CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
By definition, a market is a place or a mechanism through which buyers and sellers exchange goods and services using a generally accepted medium of Exchange (i.e. Money). Thus, just like any other market, the Financial Market is a specialized market that is responsible for channelling financial resources from the surplus units ( savers ) to the deficit units ( those who needed additional funds) to carry out some form of economic activities. The Financial Market therefore constitute of all financial institutions that receive financial resources from the surplus units of the economy in the form of savings and transfer them to the deficits units through lending activities. This role of transferring financial resources from the surplus units to the deficit units is what is referred to as financial intermediation. Thus, a Financial Market comprises of all institutions that play the role of financial intermediation. These set of institutions are therefore referred to as financial intermediaries. The businessman who needed some additional money to start his business, the Government that needed more funds to undertake developmental projects, the student that needed a loan to pay his/her college fees, and the company that needed more finances to expand its operation will all find the financial Market a useful avenue to access additional funding.
The Financial market is divided into two main divisions, namely (i) the Money Market, and (ii) the Capital Market. The Money Market is quite different from the Capital Market in the sense that, unlike the Capital Market, one cannot raise long-term capital from the Money Market. The existence of money markets facilitate trading in short- term debt instruments to meet short-term needs of large users of funds such as governments, banks and similar institutions. Government treasury bills and similar securities, as well as company commercial bills, are examples of instruments traded in the money market. A wide range of financial institutions, including merchant banks, commercial banks, the central bank and other dealers operate in the money market
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