to much bigger. It is located in 18 Broad Street, New York City.

The New York Stock Exchange (NYSE), also known as the ‘Big Board’ was founded by a merger of the NYSE and Archipelago Holdings, which is fully electronic, and became known as the New York Stock Exchange Group.

It is the biggest stock exchange in the world in the amount of dollars that flows through it each day and has the second largest in terms of numbers of company listing, exceeded only by NASDAQ.

The global capitalization of the exchange is .1 trillion with .7 trillion by companies not based in the U.S.It works similar to that of an auction. Every company listed trades in one location. A specialist broker designated by each of the listed companies has the duty of acting as an auctioneer at the company post.

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Buyers and sellers of a particular stock come together around a specific post and an auction takes place. This form of trading helps generate a price for stocks that is competitive, efficient and fair for both buyers and sellers. The human interaction and the educated judgment helps determine the difference of the New York Exchange from other stock exchanges that are fully electronic.

NYSY Today

When it comes to how much money is traded at any given day, the New York Stock Exchange is categorized as the largest exchange market in the worldwide scope. It is also regarded as the vanguard in the equities market in terms of technology and investments coming in from around the globe. Each day, the New York Stock Exchange is where the largest companies buy and sell billions of dollars amount of shares.

The New York Stock Exchange comprises of member-brokers who take on the trading of stocks (buying and selling) for clients, which are financially huge companies based in different parts of the world. Together with the value of companies that trade on the New York Stock Exchange, it is estimated to have reach at nearly four trillion dollars. Members of the New York Stock Exchange buy and sell millions of dollars worth of stock for their costumer every single day.

www.StockmarketFunding.com Big Money on Wall Street Betting on Gold GLD Massive Call Options Trading on the GLD ETF. Massive Call Options Bought on the Gold Index Indicating a Flee to Safety? We’ve seen major names like “Alex Jones”, “Ron Paul”, “Gerald Celente”, “Robert Prechter”, “Doug Casey”, Max Kieser” and other notable names have been coming out and telling people to “buy gold” as well as the highlights with “gold manipulation” brought about by Gold Anti-Trust Action Committee (GATA). The SPDR Gold Trust (NYSEArca GLD) had some massive amounts of call buying today as we see big players on “Wall Street” move in to make “big bets on gold” “massive call options” purchased today represent huge amount of amounts to be purchasing on an intraday level. The technical analysis of options trading goes like this. The buyer of the call options is obviously “bullish on gold” and wanted to give him or herself time for the gold trade to work in there favor and that is why you’re seeing the majority of the gold options traded today in “LEAP”s going out till year 2012. We saw 97687 “GLD” January 2012 145 Calls traded and 70500 “GLD” January 2012 140 Calls traded. It’s obvious to anyone paying attention the “federal reserve” is printing a mass amount of “US dollars” and we’ll eventually feel the impact as the money is circulated throughout our “economic system”. We will continue to see how the Obama Administration reacts to the massive unemployment figures and the continued reliance …
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Best ways to perform currency exchange rate when travelling

Best ways to perform currency exchange rate when travelling

Foreign currency exchange market is worldwide market that runs round the clock and is indeed unpredictable. With globalization currency exchange rate or money transfer transactions have become a necessity for people globally. Regardless to whether it’s an individual, a multinational company, bank, government, or an import-export house, everyone dealing in a foreign country is concerned about foreign currency exchange rate. If you are travelling abroad or do frequent business trips in varied foreign countries, you have be very cautious about the currency exchange rate and the ways you can easily do the conversion without paying high. Below are listed the best ways to perform currency exchange when travelling abroad:

Use your ATM card or Credit card: While travelling you can avail the service from your bank institute to allow you to use your credit card or debit card for making international transactions. There are services available where you can use you debit card in ATMs abroad to get currency exchange right from ATM machine.

Currency Exchange at Banks: Banks are another destination where you can get your currency exchange against the foreign currency. It’s the safest option and they offer wide range of currencies like US dollar, Sterling, Yen, Canadian dollar, Indian Rupees, etc. Banks do charge fees depending on the transaction amount. Generally the bank charges high currency exchange rate and there can be a limitation of its working hours.

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Airports: The next best option is Airports; they have a separate desk for travelers where currency exchange rate services are provided. It’s the most convenient option to get the currency exchange at airport as you will not end up searching for other destinations. The only constrain you may face is the currency exchange rate is charged as high as 20% by the airport authorities.

Forex companies: The most preferred option is to get an account with a foreign currency exchange (Forex) company. These companies are all together a separate sector in financial market that deal only and only into foreign currency exchange transactions. If you need infrequent currency exchange service or even if you need it often, Forex companies can give you the best and the lowest rates. To create an account online is easy and free. You will get advice on ongoing rates and when to perform the exchange while planning a travel. You can also lock a currency rate and then when you go for travel you can get the currency exchange transaction at the pre-booked currency rate.

These are some fantastic and fast services available to perform foreign currency exchange when travelling. To keep yourself updated on the changes of the foreign currency rates you can always rely on the exchange rate calculator.

The exchange rate calculator is an online tool that is available on almost all forex websites. You just need to select the currencies and on one click you get the current currency exchange rate. This tool is available for free and its extremely simple to use it. For travelers, your life is easier as now the access have become more convenient by the mobile based applications that provide exchange rate calculator on mobile. So if you are not planning to pack your laptop for a trip, you can still have access to the currency exchange market right from your handset.

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Using the Old Exchange Rate Calculator to Reap in Serious Profits

Using the Old Exchange Rate Calculator to Reap in Serious Profits

It would be hard to fathom that the old exchange rate calculator has been responsible for making plenty of people some good profits over the past 30 years or so, but for the uninitiated to the Forex market, this is a truth you must all learn. Exchange rates are the basic principle in which the Forex market is built on, but of course this is a simplistic way to describe a market which is laden with so many factors to consider and a wealth of information to traverse.

This article will tell you a little about the Forex market and how it can be a boon in your life, no matter if you are a casual investor with just a few hours to spare a day. In most cases, a few hours a day is all you need to make some steady progress. The reason more and more people are turning towards the paper trade is because of some discerning factors that set it apart from normal commodity markets out there in the big old commodity world. One reason that people like it is because of its extreme liquidity status.

The Forex market is one of the most liquid markets in the world today and this is attractive to investors who want more control over their decisions and would like to see their strategies turn into real time movements. ‘Real time’ market movements and reactions are what make Forex so dynamic and so interesting and being a zero sum game, there will always be a position where you can make money, even when the economy is at a downturn. As long as you are in the right place, facing the right way, you will always be in a position to make serious money. The over the counter nature and the fact that there is no physical location where trading can be regulated is also a big plus points for many of the investors out there.

Considering an entry to the market is usually a wise decision, but you need to ensure that you have the right tools on your side. First, be prepared to work hard and shatter that delusion that the Forex market is a miracle waiting to happen. There is no such thing as a quick solution to market millions. You need to learn as much as you can about the necessary technical and fundamental analysis that you need to wrap your finger around and formalise some sort of strategy going.

The amount of technical analysis is massive, and depending on the region or the currency you are trading with, there will be so much data for you to digest it is not funny. Add in fundamental analysis into the mix and you will soon see what I mean. In addition, it would be a very good idea to have a Forex system in your hands. There are some really good ones being published by expert investors all over the world that will help you turn an old exchange rate calculator into a money making machine!

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The US Dollar Exchange Rate History Chart

The US Dollar Exchange Rate History Chart

The U.S. Dollar’s exchange rate, as expressed on any US Dollar exchange rate history chart, will only tell the story of how the dollar has performed against another specific currency. FOREX trades are made strictly in pairs, as one country’s currency versus another. How the U.S. Dollar performs against the Euro Dollar may be totally different than its price relationship to, say, the Japanese Yen.

The U.S. Dollar is the most traded financial currency of any in the FOREX market. All the most favored trades include the Dollar as one of the pair. The most often traded pair, by the way, is the Euro Dollar against the U.S. Dollar. When this trade is entered into by investors, they are betting that the relationship of the Euro and the U.S. Dollar will go the way they predict. If the trade is long, they are expecting the Euro to increase in value. If the trade is short, they are hoping for the opposite.

Back in July, 1944, at the height of the Second World War, 730 representatives from all the 44 Allied nations met at a hotel in New Hampshire for the United Nations Monetary and Financial Conference. Obviously, delegates from Germany and Japan were not in attendance, since those countries were not part of the Allied group. It was during this conference that the IMF (International Monetary Fund) was created and a system which became known as the Bretton Woods System was put into operation.

Looking at a US Dollar exchange rate history chart from that time shows the dollar to be the strongest world currency, but the war was very expensive. This system was meant to establish rules for international monetary policy and for the financial relations between member countries and their individual currencies. These rules obligated countries signing the accord to adopt financial and monetary policies that would keep the exchange rates of their respective currencies within a certain range as they related to the current value of gold.

This all changed, however, when in 1971, the U.S. unilaterally went off the gold standard by canceling the convertibility of dollars directly into gold. No longer requiring its currency to be backed by gold, the U.S. was free to print as much money as it liked. Many experts see this event as the cause of the financial meltdown suffered in the world beginning in 2007.

Currencies are now said to ‘float’ and their values, relative to one another, continually change. Bad economic news in a country can often cause their currency’s value to drop. Good news will frequently have the opposite effect.

The U.S. Dollar is currently traded against all major world currencies. This includes the Euro, the Yen, the Pound and the Swiss Franc. For an accurate US Dollar exchange rate history chart to be truly representative of dollar strength, it would have to be compared to a basket of all these individual currencies.

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Exchange Rates- Calculating the worth

Exchange Rates- Calculating the worth

Exchange rate refers to the rate at which one country would exchange currency for another. In other words, it refers to the value of one countries currency vis-à-vis the currency of another country. It is usually quoted in terms of number of units the currency of one country would be exchanged for one unit of another currency. Exchange rates are also known by the names of foreign exchange rate and Forex rate.

One encounters the exchange rate question when one is dealing with cross country situations be it for travel, business or any other reason. The bottom line remains the same that all these are linked with money-related problems. The basic problems involve spending the money, saving and other such things concerning money. In other words, individuals as well as business houses want to get the best exchange rate which tenders them the value for their money. Though understandability is the key still many fall into the money calculation jargon.

While searching for an exchange rate it is vital to check for the rates offered by banks, airports and credit card companies. Now-a-days there are a variety of websites offering exchange rate services to a range of clients from a variety of countries.

Before getting in to the exchange rate domain it is vital to have an understanding about the value of ones money in exchange for other countries money. Many people wait for the exchange rate prices to fall (of a particular country) and then they purchase and probably save when the rate increases.

The exchange rates are usually calculated by either floating rate or fixed rate. A fixed rate is the rate which is the official rate for countries currency which is set by the nation’s Central Bank.  The floating method on the other hand refers to the varied levels of demand and supply for that currency on the private market. This is the market which applied the law of demand and supply to its calculations.

Exchange rates are the best mechanism to know of a countries currency value vis-à-vis other countries’ currencies.

Before getting in to the exchange rate domain it is vital to have an understanding about the value of ones money in exchange for other countries money. Many people wait for the exchange rate prices to fall (of a particular country) and then they purchase and probably save when the rate increases.

www.lendinguniverse.com Compare rate calculator and hard money loans, the lowest mortgage rate and refinancing home mortgage rates against bank americamortgage rates and compare it with private hard money loan rate and terms. http To evaluate bank fee trends, for both the www.lendinguniverse.com and Private investor Research Services data, the brokers adjusted the numbers for inflation to remove the effect of changes in prices. The inflation adjusted estimates used a base year of 2010 and Consumer Price Index calendar year values as the deflator. To determine the extent to which bank fees are contributing to funding of private money source s’ revenue, the brokers obtained data from the quarterly financial private investors (call reports) filed by funding of private money source s and maintained by the Federal Deposit Insurance Corporation (Commercial lenders). From this data, the brokers analyzed interest income, noninterest income, and service charges on deposit trust deed investments for commercial hard lenders and thrifts from 2000 to 2010. The brokers analyzed the data for all institutions, as the lenders as by institution type (hard lenders versus thrifts) and institution size (assets greater than billion, assets between brokers 0 million and billion, and assets less than 0 million).. Private investor Research Services collects data on over 1500 institutions, including a mix of hard lenders, thrifts, credit unions, and Internet-only hard lenders. The …

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What is Forex? Learn How You Can Make Money From Currency Trading Today!

What is Forex? Learn How You Can Make Money From Currency Trading Today!

FOREX stands for Foreign Exchange and it stems from the international financial market. That is, the Forex market, the place where currencies of different countries are bought and sold in a similar manner to the buying and selling of share market in the ASX, Australian Stock Exchange.

Forex market started in the 1970′s and that is when floating of currencies and free exchange rates began. Like share prices, it is the people who traded in the Forex market that affects the prices of the currencies traded in accordance to the law of supply and demand. Hence, if the market force dictates, e.g. if the US Federal Reserve decides to raise interest rates to curb inflation while Australia Reserve Bank have the interest rate on hold, that should stimulate a change in exchange rate. One should therefore see interest rate effect with the US $ worth more in value than AUD when this happens.

The amount of money traded daily in the Forex market is uniquely enormous. The rate of exchange makes Forex the single most liquid financial market with currency traded amounting from 1 to 1.5 trillion US dollars per day. Owing to this enormity, it is not possible for the Forex market to be manipulated externally. Hence, no single trader or even any financial institution trading in it has the wealth to influence the price of any currency in its favour.

The Forex is so fluid and so much exchange at such a fast pace that it is just impossible for anyone to affect the market of any one major currency. The sheer liquidity of the Forex market with so many exchange taking place, enable the traders to open and close position within seconds. This is because there are always willing buyers and sellers available at any one time since the collective exchange of the various world Forex centers is considered open for 24 hours as it spans across different time zone.

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Forex is naturally unique compared to the stock market which is normally associated with long term investments. In currency trade, a minute change in prices of a currency generate situation that permits investors to apply all sorts of strategies to their advantage. However, there are also long term hedge investors involved in Forex and also short term investors that make use of credit lines to seek large gains over a short period.

HOW FOREX WORKS

Unlike NYSE (New York Stock Exchange) or ASX (Australian Stock Exchange), there is no central marketplace for Forex. Instead the exchange takes place over the counter 5 days a week on a 24 hour basis, via satellite, among major financial centers in London, Paris, Tokyo, New York, Sydney, Hong Kong, Frankfurt, Singapore and Zurich. Dealers, including online ones, around the globe are always available to quote any major currency.

MARGINAL TRADING

Marginal trading is like using a credit card and it is like borrowing money to trade currency. This encourages investors to take additional risk by opening a bigger trading position with less out-of-the pocket money and relying more on borrowed capital that is provided by the brokering company.

Marginal trading in the Forex market is traded in lots of which 1 lot is about 100,000 of unit currency. The margin requires to hold that 0,000 position is 1.0% of 0,000 and that is equivalent to a personal capital outlay of 00 (i.e. taken from 100,000 x 0.01) while the balance of ,000 is covered by the broker.

If the currency traded increases in value you make the difference when you close your trading position. You capital outlay and profit gained minus any transaction cost from the trade are credited into your margin account.

INVESTMENT STRATEGIES: TECHNICAL & FUNDAMENTAL ANALYSIS

Of course, one cannot just trade without any knowledge of the currency market. To be successful in Forex trading one has to be analytical and this is what all experts do. They do what we call Technical and Fundamental Analysis.

Technical analysis is associated with studying data gathered on all the fluctuations of the various currency prices over time. From the data, chart patterns are formed and movement of the currency prices can be observed for trading decisions to be made.

The behaviour patterns of each currency prices are the reflection of all factors in the market place such as an event, overbought and oversold situation, interest rates, etc. Most of these patterns in chart forms are instantly provided by the brokerage firm you trade from.

Fundamental analysis is an event based analysis like political situation, rumours, economy, interest rate setting by central or reserve bank of the country concern, news on tax policy, GDP, country’s economic performance, political unrest, natural disaster, employment or unemployment figure announcement, etc. Value of a currency can also be influenced by expectation, anticipations and perceptions of the participants in Forex trading, i.e. it could be driven by sentiment of these Forex participants.

MAKE MONEY WITH CURRENCY ON FOREX

To profit out of Forext tading one need sheer diligence and trading experience and getting familiar with Technical and Fundamental analysis to place once trade. Anyone who participates in it should have equal opportunity since it is one market that is so liquid and rapid moving that it is impossible to be influenced by anyone person or fund management.

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THE IMPACT OF NIGERIAN STOCK EXCHANGE CRISES ON THE NIGERIAN ECONOMY

THE IMPACT OF NIGERIAN STOCK EXCHANGE CRISES ON THE NIGERIAN ECONOMY

Chapter one

1.1            background of the study

Nigeria has a formal and active capital market. Before 1961, almost all formal savings and deposits went through the banking system while the then colonial masters invested major capital balances for the country on the London stock exchange. However, following the establishment of the Central Bank of Nigeria (CBN) in 1959, it was logical to have a stock exchange in 1960, which commenced operations in 1961. Thus, the foundation was laid for the operation of the Nigeria capital market. Earlier in 1959, the central bank of Nigeria had floated the first Nigerian development loan stock, which was listed overseas. Subsequent issues in 1961 and thereafter were listed on the new local exchange.

The Nigerian stock exchange is a private, non-profit making organization, limited by guarantee. It was incorporated via the inspiration and support of businessmen and the federal government through the CBN, but owned by about 300 members. The membership includes financial institutions, stockbrokers and individual Nigerian of high integrity who have contributed to the development of the stock market and the Nigerian economy. The council members (board of director) of the stock exchange are elected at each annual general meeting by members of the exchange. The tenure of the presidency is limited to one three – year term. The council is responsible for policy – making but the Director-General (formerly Prof. Ndi Okereke-Onyiuke and presently, as at the time of this research, Emmanuel Ikhazobor) and his/her team of executives administer the day to day affairs of the exchange. The council members, management and staff of the Nigerian stock exchange as well as stockbrokers are subject to a stringent regime of codes of conduct, which calls for a high degree integrity, discipline, sacrifice and high sense of patriotism.  Dealing members of the stock exchange are the stock broking firms licensed by the exchange to buy and sell shares on behalf of the investing public. There are over 200 of them at the moment.

The exchange is a Self-Regulatory Organization (SRO), making and enforcing rules for its members. In 1977, the exchange was reorganized and renamed The Nigerian Stock Exchange (NSE). Today, the NSE has 10 functional trading floors in different parts of the country, namely: Lagos, Abuja, Kaduna, Port Harcourt, Kano, Onitsha, Ibadan, Yola, Benin, Uyo, and Ilorin. Companies listed on the Exchange cut across the economic sectors of Nigeria and include local affiliates or subsidiaries of multinationals. The exchange has two tiers: 1st tier securities and second tier securities. The Nigerian capital market, like elsewhere, is a regulated market. Apart from the regulatory actions of the exchange as an SRO, government oversight on the capital market in Nigerian is achieved through the operations of the Securities and Exchange Commission (SEC). It maintains surveillance over the securities market to ensure orderly, fair and equitable dealings in securities, protecting the integrity of the securities market against abuses arising from the practice of insider trading.

However there have been reports of financial misappropriation leading to the bankruptcy of the exchange and management crisis as a result of allegations of insider trading and manipulations in prices of shares. The current upheaval in the exchange has led to the summary dismissal of the Director-General (DG) of the exchange, Prof Ndi Okereke-Onyiuke and its president, Alhaji Aliko Dangote. Interestingly, before their sack, the two parties have thrown accusations at each other. While Dangote accused Ndi Okereke of misappropriating funds, Dangote was accused of manipulating share prices of African Petroleum (AP). The interest of this research is to assess the impact this crises has on the Nigerian capital market.

 

1.2            STATEMENT OF PROBLEMS

At the Nigerian stock exchange (NSE), buyers and sellers are the same people. So the market is no more than a manipulative institution; where corruption and lack of transparency have brought misery and poverty to investors. Or how could one describe a situation where market crashed in 2008 with capitalization collapsing from N15 trillion to N6 trillion without anybody lifting a finger? (Etubom; 2010).

Because of this known deficiency, corruption has permeated the system; there is price-fixing and overvaluation of shares. Initial Public Offers (IPOs) are manipulated.

Most executive and council members of the exchange stooped so low to collaborate with stockbrokers by leaking information thereby manipulating prices of shares.

The universal banking, which brought the banks into stock broking business, did not help matters either. The banks saw the loopholes in the one-man market and went for the kill and there by destroying themselves and the market.

Operators and dealers alike were “deceived” into believing that the Nigerian economy is shielded from the global economic meltdown that hit the world economy. This further fueled the complacency of the operators and dealers towards taking precautionary measures to absorb the shock of global economic meltdown.

 

1.3            OBJECTIVES OF THE STUDY

The objectives of this research among other things are to appraise the extent to which the Nigerian capital market has been affected as a result of the crises in the stock exchange.

The study also aims at taking a cursory look at the cause of the crises and how to manage it.

It is also of interest to appraise the rational for making the exchange a self regulatory organization.

In addition to the above, this work also seeks to ascertain the effects of the crises on investors’ confidence in the market and the general response of the economy to the crises.

 

 

 

1.4            RESEARCH QUESTIONS

To achieve the above objectives, the following research questions were raised.

1        what are the achievements and challenges of the Nigerian stock exchange in developing the capital market?

2.       What roles did the global economic meltdown play in the crises?

3        Is the crisis individually motivated or generally a managerial and system failure?

4        how do investors respond to the capital market during and after the crises?

5        what steps have been taken to manage the crises and restore confidence back?

 

1.5            RESEARCH HYPOTHESES

I        Ho:    Manipulation of share prices does not significantly affect the market.

          Hi:     Manipulation of share prices affects the market.

II       Ho: Insider trading is not a significant factor in destroying confidence in the market.

          Hi:     Insider trading is a significant factor in destroying confidence in the market.

III      Ho:    The crises in the exchange has not affected the

Nigerian economy in any way.

          Hi:     The crises in the exchange has affected the

                 Nigerian economy in some ways.         

IV      Ho:    There is no significant relationship between the

global economic meltdown and the crises in the Nigerian stock exchange.

          H1:    There is significant relationship between the global

economic meltdown and the crises in the Nigerian stock exchange.

 

 

1.6            SCOPE OF THE STUDY

The study covers the Nigerian capital market as a whole and the Nigerian economy. The Nigeria stock exchange is taken holistically but with the Onitsha branch of the exchange as a contact point. It covers all relevant issues pertaining to the Nigerian capital market and the Nigerian stock exchange vis-à-vis the Nigeria economy.

It also takes into account, the role of SEC in managing the crises in the exchange and the role played by CBN.

Ultimately, the study elicited investor’s response and positions as it regards the exchange and the capital market. To achieve this, investors in Enugu metropolis were selected.

 

1.7            LIMITATIONS OF THE STUDY

          In the course of this study, the researcher encountered problems which in one way or the other challenge the easy flow of this work. These include:

a.                 Distance: in the course of this study the research was faced with the challenge of actually traveling to the Nigerian stock exchange in Onitsha and visiting some stock broking firms in Enugu.
b.                 Time: it seemed there was not enough time to meet up with this work. But the researcher properly managed his time effectively and efficiently.
c.                  Finance: at a time it was difficult and almost impossible to continue because of lack of finance.
d.                 Fatigue: the human factor also tried to hamper this study by constant body breakdown as a result of fatigue, tiredness and distractions.
e.                  Hoarding of information: during the research, I noticed that those approved for information were not really willing to give it.

 

 

1.8            SIGNIFICANCE OF THE STUDY

It is a noted fact that for any meaningful economic transformation of a country to take place, her capital market must be effectively active. It has also been an identified fact that economic strength of any nation is measured according to how active or effective her capital market is/or performing its supposed functions.

          This study will be of significant interest to government and the central bank of Nigerian as they are aware of the problems facing the Nigerian stock exchange and remedies to tackle these problems.       

          The study will also be significant to institutional operators of the market especially the Nigerian Securities and Exchange Commission (SEC) and the future researchers who may want to share this experience.

          This study will be of interest to investors who have been at the receiving end of the crises in the exchange. They will be able to know the real cause of the problems, response of SEC and efforts being made to protect their investments.

          The significance of this study will provide foreign businesses with the facilities to offer their shares and give the Nigerian Public an opportunity to invest and participate in the share and ownership of foreign businesses.

 

1.9            DEFINITION OF TERMS

For the purpose of this research, the under listed terms are defined thus:

1        Stockbroker: as agent who buys and sells securities on a stock exchange on behalf of clients and receive remuneration for this service in form of a commission.

2        Stock Exchange: a market for the sale and purchase of securities, in which the prices are controlled by the laws of supply and demand. Nigeria stock exchange started in 1960 but commenced operations in 1961.

3        Stock Holders: individuals, businesses and groups owning stocks in a corporation.

4        Capital Market: a market in which long – term capital is raised by industry and commerce, the government and local authorities. The money comes from private investors, insurance companies, pension funds and banks and it’s usually arranged by issuing houses and merchant banks.

5        Financial Instrument: a contract involving a financial obligation. Examples include stock, bonds, loans, and derivatives.

6        Shares: a share confers on its owner a legal right to have part of the company’s profits and to exercise any voting rights attached to that share.

7        Securities and Exchange Commission (SEC): SEC is the regulatory arm of the Nigerian capital market.

8        Arbitrage pricing theory: a model proposed by Stephen Ross in 1976 for calculation returns on securities. It assumes a number of different systematic risk factors without however, definitively identifying the various types of risk.

9        Financial Institutions: these are institutions that use its funds chiefly to purchase financial assets, deposits, bonds, loans and so on.

 

REFERENCES

Alite H. I (1984): the Nigerian Stock Exchange Historical Operations and Contribution to Economic Development Bullion of the Central Banks of Nigeria.

 

Okigbo P. C (1981); the Nigerian Financial System Longman Essek.

 

Oxford Dictionary of Accounting Third Edition

 

Lead capital (2010): Stock Watch a Guardian Publication

 

Ndi Okereke J- Onyiuke (2101) Overview of the Nigerian Capital Market.

 

The Guardian Newspaper: Friday August 6, 2010 p. 14

1.10         

CHAPTER TWO

LITERATURE REVIEW

2.1            WALL STREET – WHERE IT ALL BEGAN

Securities are traded in a variety of forms and in diverse trading places. Wall Street is where it all began (The New York Institute of Finance; 1992), but one will see that the Nigerian financial market – place today bears little resemblance to its origin there.

According to the Institute, prior to the Revolution, New York City’s leading merchants met daily under a buttonwood tree located at what is today the corner of Wall and Broad Streets. These early merchants traded in commodities such as furs, tobacco and currencies and provided services, such as insuring ships’ cargoes.

As companies were organized to conduct different types of commercial activities such as banking, retail trade, or shipping, an informal market in shares of these companies developed among the merchants who controlled them. Twenty four of these early merchants, or stockbrokers, as they came to be called, entered into a formal agreement on May 17, 1792, to trade only among themselves and to maintain agreed – on commission rates. This marked the founding of what is today the New York Stock Exchange (NYSE).

 

THE CONCEPT OF A STOCK EXCHANGE

There are many views of what a stock exchange is. To F. E Armstrong(1994), author of “The Book of the Stock Exchange” a stock exchange is defined as “the citadel of capital, the temple of values. It is the axe of which the whole financial structure of the capitalist system turns”. Literally however, a stock exchange can be described as a market for securities. A place where securities (Bonds, stock and shares) of varying types are traded openly, and where one can purchase or sell any of such securities relatively easily.

According to Alile and Anono(1986; 29), securities are documentary evidence of ownership or entitlement to claim upon the assets of the issuing organization, which may be a business firm of the issuing organization, government. These documentary evidences usually have no fixed or absolute value but are traded on the stock exchange at values which are subjectively determined by those buying or selling them.

Professor F. Okafor (1983) describes a stock exchange as an organized secondary market since a stock exchange is really strictly a market for existing rather than new securities.

The stock exchange provides an avenue for the movement of long-term capital funds from those with savings to invest in those areas of industries, commerce and government where funds are lacking for expansion and other developmental purposes.

The stock exchange is also an institution which sees to the efficient allocation of available capital funds to the diverse uses in the economy, and through its sensitive pricing mechanism ensures that so much of the total available capital resource are allocated to each firm within each industry as that industry deserves to have, having regards to their relative contribution to total societal wealth or satisfaction vis-à-vis other firms or industry.

According to Alile and Anorno (1986), the stock exchange can also be a mechanism (barometer as some would suggest) which can measure and detect the symptoms of an impending economic boom or decline long before the predicted prosperity or decline actually occurs. The stock exchange is able to change in economic conditions and trends which are a reflection of the total psychology or judgments of persons using the stock exchange, among whom the professional investment economist or analyst exerts the greatest influence.

 

2.2            The Nigerian Capital Market

The Capital Market, according to Professor Ndi Okereke Onyiuke (2010), is made up of markets and institutions, which facilitate the issuance and secondary trading of long – term financial instruments. She argued that the capital market, unlike the money market which functions basically to provide short-term funds, provides funds to industries and governments to meet their long term capital requirements, such as financing of fixed investments – buildings, plants, machinery, bridges etc.

The Nigerian Capital Market is a market for sourcing of medium and long-term funds by both the government and private sectors of the economy. The strategic roles of the capital market in the allocation of scarce financial resources for rapid economic growth and development of any nation is well documented. For example, Oladejo, R. (2003) enumerates the gains of the Nigerian capital market as follows:-

Helps the economy to increase capital formation;
Provides funds to government and companies at more attractive terms;
Provides best source of funding for SME growth;
Subjects firms to market discipline thus enhancing chances of success;
Provides the necessary elements to manage financial risks and
Ensures continuity of the enterprise long after the founder.

In the book “The guide to investing in emerging securities markets”, Dr. B. Persuade (1990), further enumerates the role of capital markets in economic development to include:-

Provides additional channels for encouraging and mobilizing domestic savings for productive investments and an alternative to bank deposits, real estate investment and the financing of consumption loans;
Fosters the growth of the domestic financial services sector and various firms of institutional savings such as life insurance and pensions;
Provides savers with better protection than most debt instruments against inflation and currency depreciation and thus alleviates two of the major reasons encouraging the flight of domestic capital aboard as well as providing attractive vehicle for repatriating flight capital;
Encourages privatization by increasing the marketability of new issues. This marketability also facilitates the dispersal of ownership form traditional industrial and financial interests;
Improves the gearing of the domestic corporate sector by facilitating equity financing, and this helps to reduce corporate dependence on borrowing, thus making the financial system more solvent;
Provides, through equity financing, a cushion for companies against the variability of cash flows and even possible losses. Also, it is permanent financing which does not demand regular fixed returns like debt.

With all the above enumerated roles of the Nigerian capital market, however, attainment of such goals is not feasible without the pivotal role of the Nigerian stock exchange. The Nigerian capital market without the Nigerian stock exchange is like a car without a fuel to propel it.

The Nigerian stock exchange is therefore a self – regulatory organization (SRO). It regulates its members (brokerage firms). It also regulates its listed companies to ensure compliance with listing rules. Directors of companies stand in a fiduciary relationship with their companies and are expected to run their companies with utmost good faith, competence and integrity. Audit committees of publicly quoted companies are also vital organs of integrity in corporate governance. External auditors also play a pivotal role in ensuring the integrity of information emanating form companies quoted on the exchange, as they are statutorily required to attest to the financial statements published by such companies. Others include issuing houses, reporting accountants, lawyers and investment analysts.

Sadly, however, the Nigerian stock exchange is yet to score high on integrity. Witness the AP debt concealment saga, the famous Nestle Foods and Unilever shares scam. Asalu A. (2002; 67) pointedly accused the Nigerian Stock Exchange (NSE) and its subsidiary Central Securities Clearing Service (CSCS) limited of engaging in insider dealing. The Central Bank of Nigeria (CBN) has also been persistent in accusing banks, many of them players in the capital market, of consistently sending false returns to it. For example, in the wake of the closure of savannah bank plc (before its license was released back in 2010), CBN reported that it was unable to confirm a figure of N2.2 billion sad to be cash in hand in the bank on a particular day for the simple reason that several rural branches of the bank were reported to be holding cash far in excess of their deposit base (Adewale; 2006)! In the same vein, Onosode, G. O (2001) is unrelenting in his attack on Nigerian company directors who allow personal interest to colour their official actions and some Nigerian auditors who allow their cozy relationship with directors to colour their disinterestedness in carrying out their work. Yet, to say that lack of integrity is peculiar to the Nigerian capital market is to miss the point.

However, the crisis of integrity is exacerbated in the Nigerian capital market scene for reasons that include:-

Absence of a strong and well funded regulator;
A socio-economic environment that extols wealth however made;
An investor group that is largely illiterate and fragmented;
Suffocating competition that encourages unorthodox practices as firms try to stay afloat and ahead of competition;
Weak legal framework;
Weak internal control environment as a result of employment polices that place less emphasis on merit and integrity;
A company directorship class that is greedy and self serving;
Weak audit committees as a result of membership that is largely financially illiterate and ill-motivated because of absence of remuneration for services rendered;
Weak external audit function partially as a result of few bad eggs in the profession and partly as a result of fetters placed on independence of the auditors in actual practice (Uche Ezechukwu in business day august 18, 2010).

2.3            NSE CRISIS: THE ROOT CAUSE

According to a financial times report of June 23, 2008, some investors were, even prior to the global economic meltdown, “troubled by high valuations, dubious corporate governance, rampant speculation and suspicions of market manipulation. So even without the global downturn, according to the report, the over-inflated Nigerian stock was subject to wide spread abuse and insider trading of unimaginable magnitude and was headed for disaster.

The period 2002 – 2008 was a one of boom for the Nigerian economy. Nigeria’s foreign reserves rose to .2bn at the end of December 2008. Crude oil prices hit a peak of 7 per barrel in July 2008.

During the period, Nigerian stock market capitalization rose to peak at N12.6 trillion on March 2008. The boom in stock led to a mad rush by almost all Nigerians to invest in stocks. According to Singleton (2008; 9), “Banks in the country exploited the made rush and transformed themselves into issuing houses, brokers and bankers all in one (all the Nigerian banks formed issuing houses). They capitalized on the boom to exert money from the unsuspecting public”.

In the same vein, Agbana (2009; 6) argued that “some banks embarked on multiple issues over short period of time, throwing capital market rules and regulations on offer of issues to the wind. In a period of three years, a notable bank in the country, organized three public offerings, first in 2005, then in 2006 and again in 2007. They were raking in money from the unsuspecting public, until the shares price of the bank peaked at N35″. The rising share prices encouraged more people to borrow and invest; hoping that the shares prices would rise further. The price rose above the capacity of ordinary people to buy shares and the stockbrokers simply lent more.

The speculation thus fueled further rises and created an economic bubble.

Lamenting on the rottenness of the Nigerian capital market, Olawale (2010) an investment analyst, accused that “Banks simply issued new shares and lent money to their customers to invest in those same banks’ shares. Moreover, the banks would simply use depositors’ money to invest in those shares, thereby creating artificial robustness in the market”. They (banks) lent millions to their staff and coerced them sometimes against their wish to invest in the banks own shares. March 2008, a rumor that the central bank and Securities and Exchange Commission (SEC) had ordered banks to stop making loans to stockbrokers for margin trading led to a 15 percent fall in three month (John Udonsak, vanguard newspaper; 16 march 2008) indicating how fragile the market’s foundations were. Investors were shaken, stock prices sank and liquidity from margin lending evaporated.

Part of the causes for the present crisis is that a lot of Nigerian stock brokers were stuck with the loans and the banks with liquidity problems, while certain chief executives of some banks became richer than their banks. Thus even without the global downturn, even without the alleged repatriation of foreign funds, the Nigerian Stock Market was inflated, artificial; the correction would have been as shocking and painful. The artificial boom led to a burst.

 

2.4            MANIFESTATIONS OF THE CRISIS

Prior to august 6, 2008, which was the scheduled date for the council of the Nigerian Stock Exchange to elect the next president to take over from the outgoing Chief Oba Otudeko, forces from the inner caucus of the stock exchange were scheming to frustrate Alhaji Aliko Dangote’s bid to become the head of the exchange. According to Okezie (in Guardian newspaper), public perception of Dangote was poor due to his alleged involvement in AP’s share price manipulation Saga. To boost investors’ confidence in the face of the above allegation, some people were thus bent on preventing Dangote from becoming the President. However, Dangote emerged the president of the Nigerian Stock Exchange because the exchange has a laid down rules and regulations similar to that of Institute of Directors (IoD) for electing next president (NSE monthly newsletter, 2009).

According to the NSE rules pertaining to the selection of a president, the first vice-president to the outgoing president is always elected the president except there is a major development of statutory reasons to set this procedure aside (NSE 2009).

According to Kingsley (in Guardian, Wednesday, August 18, 2010), an obvious manifestation of the rots in the NSE occurred when SEC suspended Nova finance securities on March 26, 2009, after investigations uncovered unethical practices of insider trading. According to him, the investigation triggered another probe into Afribank Registrars; accused of aiding and abetting the unethical practices by Nova finance securities. In the same vein, Ben (2010) argued that “though the suspension and fine of Nova finances and securities may not be evidence of the guilt of AfriBank registrars but it suggested evidence of complicity of the group of Dangote consortium partners in masterminding the fraud”.

Dangote and Nova with the assistance of Afribank registrars were said to have swapped a total volume of 500,000 units of irredeemable non-cumulative convertible preference shares in 10 different transactions, which were admitted to the daily official loss of the Nigerian Stock Exchange. In reacting to this situation, Femi Ofedota, the owner of African Petroleum(AP) in an interview granted to Vanguard Newspaper( September 26, 2009) said “the ensuring panic and loss of shares values created a scary scenario for AP investors. The result was that shareholders lost confidence in AP shares, leading to massive exodus of existing shareholders, who hurriedly offloaded their AP shares thus precipitating a sharp decline in its price”. It is therefore evidenced by Dangote’s ascender to presidency of NSE that not even the AP share saga could stop him from being elected.

But in a twist of fate, the euphoria that followed his landslide victory at the NSE election was cut short by the federal high court in Lagos, which nullified the election; shareholders of African petroleum plc. The shareholders had sued Dangote, Nova Finance and Securities Limited NSE and others over alleged massive manipulation of AP shares.

According to Ndukauba (2010; 9) an official of Afrinvest Nigeria, “the court cases that trailed Dangote’s presidency and the nullification of his election as the president and chairman of the council of NSE brought humiliating experiences and trauma to the then Director General (DG), Okereke Onyiuke that she and her management team decided to subtly distance themselves form Dangote and avoided him whenever he visited the exchange”.

This, according to him, “piqued Dangote, who, with his financial influence got some close associates of Okereke-Onyiuke to his side and started to gather incriminating information form the exchange with which he petitioned SEC, alleging that the exchange was insolvent.

The disagreement within the NSE council is believed to be connected with Prof. Okereke Onyiuke and some council members’ argument that it was better for Dangote to “step aside” while defending himself in court. Dangote, according to Boniface Keizer (2010; 45) rejected the proposal. Instead, in a swift reaction, Dangote in his petition accused the management of the NSE of misappropriating over N11 billion between 2007 and 2008.

In the petition to the SEC, Dangote alleged that the billions spent in the period, Okereke Onyiuke used N4.2 billion to “develop the market”. The expenditures being questioned by Dangote include theN450 million for international travels, N125 million on business and local trips, N70 million on trips to Abuja, N980 million for personnel training, and others (the Guardian, Friday August 6, 2010).

 

2.5            NSE CRISIS: RESPONSE AND MANAGEMENT

The government regulator of the Nigerian capital market is the Securities and Exchange Commission (SEC). It derives its legal muscle form the investments and Securities Act of 1999 (ISA) and has as its major functions the following:

Investor protection thereby enhancing their confidence in the capital market;
Ensuring of orderly and equitable dealings insecurities business and
Promotion of capital market growth and development. Okereke (2002) opines that in designing a regulatory framework, a delicate balance have to be struck between allowing the market sufficient room to carry out its functions while at the same time ensuring that practices that impinge the integrity of the market are prohibited.

In the wake of the crisis in the NSE and carrying out its oversight regulatory functions, SEC on Wednesday August 4, 2010, announced the removal of the Director General of the NSE, Okereke-Onyiuke and directed Dangote to cease acting as president of the council, in line with a subsisting court order, pending the final out come of the litigation.

According to SEC’s spokesman, Mr. Lanre (in The Nation Friday, August 6, 2010), “these decisions were taken in the public interest to protect investors in the market in line with the investment and securities act (ISA) 2007. He added that the SEC had become concerned about recent development in the NSE, particularly inadequate oversight litigations resulting form boardroom succession squabbles, allegations of financial mismanagement, governance challenges, and delay in implementing the succession plan of the exchange carefully weighting the implications of direct intervention in the affairs of the exchange on the market against the more compelling goals of safeguarding the public interest and investors.  The SEC hopes that its actions will reinforce the integrity of the markets, demonstrate its commitment to accountability and boost the confidence of the general public in its ability to step in decisively when necessary”. Collins (2010; 3).

Many reactions have trailed the SEC’s response to the crisis. National coordinator of Proactive Shareholders Association of Nigeria (PSAN), Oderinde Taiwo said that “it is too early to draw conclusions, adding that external auditors should be allowed to look at NSE’s finances”. He also argued that Dangote’s motive is highly suspicious; pointing out that it is not unconnected with the court case instituted by shareholders against the election of Dangote as NSE president.

On the other hand, a founding member of the Shareholders Solidarity Association (SSA), Gbadebo Olatokunbo believes the investors would benefit from the turn of event. According to him, the unfolding scenario is capable of lifting investor’s confidence in the market (Nwabueze; Newswatch, 2010)

Similarly, Ndukauba (2010; 9) said that “the SEC had done the right thing so that market confidence will be sustained”. Kingsley Okon of BGL securities, however, said that nothing really has exchanged. According to him, whoever becomes the director general of NSE will not change things much. “The management of the exchange is not responsible for what happens in the market in terms of market performance. It is the performance of the individual companies in the market that constitute the true state admitted that what the management of SEC does is to ensure that the operating environment runs according the stipulated rules and regulations.

Already, some stakeholders have called on the economic and financial crimes commission (EFCC) to wade into the matter as part of strategies to ensure a thorough job is done.

For example a Lagos based economist, Dr. Mike R. Ogie during a seminar presentation in Enugu, said that the EFCC and other security agencies must not wait to be invited before “taking the bull by the horn”.

He added that in other parts of the world especially in the developed societies, similar issues are given urgent attention because of their ability to harm the larger economy.

According to him, “the stock exchange is the heart of any economy for a privileged insider to allege fraud in the manner that Dangote has done speaks volume”.

2.6            IMPACT OF THE CRISIS ON NIGERIA CAPITAL MARKET

Basically, the imbroglio in the Nigerian stock exchange has had far reaching impact in the Nigerian capital market. The impact of the crisis in the capital market is both of positive and negative one.

In the positive sense, the shake up in the Nigerian stock exchange was necessary for the protection and safeguard of investors’ interests. According to Larne (2010), “investors would benefit from the turn of event because the unfolding scenario is capable of lifting investors confidence in the market since it is to protect their investments.

Another positive impact is of the crisis is its ability to educate investors and the general public on the state of affairs in the market. No doubt the turn of events in the capital market is not palatable with investors and the economy at large, but it sure has a positive impact on how investors should approach the capital market. It is obvious from the unfolding events, that most investors and stockbrokers approach the Nigerian capital market as though it were money market.

They invest and hope to reap 100% return in few months time. Their desire to reap in a short-term motivated then to engage in high speculations which invariably influenced stock prices.

The timely sanction of the management of the NSE by the SEC is a positive pointer that the regulatory body is not oblivion of sharp practices in the capital market. This is in tandem to her promises when she took over as DG of SEC. Barely a month after she assumed office as the Director General of SEC, Ms. Arunma Oteh, “promised tougher sanctions for anyone who infringes on capital market regulations. She stressed her determination to eliminate sharp practices, deter malpractice and change behaviors by ensuring that both the institutional and personal costs of any wrongdoing are extremely high”.

In an interview granted to Daily Sun on Monday, August 23, 2010, the president of chartered institute of bankers of Nigeria (CBN), Laoye Jaiye Ola pointed out that the sack of the NSE management was necessary to engender accountability and transparency in the market. He said “a lot of people believe that all is not well with the NSE’s accounts. The only way for the management of the exchange to redeem its reputation and that of the market is to allow external auditors”.

However, the negative impact of the crisis is more far reaching than the positive effect. The question of investors’ confidence in the market is in doubt as investors are gradually pulling off their investment from the market.

According to a former governor in Ogun State, Olusegun Osoba, the hundreds of millions of naira he sank on stocks had all gone down the drain.

His regrets: “if I had known it would be like this, I would have stuck to my strategy of buying property. I was persuaded into it and it hit me hard. You can imagine when First Bank went from N48 to N13. Then Access Bank went from N20 to N3″.

According to Mr. Oladipo Williams, immediate past president of Chartered Institute of Stockbrokers (CIS), “there is considerable loss of confidence by the generality of investors which invariably causes low patronage in the market”

As reported in Business World of Monday August 16, 2010, “investors believe that the massive movement of security operatives into the financial sector at any time of change instills fear in them and creates an impression of insecurity”.

Dr. Prosper Ahworegbe, a medical director/shareholder, said “the sack had discouraged him and his friends form investing in the market for now because according to him, he has suffered enough losses and sleepless rights over the crisis”.

As a result of loss of investor’s confidence in the market, the all share index depreciated by 105.39 points or 0.4 percent to close on Friday, August 6, 2010 at 25,738.79. Market capitalization lose lower at N6.3 trillion (from N15 trillion). The table below represents the impact of loss of investor’s confidence in the market Nigerian capital.

Table 2.1

Date

Share index

No of deals

Volumes of shares

Values of shares

Market capitalization

2/8/10

25,634.39

5,997

193.3 million

N2 billion

N6,269 trillion

3/8/10

25,418.84

6,804

266.2 million

N1.2 billion

N6,216  trillion

4//8/10

25,691.30

3,469

266.2 million

N 925.8 billon

N 6,283 trillion

5/8/10

25,715.39

1,882

129.1 million

N 639.4 billon

N 6,289 trillion

6/8/10

25,738.79

6,394

184.4 million

N 2.6 billon

N 6,294 trillion

9/8/10

25,606.09

8,895

201.1 million

N 1.8 billon

N 6,262 trillion

11/8/10

25,032.09

6,558

259.8 million

N 1.4 billon

N 6,121 trillion

12/8/10

24,988.03

5,208

164.2 million

N 3.2 billon

N 6,100 trillion

13/8/10

25,984.80

6,092

145.2 million

N 2.3 billon

N 6,110 trillion

16/8/10

25,156.46

5,819

445 million

N 2.9 billon

N 6,152 trillion

17/8/10

25,170.02

6,285

263 million

N 2.1 billon

N 6,155 trillion

20/8/10

25,106.89

6,054

292.5 million

N 1.6 billon

N 6,140 trillion

23/8/10

25,321.06

5,680

195.1 million

N 1.6 billon

N 6,108 trillion

27/8/10

24.274.50

6550

227.9million

N2.1 billon

N 5,937 trillion

 

Source: Lead capital daily market report. (August 2010).

From the above data, it is clear the loss of investors confidence has struck the market, reducing the market capitalization from N15 trillion to N6 trillion. Beyond investors’ confidence, however, the stock market is characterized by its volatility. What exactly causes its rises and falls has several explanations. Some of them are obvious whereas others are not so easily determined. Most of the market movers are economic, political and societal character.

According to Hulbert (2008;37), some of the factors that cause movement in the stock market have long term effects while the influences of others are felt only in the short-term.

Some of the easily determined market movers include:

a.               inflations
b.               earnings
c.               interest rates
d.               domestic political run out
e.                terrorism and times of war
f.                oil and energy prices
g.               crime and fraud
h.               uncertainty

Numbers (g) and (i) play an extreme role and could adversely affect investors’ confidence.

Insider dealing is another practice that erodes market confidence. According to Evelyn-Oputa (2009), insider dealings take various forms, but in a typical case, shares of the company in which the insiders are interested are quickly and discreetly acquired in order to keep from driving up the price whilst shares are being purchased. This could be achieved by deliberately spreading inaccuracies and misstatement about the firm. Upon the completions of   acquisition of the desired level of the interested shares, favorable information about the company is circulated to instigate naive investors into purchasing the same shares therefore bidding up their prices. When the price has reached a high enough level, the accumulated holdings are liquidated for huge profits. Such illegal practices not only shatter confidence of clients and investors on the fairness of the capital market, but also have far-reaching repercussions for the growth of the economy.

In all instances, the beneficiaries of insider dealings are either professional market participants, their clients in the illegal trading activities and/or institutions trading for their own account.

Oladayo (2009; 18) argues that the motivation for insider dealings is always the same: greed and the desire to make huge profits on the basis of privileged information. Conversely, the losers are investors, whose decisions are affected by this misappropriation of non – public information; the capital market, whose credibility is affected by the breach of trust and confidence and the economy as its growth is stunted by this disruption of the capital information process.

 

 

 

 

 

 

2.7              OTHER IMPACT OF THE CRISIS ON THE CAPITAL MARKET

According to Oba Ekiran (1999; 12) in Chuke Nwude (2003; 402), the importance of capital market to a country’s economy could be felt under the following points:

1.                 Provision of market facilities and encouragement for the surplus units to pass their savings to deficit units on the understating that the market infrastructure is in place; qualified and certified operators are available; regulators are there to blow the whistle wherever there are infringements that violate the rules of fairness, commercial honor and integrity.

By the above, the crisis in the NSE being the trading floor of the capital market will definitely affect the role of fund transfer from surplus units to deficit units which generally may stunt economic growth.

2.       Capital formation to augment working capital, project finance, plant expansion or refurbishment or information technology upliftment.

          The above role of capital formation will be challenged when there is a question mark on the integrity of the management of the NSE. This argument is readily buttressed with the dismal fall in market capitalization form N15 trillion in 2008 to N6 trillion as soon as the crisis started.

3   A barometer for measuring the performance of the economy to find out whether the economy is growing, stagnated or declining. This can be gauged using the market capitalization number of participants and quantum of funds flow and instruments.

          By this it is therefore evidenced that the sharp fall in the market capitalization, number of deals and the all share index is as a result of the NSE crisis.

          It can be observed form the points highlighted above that it is not an overstatement to say that a healthy capital market is a catalyst to a country’s economic survival and development (Nwude, 2003). The motivating factors for investment in the capital market can be returns in form of dividend, interest, capital appreciation, membership of board of directors for control of an enterprise and to forestall fund idleness to take advantage of time value of money.

          Therefore, any attempt to allow crisis in the exchange will have far -reaching repercussion on the investors’ confidence and the economy as a whole.

 

REFERENCES

Peter S. Rose (1994), Money and capital market financial institution and investments in global market places, New York, Addison Wesley, pp 628-635.

 

New York institute of finance (1992): guide to investing Simon and Schuster Inc.

 

F. E Armstrong (1993): “the capital market operations (seminar presented in UNEC 21st March 1993).

 

Aliele and Anao (1986): the Nigerian stock exchange market in Operation. Jen Meviho and Associate Ltd.

 

Okafor F. (1999): Investment Decisions: Evaluation for Projects and Securities London Cassel ltd.

 

Ndi Okereke – Onyiuke (2010): “Overview of the Nigerian capital market (seminar presented in UNEC June 2010).

 

Oladego, R. (2003): “Exploring capital market opportunities”, business times, an h6 – 12, 2003 P. 30.

 

Persuade, B (1990): the guide to investing in emerging securities market. Euromongy publication Plc.

 

The Guardian newspaper Sunday, August 8, 2020 p. 14.

 

Onosoda, G. O (2001): “Conflict of interest in corporate governance,” business times, DCC 3-9 2001. p. 17.

 

Financial times magazine June 23 2008 p. 18

 

Singleton – Green B. (2008): “10 ways to restore shareholders faith”. Accountancy, April, 2010 p. 9.

 

Agbana, G (2009): “footpath to capital market competitiveness engages stakeholders”. The Guardian,Sept 19, 2009.p14

 

Daily sun Newspaper Monday, august 23, 2010. p. 38 business world Monday, august 16, 2010. p. 32.

 

Hylbert R. C (2008): “Investment opportunities in times of financial crisis”. The wall struck journal. 2008.

 

Evelyn Oputa Berume (2009): “Insider dealings facts dangers and precautions. Cheedal press ltd.

 

Chuke Nwude (2003): “Basic principles of financial management: A second course”. Chuke Nwabude Nig, Enugu.

CHAPTER THREE

3.0         RESEARCH METHODOLOGY

3.1   INTRODUCTION

This chapter will focus on the procedures for collection and analysis of data. Having reviewed the related literature on the impact of the NSE crisis on Nigeria capital Market, the research’s attention will now move to the methods of data collection and analysis called Research Methodology.

 Research Methodology according to Baridanm (1990:20) should provide a detailed account of methods used in collection of data, why those methods were chosen and not others, what data were obtain and how they were analyzed.

 

3.2            RESEARCH DESIGN

          The researcher employed various methods and procedures to achieve the objectives of the research. The researcher obtained information from both primary sources and secondary sources. Primary sources include Oral interview and administration of questionnaires. Secondary sources which are the desk research include materials obtained from journals, newspapers, annual reports, magazines, seminar paper, unpublished thesis, internet and news from electronic media.

           The data collated were put into useable form through editing, tabulating and analysis. In editing, non relevant data were discarded and the relevant data were tabulated so that statistics could be developed from them. The data collated were subjected to analysis and the research formed interpretation from the result

3.3.                   SOURCES OF DATA

The Research used both primary and secondary sources.

3.3.1                                PRIMARY DATA

       Primary data were gathered by the researcher through personal     observation, Oral interview and administration of questionnaire. The questionnaire contained several structured questions to probe in to the research problem.

3.3.2                                SECONDARY DATA

       Secondary data also known as desk research was used. The researcher got information from Newspapers, internet, Annual reports, Seminar papers, journals and like news from electronic media.

      

3.4          METHOD OF DATA COLLECTION

This refers to the research instruments used by the researcher to collect whatever data was needed. The research instruments used in this work include; questionnaire, interview schedule, and desk research.

 

3.4.1                         RESEASONS FOR USING THE ABOVE MENTIOED METHODS

The questionnaire permits wide coverage for minimum expenses. It researches to people that would have been hard to contact especially since most of them were sent through E-mail to respondents. It also afforded the respondents more adequate situations in which to check options. The interview schedule was to complement the questionnaire and help to secure information which the researcher found useful in completing research work and also the persons interviewed provided useful and viable suggestions how to manage the NSE crisis.

    Desk research enabled the researcher to know the actual situation of events by comparing figures of past in the present periods and it is also objective and permitted a more accurate generalization.

 

3.5                                DETERMINATION OF POPULATION SIZE

In determining population size, the researcher has to adopt the stratified deliberate sampling method. This method was chosen because of the heterogeneous nature of the population which includes staff of quoted companies, stockbrokers and the general investors.

      In effect, it is not possible to collect information from all possible respondents, Stock broking firms were chosen represent the registered dealing members in the NSE while Fifty (50) individual investors (share holders) were chosen to represent all other investors.

 

3.6    DETERMINATION OF SAMPLE SIZE

Unit

Sample

Percentage of population

Stockbrokers

50

50%

Investors

50

50%

Sample size

100

100%

     In the determination of sample size, some stockbrokers and investors were interviewed, including the circulation of questionnaires to 50 stockbrokers and investor respectively. The sample size is shown below. 3.7 SAMPLE PROCEDURE

          In the process of carrying out research of this sort, a comprehensive information that will help one come up with a concrete result with relevant references to the study has to be built up. To this end, a decision has to be made on whether such information will surface from all the sample population. In respect to the study, a sample of the population was adopted to enable the researcher quickly get at them.

             Also interviews were conducted, categorically with officials of stock broking firms and few individual investors under the Sample Size.

     Questionnaires were distributed to the sample population. With that, the researcher gained quicker response.

3.6      METHOD OF ADMINISTERING QUESTIONNARIES

      In administering the questionnaires, hand to hand approach has to beadopted.

     The researcher adopted this method for quicker response and to ensure prompt return or accountability, Equally, Some questionnaires were E-mailed to respondents due to their location and importance of their contribution to this research.

     For instance, one hundred (100) questionnaires were administered both physically and electronically. Out of one hundred (100) questionnaires representing one hundred percent (100%) of distributed questionnaires, eighty five (85) questionnaires were returned and received representing  Eight five percent (85%) of the distributed questionnaires which evidently is a favorable response rating.

 

3.7                                DECISION RULE

     The rule state that data collected from the secondary sources will be affected to the “Impact of the Nigerian Stock Exchange Crisis on Nigeria Capital Market”.

              In view of the decision rule of data collected through questionnaire responses and personal interview questions, the hypotheses were first tested, after which other additional data were analysed.                    

Some of the decision rules techniques applied are as follows;

     RECORDS

Many records are maintained for the past and ongoing activities of the Nigerian Stock Exchange and these often provide data for analysis.

              It is in line with this that the crisis in the NSE was analyzed.

         TABULATION; The data from the two (2) Sets of questionnaires i.e. to stockbrokers and shareholders were separately tabulated to present a summary of all the responses to each major research question to aid the hypothesis testing.

           The tables for each group of respondents were separately presented, this enable easy assessment of the majority response to each research question.

        Percentage (Module Response): Responses to the questionnaires were decided on percentage basis.

      A percentage of each of the alternative response was calculated against the total responses for each major research question.

          This enables the researcher to determine the model to each question by each of the group of respondents in order to make a comparative analysis and select the alternative with highest percentage.

 

HYPOTHESES TESTING – MEAN PERCENTAGE

          Since two (2) separate groups of responses were decided and analyzed, the (mean) percentage of all response to avoid the selection of any biased opinion.

 The percentage responses from stockbrokers and investors were combined and this means percentage calculated. The alternative with the highest mean percentage of response were chosen as either confirming or nullifying the null hypothesis.

 

REFERENCES

Baridman D. M (1990) ” Research methods in administrative                                                sciences”. 2nd  edition. Bark publishers.                                  Port Harcourt pg 20.

 

Ezejunlie C and Ogono (1990) “Basic principles in managing                                                 research projects”, Onitsha, Africana                                               publisher p. 30-32.

 

Ikeagwu E. K (1998) “Groundwork of research methods and                                                 procedures”. IDS Publishers, Enugu p. 171.

 

Unamaka P. C and Chukwu (2002) “Analytical management” scenti                                      publishers, p. 51 – 61.

 

 

CHAPTER FOUR

Data presentation and analysis

4.1               introduction

  Data collected in any research work are of no use to anybody until they are analyzed using statistical techniques. In this chapter, the researcher analyzed both the data collected through the administration of questionnaires and data collected through desk research.

 The analyses were designed to observe whether the hypothesis formulated should be accepted or rejected. Acceptance or rejections were based on a certain level of confidence (90%).

4.2               ANALYSIS OF QUESTIONNAIRE

             A number of one hundred (100) questionnaires were distributed as follows: stock brokers (50) and investors (50). Out of the 100 questionnaires distributed, forty three (43) were filed and returned by investors while forty two (42) were filled and returned by stockbrokers.

           RETURN OF QUESTIONNAIRE

categories

No distributed

No returned

% of refund

Stock brokers

50

42

49%

Investors

50

43

515

Total

100

85

100%

Out of 100 questionnaires distributed, 85 were filled and returned representing 85% of distributed questionnaires. the 15 unreturned represents 10% of all distributed questionnaires.

 

Distribution according to sex

Sex

No of respondents

Percentage

Male

61

72%

Female

24

28%

Total

85

100%

The male represents 72% (61 respondents) while the female represents 28% (24 respondents) of the entire respondents.

Distribution according to employment

Category

No of respondents

Percentage

Employed

71

84%

Self employed

11

13%

Unemployed

3

3%

Total

85

100%

 

Distribution according to age

Age

Respondents

Percentage

Under 30yrs

15

18%

31-35 yrs

29

34%

36-40 yrs

23

27%

41 – 45 yrs

11

13%

46-50 yrs

7

8%

50 – above

-

-

Total

85

100%

 

From the above table, majority of respondents are those in their early thirties followed by those in their late thirties with 34% and 27% respectively. 18% of all respondents represent those below 30 years whole 13% represents those in their early forties.

4.3               hypothesis testing

The four (4) hypotheses used in this study are hereby separately tested for acceptance or rejection as follows:

4.3.1       testing hypothesis 1

Manipulation of share prices

H0:     Manipulation of share prices does not significantly affect

the market.

Research question: Would you say that manipulation of share prices has any significant impact on the capital market? (Question 9 of questionnaire).

Stock brokers’ response

Response

Number of response

Percentage

Yes

31

74%

No

6

14%

May be

5

12%

Total

42

100%

As shown in the above table 31 respondents or 74% of 42 stockbrokers agree that manipulation of share prices impact on the capital market. 6 respondents or 14% of stockbrokers disagree with the question while 5 respondents or 12% of 42 stockbrokers are not sure of the answer.

Investors’ response

Response

No of respondents

Percentage

Yes

28

65%

No

8

19%

May be

7

16%

Total

43

100%

From the above, it is obvious that 28 respondents or 65% of 43 investors agree that manipulation of share prices could affect the market, while 8 respondents or 19% of respondents disagree.7 respondents or 16% of respondents could not from an opinion.

Mean

percentage

          response

Mean (x)

∑x1

  n

 

Yes

74 + 65%

    2

69.5%

N0

14 + 19%

          2

16.5%

May be

12 + 16%

     2

14%

It can be seen from the above calculation that on the average, 69.5% of the respondents answered “yes” while 16.5% answered “no” while 14% gave no certain response.

Conclusion

From the table of responses above – both stockbroker

Financial Theory (ECON 251) This lecture continues the analysis of the Capital Asset Pricing Model, building up to two key results. One, the Mutual Fund Theorem proved by Tobin, describes the optimal portfolios for agents in the economy. It turns out that every investor should try to maximize the Sharpe ratio of his portfolio, and this is achieved by a combination of money in the bank and money invested in the “market” basket of all existing assets. The market basket can be thought of as one giant index fund or mutual fund. This theorem precisely defines optimal diversification. It led to the extraordinary growth of mutual funds like Vanguard. The second key result of CAPM is called the covariance pricing theorem because it shows that the price of an asset should be its discounted expected payoff less a multiple of its covariance with the market. The riskiness of an asset is therefore measured by its covariance with the market, rather than by its variance. We conclude with the shocking answer to a puzzle posed during the first class, about the relative valuations of a large industrial firm and a risky pharmaceutical start-up. Complete course materials are available at the Open Yale Courses website: open.yale.edu This course was recorded in Fall 2009.
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