THE PERCEIVED IMPACT OF INFLATION ON THE NIGERIAN CAPITAL MARKET

THE PERCEIVED IMPACT OF INFLATION ON THE NIGERIAN CAPITAL MARKET

A CASE STUDY OF THE NIGERIAN STOCK EXCHANGE, ONITSHA, ANAMBRA STATE.

ABSTRACT

The research work was undertaken to asses the impact of inflation on the Nigerian capital markets. The work was intended to achieve the following objectives; to evaluate the way inflation affects the shares of quoted companies in Nigerian Stock Exchange and to examine the impact of inflation on the price of securities in the Nigerian capital markets. Relevant data were data collected from both the primary and secondary sources. Questionnaires were the main primary data collection instrument employed while data from various relevant publications constituted the sources of secondary data. Upon the analysis of data, the findings were draw; that inflation reduces the purchasing power of any currency, which directly affects the activities of Nigerian Stock Exchange; that inflation really reduces the amount of patronage of the shares of quoted companies. On the basis of the findings, it was recommended that management of Nigerian Stock Exchange should thoroughly stand up to the challenge of checking inflationary trend in the exchange while the government should introduce the price control board and monitor other sectors of the economy whose activities are likely to spring up inflation

CHARTER ONE

1.0       INTRODUCTION

1.1       BACK GROUND OF THE STUDY

This study is a modest attempt at a lucid explication of the perceived impact of inflation on the Nigerian capital market. Inflation has been defined by many economics. According to Ile (1990:160), he said that inflation is a contentious upward movement in the general price level. It can also be defined as an intermittent rise in the general level of prices.

Inflation may involve a steady but moderate annual rise in the general price level up to about 5%. Here, the volume of purchasing power is persistently running out of the output of goods and services so that there is a continuous tendency for price commodities and factors of production fail to increase with the demand for them. These types of inflation can be persistent rise in general price level. It is a situation of too much money chasing too few goods.

At period, the value of money, because of excessive creation of money results in high increase in price. This type of inflation is described as galloping inflation, money losses its function as a store of value and its medium of exchange function may be affected as people are unwilling to accept it.

According to OBASIKENE (2003) she noted that capital market is a market for buying and selling of long term funds. The Nigeria capital market is of two categories namely;

• Primary market
• Secondary market

PRIMARY MARKET: this is the market for the issuance of new securities (securities are document/ papers that are given to show that money was borrowed) the securities sold in the market are being issued into the market for the first time.

SECONDARY MARKET: Is a market for trading of old securities. Old securities are securities that are already in existence.

1.2       STATEMENT OF THE PROBLEM

To avoid the ugly situation of inflationary trend in Nigeria, the following problems are stated in the study to find solution, which will help reduce the impact of inflation in the Nigerian capital market. The management of the Nigeria stock exchange has done nothing in checking inflationary trend in the Nigerian capital market. The government has not done anything to monitor other sector of the economy whose activities are likely to spring up inflation. Also government failed to extend the bank loan to important sector of economy.

Thus, the problem of this study is to investigate the important of inflation on the Nigerian capital market.

1.3       OBJECTIVES OF THE STUDY

This study is designed towards achieving the following major objectives:

1. To evaluate the way inflation affects the shares of quoted companies in Nigerian Stock Exchange.
2. To determine the effect of inflation on the ability of the economy to purchase securities in the Nigerian capital market.
3. To ascertain whether the inflationary trends affects the Nigerian Capital Market Operation adversely.
4. To examine the level of inflation in Nigeria.
5. To examine the impact of inflation on the price of securities in the Nigerian Capital market.

1.4       RESEARCH QUESTIONS

The research questions for work will be based on the following:

1. To what extent does inflation affect the shares of quoted companies in the Nigerian Stock Exchange?
2. To what extent does inflation effect the purchasing of securities in the Nigerian capital market?
3. How far does an inflationary trend in Nigeria affect the Nigerian Capital market?
4. What impact does inflation have on the price of securities?

1.5       FORMULATION OF HYPOTHESIS

The following have been put forward tentatively for the purpose of developing evidence for or against the preposition in question.

1. Ho: Nigerian Stock Exchange staff perception is that inflation does not affect the shares of quoted companies
2. Ho: Nigerian Stock Exchange staff perception is that inflation has no affect on the pricing of securities on the Nigerian Capital Market.
3. Ho: Nigerian Stock Exchange staff perception is that inflationary trends in Nigeria do not affect the Nigerian Capital Market.
4. Ho: Nigerian Stock Exchange staff perception is that the inflationary trend in Nigeria does affect the Nigerian capital market operations.

1.6       SIGNIFICANCE OF THE STUDY

The beneficiaries of the research work are as follows:

1. This study is significant to all the students of banking and finance to enable them know more about the impact of inflation on the Nigerian capital market. Also to students of other departments who may be interested in carrying out further research study on capital market.
2. Investor of long-term capital:- lender and borrowers of long term basis will drive assistance from this work, as it will enable them to do their homework very well before investing.
3. Management of Nigerian stock exchanges in better policy formation.

1.7       SCOPE OF THE STUDY

This research area and dimension of coverage are based on the effect of inflation on Nigerian capital market operations. The work extends to the inflationary impact on the various aims of the Nigerian capital market. The work also covers the existing forces that influence the activities within the capital market.

We have Nigerian stock exchange all over the country but for the sake of this study. Nigerian Stock Exchange Onitsha was covered.

1.8       LIMITATIONS OF THE STUDY

The researcher is also affected by the usual constraints and problems prominent in similar researchers in Nigeria. These constraints were summarized below;

1. FINANCE: This created a lot of problems to researcher in cause of carrying out proper investigation of the research, but this was not enough because of other uses in which it is been put to.
2. TIME CONSTRAINTS: The time available for the research work was very limited with other assignment and preparation for examination has caused a barrier to the research findings.
3. DEARTH OF STATISTICAL DATA INFORMATION: As a result of lack of documental data, the research work appears to be some how written for easy understanding.

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