Money market in nigeria vis a-vis india


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Money market in nigeria vis a-vis india

  2. 2. WHAT IS MONEY MARKET?  Money market became a component of the financial markets for assets involved in shortterm borrowing, lending, buying and selling with original maturities of one year or less.  Investopedia: A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year.  Money market securities consist of negotiable certificates of deposit (CDs), bankers acceptances, Treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements (repos).
  3. 3. INTRODUCTION TO NIGERIAN MONEY MARKET  In Nigeria, the Money market is made up of universal banks and some developmental finance institutions with the Central Bank of Nigeria serving as the apex regulatory body.  It is a mechanism where liquid and short-term borrowing and lending take place.  Some of the instruments created and traded are Nigerian Treasury Bills, Nigerian Treasury Certificate, Commercial papers, Bankers’ Acceptance and other CBN Bills.
  4. 4.  The Nigerian financial Markets services industry is comprised of the money and capital markets, with lots of inter-dependence for enhanced services. The former is where short and liquid financial instruments are created and traded with the Central Bank of Nigeria having the responsibility for regulating the market.  There are several operators in the Nigerian money market.
  5. 5. Operators in the Nigerian Market Currently, the major participants in the money market include: Discount Houses: Established first in 1993, discount houses provide discounting and rediscounting facilities in government short-term securities. Commercial Banks: These are the major players in the money market and have been in existence in Nigeria since 1892. The deregulation of the financial sector in 1986 resulted in rapid growth in the number of commercial banks. For instance, the number of commercial banks rose from 30 in 1986 to 64 in 1997
  6. 6. Merchant Banks: Merchant banks have continued to play their role of providing medium-to-long term financing by engaging in activities such as equipment leasing, loan syndicating, debt factoring and project financing. These are in addition to acting as issuing houses and advisers for clients sourcing funds in the capital market. People's Bank of Nigeria: The People's Bank of Nigeria was established in 1988 to meet the credit needs of small borrowers who cannot satisfy the stringent collateral requirements normally demanded by conventional banks. The activities of the bank have expanded since its inception such that by the end of 1997 there were 278 branches with total assets of 141,137.4 million Community Banks: These are self sustaining financial institutions owned by local communities to provide financial services to members of the communities
  7. 7. INSTRUMENTS IN THE NIGERIAN MONEY MARKET  Treasury Bills (TBS) These are money-market (short-term) securities issued by the federal government of Nigeria. They are sold at a discount (rather than paying coupon interest), mature within 90 days of the date of issue. They provide the government with a highly flexible and relatively cheap means of borrowing cash.
  8. 8.  Treasury Certificate (TCS) These are similar to TBS but are issued at par or face value and pay fixed interest rates. These fixed in interest rates are called coupon rates. Thus, each issue promises to pay a coupon rate of interest and the investor collects this interest by tearing coupons off the edge of the certificate and cashing the coupon at a bank; post office, or other specified federal office. Each coupon is imprinted a year from the date of issue. In the Nigeria context, their rates became market-determined like TB rates following interest rates deregulation. Thus, treasury certificates are medium-term government securities which mature after a period of one to two years and are intended to bridge the gap between the treasury bill and long term government securities
  9. 9.  Call Money Fund Scheme- Money at call or Short Notice This refers to money lent by the banks on the understanding that it is repayable at the bank’s demand or at short notice (e.g. 24 hours or over-night). Overnight loans are simply bank reserves that are loaned from banks with excess reserves to banks with insufficient reserves. One bank borrows money and pays the overnight interest rate to another bank in order and obtains the lending bank’s excess reserves to hold as one-day deposits. They act as a cushion which absorbs the immediate shock of liquidity pressures in the market. The scheme was introduced in 1962 in Nigeria.
  10. 10.  Commercial Papers or Commercial Bills These are short-term promissory notes issued by the CBN and their maturities vary from 50 to 270 days, with varying denominations (sometimes #50,000 or more). They are debt that arise in the course of commerce. Commercial papers may also be sold by major companies (blue-chipslarge, old, safe, well-known, national companies) to obtain a loan. Here, such notes are not backed by any collateral, rather, they rely on the high credit rating of the issuing companies. This instrument was introduced in 1962 to finance the export-marketing operations of the then Northern Marketing Board.
  11. 11.  Certificates of Deposits (CDS) Negotiable (NCO) or Non-negotiable (NNCO) deposits are inter-bank debt instruments designed mainly to channel commercial banks surplus funds into the merchant banks. NCO’s are rediscountable with the CBN and those with more than 18 months tenure are eligible as liquid assets in computing a bank’s liquidity ratio. These attributes make the instruments attractive to banks. It was introduced in Nigeria by the CBN in 1975. They are issued to fellowbankers within that maturity period, as one of the deposits they accept. The CDS outstanding by 1989 averaged #2079.2 million,
  12. 12. REGULATION OF NIGERIAN MONEY MARKET  The main regulator for the Nigerian money market is the Central Bank of Nigeria.  The Financial Markets Dealers Association (FMDA), formerly Money Market Association of Nigeria is a self regulatory body in Nigeria; registered in 1989 under land (Perpetual succession) Act of 1962; to develop financial market infrastructure, human capital and promote professional and ethical standards in treasury activities in Nigeria, though it was informally started in 1979. The Association then was mainly populated by the commercial and merchant banks, whose activities involve treasury dealing and trading of securities. The membership of the Association was later extended to the discount houses, when in 1991 the guidelines establishing Discount house was published, in the spirit of deregulation and enhancement of monetary policy effectiveness.  In 2009 as a result of dramatic changes in the operating environment over the years, a new name, Financial Markets Dealers Association was registered to facilitate the deepening and development of Nigeria Financial market.
  13. 13. MONEY MARKET IN INDIA  The Money market in India is the money market for short-term and long-term funds with maturity ranging from overnight to one year in India including financial instruments that are deemed to be close substitutes of money.  Similar to developed economies the Indian money market is diversified and has evolved through many stages, from the conventional platform of treasury bills and call money to commercial paper, certificates of deposit, repos, forward rate agreements and most recently interest rate swaps
  14. 14. COMPARISON BETWEEN NIGERIAN AND INDIAN MONEY MARKETS  In India RBI is the regulator of the money market and the government is taking all the steps for getting new instruments in the money market. In Nigeria the Financial Markets Dealers Association is the self regulating authority and the main regulator is the Central Bank of Nigeria.  Both Nigeria and India have the varieties of participants and instruments in the money market.
  15. 15.  The rates in India for the money market are determined by the working of market forces except for a few regulations imposed by the RBI. In Nigeria the Central Bank of Nigeria has influence over the exchange rates in the money market.
  16. 16. THANK YOU