The balance of payments is a systematic record of all economic transactions between residents of a country and the rest of the world over a given period of time. It has two main components - the current account, which records trade in goods and services as well as income flows, and the capital account, which covers investment and financial flows. Imbalances in the balance of payments are addressed through interventions by monetary authorities using tools like foreign exchange reserves, borrowing, and interest rates to influence exchange rates and capital flows.
A causality analysis of financial deepening and performance ofAlexander Decker
This study examines the causal relationship between financial deepening and economic performance in Nigeria from 1990-2013. Secondary data on gross domestic product (GDP), broad money supply (M2), market capitalization (MAC), and credit to the private sector (CPS) was collected from the Central Bank of Nigeria and National Bureau of Statistics. Unit root tests confirmed the variables were integrated of order one, or stationary after first differencing. The study aims to test for a long-run relationship between financial deepening and economic performance in Nigeria and investigate the direction of causality between the variables. The results will help inform government policies around manipulating the money supply and improving access to credit to facilitate economic growth and development.
This document summarizes a study that examined the demand for money in Nigeria over 26 years using measures of narrow and broad money, income, interest rates, exchange rates, and stock market data. The study found that Nigeria's money demand function was stable over the period examined and that income was the most significant determinant of money demand. It also found that incorporating stock market variables improved the performance of the money demand function, as stock markets have become more important for household wealth. The study recommends policies to improve stock market activities and the use of monetary targeting to control inflation.
This document discusses a study examining the relationship between banking sector development and economic growth in Lebanon from 1992-2011. The study uses regression analysis to test whether greater banking sector development, as represented by factors like private credit levels and banking efficiency, leads to increased economic growth. Preliminary analysis includes a Granger causality test to determine the direction of the relationship between financial development and GDP growth. Key banking sector variables analyzed are private credit levels, interest rate spreads, banking assets, concentration levels, and deposit growth rates. The goal is to evaluate how Lebanon's banking-centered financial system impacts economic activity and development.
11.the impact of monetary policy on micro economy and private investment in n...Alexander Decker
This document summarizes a research study that evaluated the impact of monetary policy on micro-economics and private investment in Nigeria. Correlation analysis showed a significant relationship between private investment and money supply, credit, GDP, inflation, and exchange rates. Money supply was found to be a more effective monetary policy instrument than interest rates in influencing private investment in Nigeria. The study aimed to examine the effectiveness of different monetary policy tools, including money supply, interest rates, credit, GDP, inflation, and exchange rates, on aggregate private investment in Nigeria.
The balance of payments is a systematic record of all economic transactions between residents of a country and the rest of the world over a given period of time. It has two main components - the current account, which records trade in goods and services as well as income flows, and the capital account, which covers investment and financial flows. Imbalances in the balance of payments are addressed through interventions by monetary authorities using tools like foreign exchange reserves, borrowing, and interest rates to influence exchange rates and capital flows.
A causality analysis of financial deepening and performance ofAlexander Decker
This study examines the causal relationship between financial deepening and economic performance in Nigeria from 1990-2013. Secondary data on gross domestic product (GDP), broad money supply (M2), market capitalization (MAC), and credit to the private sector (CPS) was collected from the Central Bank of Nigeria and National Bureau of Statistics. Unit root tests confirmed the variables were integrated of order one, or stationary after first differencing. The study aims to test for a long-run relationship between financial deepening and economic performance in Nigeria and investigate the direction of causality between the variables. The results will help inform government policies around manipulating the money supply and improving access to credit to facilitate economic growth and development.
This document summarizes a study that examined the demand for money in Nigeria over 26 years using measures of narrow and broad money, income, interest rates, exchange rates, and stock market data. The study found that Nigeria's money demand function was stable over the period examined and that income was the most significant determinant of money demand. It also found that incorporating stock market variables improved the performance of the money demand function, as stock markets have become more important for household wealth. The study recommends policies to improve stock market activities and the use of monetary targeting to control inflation.
This document discusses a study examining the relationship between banking sector development and economic growth in Lebanon from 1992-2011. The study uses regression analysis to test whether greater banking sector development, as represented by factors like private credit levels and banking efficiency, leads to increased economic growth. Preliminary analysis includes a Granger causality test to determine the direction of the relationship between financial development and GDP growth. Key banking sector variables analyzed are private credit levels, interest rate spreads, banking assets, concentration levels, and deposit growth rates. The goal is to evaluate how Lebanon's banking-centered financial system impacts economic activity and development.
11.the impact of monetary policy on micro economy and private investment in n...Alexander Decker
This document summarizes a research study that evaluated the impact of monetary policy on micro-economics and private investment in Nigeria. Correlation analysis showed a significant relationship between private investment and money supply, credit, GDP, inflation, and exchange rates. Money supply was found to be a more effective monetary policy instrument than interest rates in influencing private investment in Nigeria. The study aimed to examine the effectiveness of different monetary policy tools, including money supply, interest rates, credit, GDP, inflation, and exchange rates, on aggregate private investment in Nigeria.
The document summarizes several theories about what determines interest rates:
1) The classical theory argues that interest rates are determined by the supply of household savings and the demand for business investment.
2) The liquidity preference theory views interest rates as the price that induces people to hold cash rather than bonds given transactions, precautionary, and speculative demands for money.
3) The loanable funds theory sees interest rates as set by the overall demand for and supply of credit from various sources like domestic savings, money creation, and foreign lending.
This document summarizes a research paper that examines investors' behavioral biases and stock market performance in Nigeria. The paper aims to assess the extent of behavioral biases among Nigerian investors and examine the relationship between biases and stock market performance. It employs a survey of 300 investors and finds evidence that biases exist but are not dominant. A weak negative relationship was found between biases and stock market performance in Nigeria. The paper recommends that individual investors use investment advisors to reduce personal biases in managing their portfolios.
This document summarizes a research study on factors influencing investor sentiment in the Indian stock market. The study analyzed how factors like herd behavior, use of internet, macroeconomic factors, risk and cost factors, performance factors, and best investment options related to gender. The results showed that gender had a significant relationship with herd behavior, macroeconomic factors, risk and cost factors, and best investment options. However, there was no significant relationship found between gender and use of internet or performance and confidence factors. In conclusion, the study found that most factors influencing investor sentiment were significantly related to the gender of the investor in the Indian stock market.
The document discusses several financial and economic terms:
1) Systemically important financial institutions are large banks or institutions whose failure could threaten the entire financial system.
2) Leading economic indicators predict future trends, while lagging indicators show past trends. The leading index and GDP are examples.
3) Fixed income obligation to income ratio (FOIR) is a debt-to-income ratio used by banks to determine loan eligibility based on monthly payments.
The document summarizes concepts related to interest rates, including:
1) Interest rates are determined by the equilibrium between the demand for and supply of loanable funds. The demand comes from those wanting to borrow, while the supply comes from savings.
2) Nominal interest rates do not account for inflation, while real interest rates are adjusted for expected inflation.
3) In bond markets, the demand for bonds is negatively related to interest rates, while the supply is positively related. Equilibrium occurs where the quantity demanded equals the quantity supplied.
4) According to Keynes, interest rates are determined by liquidity preference and the demand for and supply of money, not loanable funds. Higher income or
An interest rate is the quantity of interest due per period as a proportion of the amount lent, deposited or borrowed. The first aim of this study is to know about the interest rates prevailing with countries and to analyze the impact of interest rate towards international currency pairs. For this purpose, the currencies of four countries have been taken and they were compared with the interest rate to know their impact. The conclusion clearly reveals that the interest rate changes has an impact towards the market in mid and long term basis with all the currencies taken for the study. Monetary policy is the mechanism by which the monetary authority of a country regulates the supply of money to ensure the price stability and general trust in the currency. The second aim of the study is to analyze the impact of monetary policy and its impact on international markets. The study is all about analyzing the volatility of Forex market in different GMT’S. The need of the study is to know about the price variations in different timings of the market when there is day shift process accordingly. This type of research design has been undertaken for analytical design since the pricing movements of bullion markets are analyzed.
Interest rates are determined by the interaction of supply and demand in the market for loanable funds. The supply comes from domestic savings, foreign lending, and money creation by banks. The demand comes from consumers, businesses, and governments seeking credit, as well as foreign borrowers. Equilibrium is reached where the supply and demand for loanable funds are equal. Factors such as expected inflation, default risk, liquidity risk, and monetary policy influence the supply and demand curves and thus impact interest rate levels.
Developing Trends - Central Banks - The Good the Bad and the UglyNikhil Mohan
This document discusses central banks and their performance. It summarizes that central banks aim to target inflation and maximize output. The US central bank has performed best among developed economies, while Israel's central bank has performed best among emerging markets from 2002-2011. Countries with interest rates lower than what the Taylor Rule prescribes have experienced little inflation cost and stronger growth. Inflation was a concern in early-mid 2011, but growth, or the lack thereof, will be a bigger concern for emerging markets going forward, suggesting interest rate cuts may be needed.
The document discusses the term structure of interest rates, which refers to how interest rates vary with the maturity or term of a bond. Specifically:
1) It examines why practically homogeneous bonds of different maturities have different interest rates, which is significant for both borrowers and lenders when deciding whether to invest in short-term vs long-term bonds.
2) It defines the yield curve as a graphical depiction of the relationship between yield and maturity for bonds of the same credit quality. The term structure of interest rates shows this relationship for zero-coupon bonds.
3) To construct the term structure, theoretical spot rates must be derived from yields on actual Treasury securities, since zero-coupon Treasuries only
Domestic debt and the growth of nigerian economyAlexander Decker
Domestic debt in Nigeria has risen significantly between 1994 and 2008, averaging 114.98% of bank deposits which exceeds the recommended threshold of 35% and can crowd out private investment. The study found evidence that high levels of domestic debt negatively impact economic growth. The government should reduce the debt-bank deposit ratio to below 35% and increase tax revenue to finance projects in order to promote private sector growth and development.
1) The document discusses economic policy under fixed exchange rates using the IS/LM/BP model. It describes how the money market equilibrium (LM curve), real sector equilibrium (IS curve), and balance of payments equilibrium (BP curve) interact.
2) Fiscal and monetary policy are less effective at increasing output under fixed exchange rates due to capital mobility. If capital is mobile, these policies do not affect interest rates.
3) Devaluations shift the IS, LM, and BP curves right, increasing output. Devaluations are more effective at increasing output when capital is mobile.
Examine the long run relationship between financial development and economic ...Alexander Decker
This study examines the long-run relationship between financial development and economic growth in India using monthly data from January 1994 to December 2011. The empirical results found two cointegrating equations between the variables. The vector error correction model shows that in the long run, stock market development negatively impacts economic growth, while increases in bank credit positively affect the economy. Money supply was also found to negatively impact economic growth in the long run, while trade openness had no impact. The study suggests that financial sector liberalization and openness policies can promote economic growth by improving market size and maintaining macroeconomic stability.
Macro Economics
For downloading this contact- bikashkumar.bk100@gmail.com
Prepared by Students of University of Rajshahi
NAZRUL ISLAM
SOHANUZAMAN
PUJA RANI PUAL
SHAKIL HOSSAIN
MST.AMY KHATUN
MST.SHAMSUN NAHAR
Interest rates play an important role in determining a country's liquidity position. Higher interest rates aim to decrease liquidity in the economy by increasing savings. Lower interest rates increase liquidity by making capital more accessible and encouraging borrowing. Theories of interest rate determination include the classical theory that real factors like savings and investment determine rates, and the Keynesian theory that interest rates are a monetary phenomenon influenced by the money supply. Different interest rates exist based on the maturity of financial instruments.
The document summarizes the Loanable Funds theory, which describes how household savings are made available to borrowers through financial institutions and markets. According to the theory, savings are the source of loanable funds that are supplied to the loanable funds market. Demand for loanable funds comes from borrowing by firms, individuals, and the government. When the supply and demand for loanable funds is in equilibrium, it guarantees that total spending in the economy will match total income, according to Say's Law. The interest rate adjusts to clear the loanable funds market.
Interest rates & its effects on Investments R VISHWANATHAN
The document discusses regular investment habits and patterns when interest rates increase or decrease. It notes that decreasing interest rates attract loan takers and promote the economy, while increasing rates attract depositors and help control inflation. Major investments discussed include bank term deposits, debt funds, and gold ETFs. Factors that attract investors to banks include reputation, interest rates on deposits, and cross-selling. Bond prices and interest rates are inversely related, so investors buy bonds when rates fall and sell when they rise. The document also examines investors' preferences based on investment tenure and provides percentages of investments in different asset classes from 2011-2013. Smart investors are advised to follow daily news updates on interest rate changes.
Implications of monetary policy for banks’ assets in nigeriaAlexander Decker
This document discusses the implications of monetary policy for banks' assets in Nigeria. It first provides background on monetary policy and its objectives in Nigeria. It then reviews theories around how monetary policy works, particularly the monetarist view that controlling the money supply can influence economic variables like inflation and output. The document also examines the channels through which monetary policy impacts banks, such as through required bank reserves or interest rates. The study aims to investigate how responsive Nigerian banks' assets are to monetary policy. It finds that raising interest rates through monetary policy negatively impacts bank lending in Nigeria, but has little effect on inflation. The study concludes monetary policy can influence bank lending but plays a limited role in inflation control in Nigeria.
The document discusses the relationship between interest rates and gross domestic product (GDP) in Pakistan. It provides background on interest rates and GDP, reviews previous literature that finds both positive and negative relationships between the two variables, outlines the methodology used including regression analysis on annual interest rate and GDP data from 1960 to 2005, and presents the results of the regression analysis showing a statistically significant relationship between interest rates and GDP in Pakistan.
This document discusses a study examining the impact of monetary policy on the financial performance of banks in Pakistan from 2007-2011. It uses interest rates set by the State Bank of Pakistan as a measure of monetary policy. The study finds that higher interest rates, representing a tighter monetary policy, have a significant negative relationship with banks' financial performance as measured by their return on assets and return on equity. The document provides background on monetary policy, its tools of expanding or contracting the money supply, and how interest rates can affect bank risk-taking and performance. It also reviews prior literature finding that higher capitalized banks may increase risk-taking less in response to lower rates than other banks.
SlideShare now has a player specifically designed for infographics. Upload your infographics now and see them take off! Need advice on creating infographics? This presentation includes tips for producing stand-out infographics. Read more about the new SlideShare infographics player here: http://wp.me/p24NNG-2ay
This infographic was designed by Column Five: http://columnfivemedia.com/
This document provides tips to avoid common mistakes in PowerPoint presentation design. It identifies the top 5 mistakes as including putting too much information on slides, not using enough visuals, using poor quality or unreadable visuals, having messy slides with poor spacing and alignment, and not properly preparing and practicing the presentation. The document encourages presenters to use fewer words per slide, high quality images and charts, consistent formatting, and to spend significant time crafting an engaging narrative and rehearsing their presentation. It emphasizes that an attractive design is not as important as being an effective storyteller.
The document summarizes several theories about what determines interest rates:
1) The classical theory argues that interest rates are determined by the supply of household savings and the demand for business investment.
2) The liquidity preference theory views interest rates as the price that induces people to hold cash rather than bonds given transactions, precautionary, and speculative demands for money.
3) The loanable funds theory sees interest rates as set by the overall demand for and supply of credit from various sources like domestic savings, money creation, and foreign lending.
This document summarizes a research paper that examines investors' behavioral biases and stock market performance in Nigeria. The paper aims to assess the extent of behavioral biases among Nigerian investors and examine the relationship between biases and stock market performance. It employs a survey of 300 investors and finds evidence that biases exist but are not dominant. A weak negative relationship was found between biases and stock market performance in Nigeria. The paper recommends that individual investors use investment advisors to reduce personal biases in managing their portfolios.
This document summarizes a research study on factors influencing investor sentiment in the Indian stock market. The study analyzed how factors like herd behavior, use of internet, macroeconomic factors, risk and cost factors, performance factors, and best investment options related to gender. The results showed that gender had a significant relationship with herd behavior, macroeconomic factors, risk and cost factors, and best investment options. However, there was no significant relationship found between gender and use of internet or performance and confidence factors. In conclusion, the study found that most factors influencing investor sentiment were significantly related to the gender of the investor in the Indian stock market.
The document discusses several financial and economic terms:
1) Systemically important financial institutions are large banks or institutions whose failure could threaten the entire financial system.
2) Leading economic indicators predict future trends, while lagging indicators show past trends. The leading index and GDP are examples.
3) Fixed income obligation to income ratio (FOIR) is a debt-to-income ratio used by banks to determine loan eligibility based on monthly payments.
The document summarizes concepts related to interest rates, including:
1) Interest rates are determined by the equilibrium between the demand for and supply of loanable funds. The demand comes from those wanting to borrow, while the supply comes from savings.
2) Nominal interest rates do not account for inflation, while real interest rates are adjusted for expected inflation.
3) In bond markets, the demand for bonds is negatively related to interest rates, while the supply is positively related. Equilibrium occurs where the quantity demanded equals the quantity supplied.
4) According to Keynes, interest rates are determined by liquidity preference and the demand for and supply of money, not loanable funds. Higher income or
An interest rate is the quantity of interest due per period as a proportion of the amount lent, deposited or borrowed. The first aim of this study is to know about the interest rates prevailing with countries and to analyze the impact of interest rate towards international currency pairs. For this purpose, the currencies of four countries have been taken and they were compared with the interest rate to know their impact. The conclusion clearly reveals that the interest rate changes has an impact towards the market in mid and long term basis with all the currencies taken for the study. Monetary policy is the mechanism by which the monetary authority of a country regulates the supply of money to ensure the price stability and general trust in the currency. The second aim of the study is to analyze the impact of monetary policy and its impact on international markets. The study is all about analyzing the volatility of Forex market in different GMT’S. The need of the study is to know about the price variations in different timings of the market when there is day shift process accordingly. This type of research design has been undertaken for analytical design since the pricing movements of bullion markets are analyzed.
Interest rates are determined by the interaction of supply and demand in the market for loanable funds. The supply comes from domestic savings, foreign lending, and money creation by banks. The demand comes from consumers, businesses, and governments seeking credit, as well as foreign borrowers. Equilibrium is reached where the supply and demand for loanable funds are equal. Factors such as expected inflation, default risk, liquidity risk, and monetary policy influence the supply and demand curves and thus impact interest rate levels.
Developing Trends - Central Banks - The Good the Bad and the UglyNikhil Mohan
This document discusses central banks and their performance. It summarizes that central banks aim to target inflation and maximize output. The US central bank has performed best among developed economies, while Israel's central bank has performed best among emerging markets from 2002-2011. Countries with interest rates lower than what the Taylor Rule prescribes have experienced little inflation cost and stronger growth. Inflation was a concern in early-mid 2011, but growth, or the lack thereof, will be a bigger concern for emerging markets going forward, suggesting interest rate cuts may be needed.
The document discusses the term structure of interest rates, which refers to how interest rates vary with the maturity or term of a bond. Specifically:
1) It examines why practically homogeneous bonds of different maturities have different interest rates, which is significant for both borrowers and lenders when deciding whether to invest in short-term vs long-term bonds.
2) It defines the yield curve as a graphical depiction of the relationship between yield and maturity for bonds of the same credit quality. The term structure of interest rates shows this relationship for zero-coupon bonds.
3) To construct the term structure, theoretical spot rates must be derived from yields on actual Treasury securities, since zero-coupon Treasuries only
Domestic debt and the growth of nigerian economyAlexander Decker
Domestic debt in Nigeria has risen significantly between 1994 and 2008, averaging 114.98% of bank deposits which exceeds the recommended threshold of 35% and can crowd out private investment. The study found evidence that high levels of domestic debt negatively impact economic growth. The government should reduce the debt-bank deposit ratio to below 35% and increase tax revenue to finance projects in order to promote private sector growth and development.
1) The document discusses economic policy under fixed exchange rates using the IS/LM/BP model. It describes how the money market equilibrium (LM curve), real sector equilibrium (IS curve), and balance of payments equilibrium (BP curve) interact.
2) Fiscal and monetary policy are less effective at increasing output under fixed exchange rates due to capital mobility. If capital is mobile, these policies do not affect interest rates.
3) Devaluations shift the IS, LM, and BP curves right, increasing output. Devaluations are more effective at increasing output when capital is mobile.
Examine the long run relationship between financial development and economic ...Alexander Decker
This study examines the long-run relationship between financial development and economic growth in India using monthly data from January 1994 to December 2011. The empirical results found two cointegrating equations between the variables. The vector error correction model shows that in the long run, stock market development negatively impacts economic growth, while increases in bank credit positively affect the economy. Money supply was also found to negatively impact economic growth in the long run, while trade openness had no impact. The study suggests that financial sector liberalization and openness policies can promote economic growth by improving market size and maintaining macroeconomic stability.
Macro Economics
For downloading this contact- bikashkumar.bk100@gmail.com
Prepared by Students of University of Rajshahi
NAZRUL ISLAM
SOHANUZAMAN
PUJA RANI PUAL
SHAKIL HOSSAIN
MST.AMY KHATUN
MST.SHAMSUN NAHAR
Interest rates play an important role in determining a country's liquidity position. Higher interest rates aim to decrease liquidity in the economy by increasing savings. Lower interest rates increase liquidity by making capital more accessible and encouraging borrowing. Theories of interest rate determination include the classical theory that real factors like savings and investment determine rates, and the Keynesian theory that interest rates are a monetary phenomenon influenced by the money supply. Different interest rates exist based on the maturity of financial instruments.
The document summarizes the Loanable Funds theory, which describes how household savings are made available to borrowers through financial institutions and markets. According to the theory, savings are the source of loanable funds that are supplied to the loanable funds market. Demand for loanable funds comes from borrowing by firms, individuals, and the government. When the supply and demand for loanable funds is in equilibrium, it guarantees that total spending in the economy will match total income, according to Say's Law. The interest rate adjusts to clear the loanable funds market.
Interest rates & its effects on Investments R VISHWANATHAN
The document discusses regular investment habits and patterns when interest rates increase or decrease. It notes that decreasing interest rates attract loan takers and promote the economy, while increasing rates attract depositors and help control inflation. Major investments discussed include bank term deposits, debt funds, and gold ETFs. Factors that attract investors to banks include reputation, interest rates on deposits, and cross-selling. Bond prices and interest rates are inversely related, so investors buy bonds when rates fall and sell when they rise. The document also examines investors' preferences based on investment tenure and provides percentages of investments in different asset classes from 2011-2013. Smart investors are advised to follow daily news updates on interest rate changes.
Implications of monetary policy for banks’ assets in nigeriaAlexander Decker
This document discusses the implications of monetary policy for banks' assets in Nigeria. It first provides background on monetary policy and its objectives in Nigeria. It then reviews theories around how monetary policy works, particularly the monetarist view that controlling the money supply can influence economic variables like inflation and output. The document also examines the channels through which monetary policy impacts banks, such as through required bank reserves or interest rates. The study aims to investigate how responsive Nigerian banks' assets are to monetary policy. It finds that raising interest rates through monetary policy negatively impacts bank lending in Nigeria, but has little effect on inflation. The study concludes monetary policy can influence bank lending but plays a limited role in inflation control in Nigeria.
The document discusses the relationship between interest rates and gross domestic product (GDP) in Pakistan. It provides background on interest rates and GDP, reviews previous literature that finds both positive and negative relationships between the two variables, outlines the methodology used including regression analysis on annual interest rate and GDP data from 1960 to 2005, and presents the results of the regression analysis showing a statistically significant relationship between interest rates and GDP in Pakistan.
This document discusses a study examining the impact of monetary policy on the financial performance of banks in Pakistan from 2007-2011. It uses interest rates set by the State Bank of Pakistan as a measure of monetary policy. The study finds that higher interest rates, representing a tighter monetary policy, have a significant negative relationship with banks' financial performance as measured by their return on assets and return on equity. The document provides background on monetary policy, its tools of expanding or contracting the money supply, and how interest rates can affect bank risk-taking and performance. It also reviews prior literature finding that higher capitalized banks may increase risk-taking less in response to lower rates than other banks.
SlideShare now has a player specifically designed for infographics. Upload your infographics now and see them take off! Need advice on creating infographics? This presentation includes tips for producing stand-out infographics. Read more about the new SlideShare infographics player here: http://wp.me/p24NNG-2ay
This infographic was designed by Column Five: http://columnfivemedia.com/
This document provides tips to avoid common mistakes in PowerPoint presentation design. It identifies the top 5 mistakes as including putting too much information on slides, not using enough visuals, using poor quality or unreadable visuals, having messy slides with poor spacing and alignment, and not properly preparing and practicing the presentation. The document encourages presenters to use fewer words per slide, high quality images and charts, consistent formatting, and to spend significant time crafting an engaging narrative and rehearsing their presentation. It emphasizes that an attractive design is not as important as being an effective storyteller.
This document provides tips for getting more engagement from content published on SlideShare. It recommends beginning with a clear content marketing strategy that identifies target audiences. Content should be optimized for SlideShare by using compelling visuals, headlines, and calls to action. Analytics and search engine optimization techniques can help increase views and shares. SlideShare features like lead generation and access settings help maximize results.
No need to wonder how the best on SlideShare do it. The Masters of SlideShare provides storytelling, design, customization and promotion tips from 13 experts of the form. Learn what it takes to master this type of content marketing yourself.
10 Ways to Win at SlideShare SEO & Presentation OptimizationOneupweb
Thank you, SlideShare, for teaching us that PowerPoint presentations don't have to be a total bore. But in order to tap SlideShare's 60 million global users, you must optimize. Here are 10 quick tips to make your next presentation highly engaging, shareable and well worth the effort.
For more content marketing tips: http://www.oneupweb.com/blog/
How to Make Awesome SlideShares: Tips & TricksSlideShare
Turbocharge your online presence with SlideShare. We provide the best tips and tricks for succeeding on SlideShare. Get ideas for what to upload, tips for designing your deck and more.
SlideShare is a global platform for sharing presentations, infographics, videos and documents. It has over 18 million pieces of professional content uploaded by experts like Eric Schmidt and Guy Kawasaki. The document provides tips for setting up an account on SlideShare, uploading content, optimizing it for searchability, and sharing it on social media to build an audience and reputation as a subject matter expert.
Relative Potency of Internal and External Sources of Financing Nigerian Econo...iosrjce
The study is aimed at determining the relative potency of internal and external sources of financing
economic growth in Nigeria using time series data from 1983 to 2012. Ordinary least square regression method,
unit root test, Johansen cointegration test and error correction model were used for the purpose of analyses.
Gross national saving, internal debt, grants and foreign investment are stationary at level, gross domestic
investment at first difference and gross domestic product at second difference. From the over parameterized
ECM, none of the internal and external financing options is significant in explaining economic growth. In the
group of internal options, gross national saving, gross domestic investment and internal debt contribute
positively to growth in the short and long run, the only exception being gross national saving in the short run. In
the group of external options however, only grant contribute positively to growth in the long and short run.
Foreign direct investment appears like a wolf in sheep’s clothing given its long run negative impact. Finally,
growth is a decreasing and an increasing function of external debt in the short and long run respectively. It is
noteworthy that a very high constant coefficient implies that there are many factors that actually determine
Nigerian gross domestic product outside the model. While the variables of interest are theoretically expected to
play significant roles, they fail empirically. A comparison of the two modes shows that internal factors prove to
be more reliable in accelerating Nigerian economic growth.
4.[30 39]long run relationship between private investment and monetary policy...Alexander Decker
This document summarizes a research journal article that investigates the long-run relationship between private investment and monetary policy in Nigeria from 1980-2009. It uses vector auto-regression techniques to test the relationship between private investment, GDP, money supply, and other factors. The results showed that money supply has a negative short-run impact on private investment, while GDP and other factors have a positive impact. In the long-run, all the variables became statistically significant. This implies that monetary policy in Nigeria has positively affected the growth of private investment and the economy over the long term. The document reviews several other studies on the relationship between financial development, private investment, and economic growth.
4.[30 39]long run relationship between private investment and monetary policy...Alexander Decker
This study investigated the long-run relationship between private investment and monetary policy in Nigeria from 1981 to 2009. The results of the vector autoregression model showed that in the short-run, money supply had a negative but insignificant impact on private investment, while GDP and other factors had a positive impact. However, in the long-run all variables became statistically significant, with money supply positively affecting private investment growth. This implies that monetary policy in Nigeria has positively influenced the growth of private investment over the long-run. The study concluded that private investment and monetary policy have been negatively related in the short-run in terms of money supply, but positively related based on GDP and other factors in the long-run.
11.long run relationship between private investment and monetary policy in ni...Alexander Decker
This study investigated the long-run relationship between private investment and monetary policy in Nigeria from 1981 to 2009. The results of the vector autoregression model showed that in the short-run, money supply had a negative but insignificant impact on private investment, while GDP and other factors had a positive impact. However, in the long-run all variables became statistically significant, with money supply positively affecting private investment growth. This implies that monetary policy in Nigeria has positively influenced the growth of private investment over the long-run. The study concluded that private investment and monetary policy have been negatively related in the short-run in terms of money supply, but positively related based on GDP and other factors in the long-run.
11.long run relationship between private investment and monetary policy in ni...Alexander Decker
This study investigated the long-run relationship between private investment and monetary policy in Nigeria from 1981 to 2009. The results of the vector autoregression model showed that in the short-run, money supply had a negative but insignificant impact on private investment, while GDP and other factors had a positive impact. However, in the long-run all variables became statistically significant, with money supply positively affecting private investment growth. This implies that monetary policy in Nigeria has positively influenced the growth of private investment over the long-run. The study concluded that private investment and monetary policy have been negatively related in the short-run in terms of money supply, but positively related based on GDP and other factors in the long-run.
A causality analysis of financial deepening and performance ofAlexander Decker
This study examines the causal relationship between financial deepening and economic performance in Nigeria from 1990-2013. Secondary data on gross domestic product (GDP), broad money supply (M2), market capitalization (MAC), and credit to the private sector (CPS) was collected from the Central Bank of Nigeria and National Bureau of Statistics. Unit root tests confirmed the variables were integrated of order one, or stationary after first differencing. The study aims to test for a long-run relationship between financial deepening and economic performance in Nigeria and investigate the direction of causality between the variables. The results will help inform government policies around manipulating the money supply and improving access to credit to facilitate economic growth and development.
11.impact of injection and withdrawal of money stock on economic growth in ni...Alexander Decker
This document discusses a research study on the impact of money stock injection and withdrawal on economic growth in Nigeria from 1970 to 2008. The study uses regression analysis to examine the relationship between money stock and GDP. It finds that injecting money stock into the economy tends to reduce interest rates and increase investment, thereby boosting economic growth. However, it also notes that withdrawing money stock reduces the money available in the economy. The document provides background on monetary policy and debates between Keynesian and monetarist views. It also reviews previous related literature and discusses how the Central Bank of Nigeria can inject and withdraw money from the economy through tools like reserve requirements and interest rates.
6.[60 67]impact of injection and withdrawal of money stock on economic growth...Alexander Decker
This document discusses a research study on the impact of money stock injection and withdrawal on economic growth in Nigeria from 1970 to 2008. The study uses regression analysis to examine the relationship between money stock and GDP. It finds that injecting money stock into the economy tends to reduce interest rates and increase investment, thereby boosting economic growth. However, it also notes that withdrawing money stock reduces the money available in the economy. The document provides background on monetary policy and debates between Keynesian and monetarist views. It also reviews previous related literature and discusses how the Central Bank of Nigeria can inject and withdraw money from the economy through tools like reserve requirements and interest rates.
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: This paper investigates the relationship between budget deficits and economic growth in Liberia.
The study employed: the Classical Ordinary Least Squares Technique (OLS); The Augmented Dickey Fuller
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economic growth in Liberia. It is evident from the analysis that there exists a long run relationship between Budget
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deficit and economic growth in Liberia. Therefore, a 1.0 percent increase in deficits will result in an increase of
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and the monetary authorities should ensure an appropriate mix of monetary and fiscal policies such that would
deliberately and strategically maximize the growth potentials of deficits in Liberia.
JEL Classification : C2, E1, E2, O4, O5
KEYWORDS: Budget Deficit, Economic
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6 acha ikechukwu a. & acha chigozie k. 71 81
1. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol 2, No 3, 2011
Interest Rates in Nigeria: An Analytical Perspective
Acha Ikechukwu A. (Corresponding author)
Department Of Banking and Finance, University of Uyo,
Uyo, Akwa Ibom State, Nigeria
Tel: 234-08036057080 E-mail: achaiyke@yahoo.co.uk
Acha Chigozie K.
Department of Mathematics/Statistics/Computer Science, Michael Okpara University of Agriculture
Umudike, Abia State, Nigeria
Abstract
This paper set out to examine the implications of interest rate for savings and investment in Nigeria. It used
data obtained from the Central Bank of Nigeria (CBN). Data were analyzed using Pearson’s Correlation
Coefficient and regression. Evidence showed interest rate as a poor determinant of savings and investment
indicating that bank loans are mostly not used for productive purposes. Therefore, bank loans should be
channeled to productive investments if interest is to play its catalytic role in the Nigerian economy.
Keywords: Savings, Investment, Credit, Economic Development, Deregulation.
1. Introduction
Interest rate is an important economic price. This is because whether seen from the point of view of cost of
capital or from the perspective of opportunity cost of funds, interest rate has fundamental implications for
the economy. By either impacting on the cost of capital or influencing the availability of credit, by
increasing savings, it is known to determine the level of investment in an economy.
As the positive relationship between investment and economic development is well established, it therefore
becomes expedient for any economy that wishes to grow to pay proper attention to changes in interest rate.
Nigeria being a country in dire need of development cannot overlook the important role interest rate could
play in this direction.
This paper, drawing from the foregoing, aims at examining the impact of interest rate on the Nigeria
economy. The objective would be achieved by analytically examining the theorized relationships to see if
they hold in Nigeria.
To achieve this objective which this paper has set for itself, the next section examines the concept and
theoretical underpinnings of interest rate, the third section describes the method to be adopted in data
analysis. In the fourth section data is analyzed using correlation and regression. The paper is concluded in
the fifth section.
2. Theoretical Overview
Interest can be defined as the return or yield on equity or opportunity cost of deferring current consumption
into the future (Uchendu, 1993:35). This definition clearly shows that interest is a concept which can mean
different things depending from the perspective it is viewed. Interest rate can therefore be seen as a
nebulous concept, a position affirmed by the availability of different types of this rate. Some of which are;
savings rate, discount rate, lending rate and Treasury bill rate.
Apart from this, interest rate can also be categorized as nominal or real. This categorization credited to
Irvin Fisher tries to accommodate the moderating influence of inflation on interest rate. Nominal interest
rate is the observed rate of interest incorporating monetary effects while real interest rate is arrived at by
considering the implications of inflation on nominal interest rate (Uchendu, 1993:35; Essia, 2005; 82).
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2. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol 2, No 3, 2011
The importance of interest rate is hinged on its equilibrating influence on supply and demand in the
financial sector. Colander (2001:649) and Ojo (1993; 10) confirmed this by saying that the channeling of
savings into financial assets and the willingness of individuals to incur financial liabilities is strongly
influenced by interest rates on those financial assets and liabilities.
The developmental role of interest rate is possible because of the interlocking linkage existing between the
financial and real sectors of economies. It is therefore through this linkage that the effect of interest rate on
the financial sector is transmitted to the real sector. For instance, the lending rate which translates into the
cost of capital has direct implications for investment. High lending rate discourages investment borrowing
and vice versa. Savings rates, on the other hand, when high encourages savings which ultimately translates
into increased availability of loanable funds. The snag here is that the high savings rate is also bound to
translate into high lending rates with attendant negative consequences on investment (Chizea, 1993:6).
A detailed consideration of relationships between economic variables, which this paper focuses on, reveals
that savings is an offshoot of unconsumed disposable income. In the view of classical economists, level of
savings is determined by savings rate of interest (Olusoji, 2003:86). This view holds that increase in this
interest rate will lead to increased savings and hence a positive relationship. It is this view that must have
encouraged the Nigerian authorities to abandon administratively fixed interest rates for market determined
ones. In the words of Ahmed (2003), deregulated interest rate is believed to be critical for both economic
stabilization and development.
The implication of Ahmed’s position above covers the relationship between interest rate and investment. In
this case, it has been established that high lending rates discourage borrowing for investment and vice versa
(Lawal, 1982:251; Anyanwu and Oaikhenan, 1995:35). Since economists hold that investment plays a
fundamental role in capital formation, and hence on economy’s growth and developments, it becomes
obvious that lending rates through perceived influence on investment plays a developmental role. That is, a
decrease in lending rate is theorized to cause investment borrowing to rise which leads to increased capital
formation and eventually to economic growth (Onoh, 2007).
The link between savings and investment is no less important as the level of savings in an economy also
plays a role in the determination of investment levels. This is why monetary authorities in their pursuit of
monetary policies try to influence level of savings and availability of credit by directly, in the case of
administratively fixed rates or indirectly during deregulated era, influencing the rate of interest (Ogwuma,
1996:5; Ojo, 1993:288).
To achieve the desired level of interest rate, the Central Bank of Nigeria (CBN) adopts various monetary
policy tools, key among which is the Monetary Policy Rate (MPR). This rate, which until 2006 was known
as the Minimum Rediscount rate (MRR), is the rate at which the CBN is willing to rediscount first class
bills of exchange before maturity (Onoh 2007:117). He further opined that by raising or lowering this rate
the CBN is able to influence market cost of funds. If the CBN increases MPR, banks’ lending rates are
expected to increase with it, showing a positive relationship. In recent past, the need to possess certain class
of assets as collateral to assess the CBN’s discount window was dispensed with due to global crisis
(BusinessDay, 2009).
3. Research Methodology
In the next stage the statistical analysis of the relationship between interest rate and various economic
variables is carried out. The essence of this is to review practically if the theorized relationship between
interest rate and these variables hold true in the Nigerian case. This goal will be achieved by testing the
following hypotheses using the specified models.
Model I
- Hypothesis to be tested
H0: Savings does not depend on interest rate
H1: Savings depends on interest rate
Model Specification:
72
3. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol 2, No 3, 2011
Savings = f(interest on savings)
Savings = a + b1SR + e
Where:
a = Y intercept
b1 = Effect of interest on savings
SR = Interest rate on savings
e = random error
Model II
- Hypothesis to be tested
H0: Investment level does not depend on lending rate
H1: Investment level depends on lending rate
Model Specification:
Investment = f(lending rate)
Investment = a + b1LR + e
Where:
a = Y intercept
b1 = Effect of lending rate on investment
LR = Lending rate
e = Random error
Model III
- Hypothesis to be tested
H0: Level of Investment does not depend on level of savings
H1: Investment level depends on level of savings
Model specification:
Investment = f(savings)
Investment = a + b1SA + e
Where:
a = Y intercept
b1 = Effect of savings on investment
SA = Savings
e = Random error
Model IV
- Hypothesis to be tested
H0: Lending rate does not depend on Monetary Policy Rate
H1: Lending rate depends on Monetary Policy Rate
Model Specification:
PLR = f(MPR)
PLR = a + b1MPR + e
Where:
73
4. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol 2, No 3, 2011
PLR = Prime Lending Rate
MPR = Monetary Policy Rate
Model V
- Hypothesis to be tested
H0: Economic growth does not depend on availability of credit, savings and investment
H1: Economic growth depends on availability of credit, savings and investment
Model specification:
GDP = f(credit, savings, investment)
Investment = a+b1Cr + b2Sa + b31n + e
Where:
GDP = Gross Domestic Product
a = Y intercept
b1 b2 b3 = Effect of independent variables on GDP
Cr = Credit
Sa = Savings
In = Investment
Model VI
- Hypothesis to be tested
H0: Economic growth is not a function of interest rate
H1: Economic growth is a function of interest rate
Model Specification:
GDP = f(savings rate, lending rate, MPR, Treasury bill rate)
GDP = a + b1SR + b2LR + b3MPR + b4TBR + e
Where:
GDP = Gross Domestic Product
a = Y intercept
b1 b2 b3 b4 = Effects of interest rates on GDP
SR = Savings rate
LR = Lending rate
MPR = Monetary Policy Rate
TBR = Treasury Bills Rate
Secondary data are used to estimate the above models. The data used were obtained from CBN Statistical
Bulletin, details of which are presented as appendix i-v. Data were analyzed using Pearson’s Correlation
Coefficient and regression aided by SPSS software.
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4. Data Analysis and Interpretation
Regression result I
From SPSS the model obtained:
Savings = f(interest on savings)
= a + b1SR +e
= 114810.1 - 6335.34b1 + e
t value = 3.385 (1.716)
p value = 0.002 0.95
Beta = -0.282
Degree of
freedom = 34
2
Coefficient of determination (R ) = 8%
* Tested Hypothesis
H0: Savings does not depend on interest rate
H1: Savings depends on interest rate
Summary of Result
The result reveals that savings is negatively correlated to interest rate. Though the negative
correlation of .282 is weak, it still does not corroborate the theoretical stand that interest on savings is a
determinant of savings. The poor coefficient of variation of 8% further confirms that interest rate plays an
almost insignificant role in savings determination that is other unspecified factors contribute 92% in this
regard.
Regression Result II
Investment = f(lending rate)
= a + b1LR +e
= 22258.6 - 6382.11b1 + e
t value = (0.417) 2.018
p value = 0.679 0.052
Beta = 0.327
Degree of
freedom = 34
Coefficient of determination (R2) = 10.7%
* Tested Hypothesis
H0: Investment does not depend on lending rate
H1: Investment depends on lending rate
Summary of Result
This result also showed a tendency which is runs counter to theoretical stipulations. It shows a
weak positive relationship of .327 and a coefficient of determination of 10.7%.
Regression result III
Investment = f(savings)
= a + b1SA + e
= -1676.6 + 1.152b1 + e
t value = (0.097) 8.370
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Vol 2, No 3, 2011
p value = 0.923 0.00
Beta = 0.82
Degree of
freedom = 34
Coefficient of determination (R2) = 67.3%
* Tested Hypothesis
H0: Investment level does not depend on savings level
H1: Investment level depends on savings level
SPSS Model: Investment = -1676.6 + 1.152b1 + e
Summary of Result
The model derived from SPSS shows that a unit change in savings will lead to a 1.152 units
change in investment. The correlation result of .821 is positive and significant. This is further confirmed by
the coefficient of determination of 67.3% which indicates that savings determines 67.3% changes in
investment. It is therefore no surprise that the .923 level of significance which is greater than t of -097
implies that H0 should be rejected and H1 – investment is dependent on savings level accepted.
Regression result IV
PLR = f(MPR)
= a + b1 MPR + e
= -6.83 + 1.349b1 + e
t value = (0.009) 2.283
p value = 0.993 0.00
Beta = 0.97
Degree of
freedom = 34
coefficient of determination (R2) = 93.9%
* Tested Hypothesis
H0: lending rate does not depend on MPR
H1: lending rate depends on MPR
SPSS model: PLR=-6.83 + 1.349b1 + e
Summary of Result
The result shows a high positive correlation of .969 between primary lending rate and monetary
policy rate. A high coefficient of determination (R2) of 93.7% was also recorded. This shows that MPR is
good predictor of prime lending rate (PLR). From the model we can infer that a unit change in MPR will
cause a 1.349 units change in PLR. As .973 significance level exceeds the table ‘t’ of -0.009 we reject the
null hypothesis and accept the alternative that lending rate depends on MPR.
Regression result V
GDP = f(credit, savings, investment)
Investment = a + b1Cr + b2Sa + b31n +e
= 274731 – 0.235b1 + 1.826b2 – 0.102b3 + e
t value = 18.571 (1.774) 2.889 (1.024)
p value = 0.000 0.091 0.009 0.317
Beta = (1.282) 2.287 (0.186)
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Pearson’s
Correlation = 0.84 0.87 0.68
Degree of
freedom = 21
2
Coefficient of determination (R ) = 79.3%
* Tested Hypothesis
H0: economic growth does not depend on availability of credit, savings and investment
H1: economic growth depends on availability of credit, savings and investment
SPSS model: GDP= 274731.6 – 0.235b1 + 1.82b2 – 0.102b3 + e
Summary of Result
This shows a high positive correlation of .84, .872 and .677 between GDP and credit, savings and
investment respectively. A good fit of 79.3% is portrayed by the coefficient of determination. At 0.05
levels of significance the result shows that credit and investment with significance levels of 0.091 and
0.317 are significant while savings with 0.009 is insignificant.
Regression result VI
GDP = f(savings rate, lending rate, MPR, Treasury bill rate)
GDP = a + b1SR + b2LR + b3MPR + b4TBR +e
= 231294.4 - 14389.1b1 + 19044.0b2 + 23834.1b3 - 32263.7b4 + e
t value = 3.917 (4.456) 2.452 1.541 (1.622)
p value = 0.001 0.00 0.024 0.139 0.053
Beta = (0.72) 1.331 1.047 (1.622)
Pearson’s
Correlation = (0.371) 0.413 0.472 0.400
Degree of
freedom = 20
2
Coefficient of determination (R ) = 66.3%
* Tested Hypothesis
H0: economic growth is not a function of interest rate
H1: economic growth is a function of interest rate
SPSS model: GDP = 231294.4 – 14389.1b1 + 19044.03b2 + 23834.09b3 – 32263.7b4 + e
Summary of Result
Pearson’s correlation showed a weak negative relationship between GDP and interest rate on savings and a
not too strong positive relationship of .413, .472 and 400 between it and prime lending rate, monetary
policy rate respectively. The coefficient of determination showed a good fit of 66.3%.
5. Major Findings and Policy Implications
The inability of interest rates, (savings rate and lending rates) to respectively predict savings and
investment was one of the major findings of the study. In the case of savings rate, it suggests that other
factors such as lack of confidence in the banking system, low income and preference for cash may be of
greater influence. That investment is not lending rate driven is very surprising also, but in an economy
where most of the lending is not for productive purposes, this can be understood. As these funds are not
used for productive purposes and since their repayments sources are guaranteed (salaries in the case of civil
servants) the rate of interest fizzles out into inconsequentiality. This shows that our banks concentrate in
short term consumer lending without bothering to finance the productive sector.
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Investment and savings are seen to be highly positively correlated just as lending rate and MPR. This
implies that policies aimed at encouraging savings will rub off positively on investment. The PLR/MPR
relationship confirms that MPR can be effective monetary policy tool as an increase or decrease in it will
cause lending rates to increase or decrease and hence produce the desired impact on investment. Since it
has been established that interest rate through its equilibrating effect on the financial market, moderates
activities including investment in the real sector, the importance role interest rate development cannot
therefore be over emphasized. This is why an economy like Nigerian’s in dire need of development must
conscientiously implement interest rate policy that will encourage investment while not discouraging
savings.
The result also shows that credit, savings and investment are strong determinants of economic growth. As
the nation works towards attaining vision 2020 goals it is instructive that these variable are boosted.
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