CHAPTER ONE

1.0    INTRODUCTION

1.1    BACKGROUND OF THE STUDY

A buoyant and dynamic economy is the one built upon a sound financial system. Such finical system should be stimulated and maintained by the effective activities of an efficient capital market, which is the head of the “Stock Exchange”.

The stock exchange therefore is the market where companies, raise capital on a short term and long term basis. This role of mobilization and allocation of funds to every sector of the economy which made it (Stock Exchange), the toast of investors has given it a pride of plan in every economy. There is no doubt, that the success or failure of every sector in the economy rests to every large extent on its stock exchange market. This is because for any sector in the economy to grow an efficient means of capital formation must not be ignored considering the importance of capital in any organization setting.

Since the establishment of the Nigerian stock exchange (NSE) some forty two years back (42) elements of stagnation, dormancy and unproductiveness in the economy is being experienced despite the tremendous development in the exchange systems. This situation has taken a worrisome dimension in which many questions are being raised on the relevance of the Nigerian stock exchange in facilitating investments in the Nigerian economy.

1.1    AN OVERVIEW OF THE BACKGROUND OF THE STUDY

There was no organized financial market or institution in Nigeria prior to the establishment of the central bank of Nigeria (CBN) by the Act of parliament in 1958. Consequently, surplus funds of the financial system were invested abroad there by starving the economy of the mush – needed capital for general development. But immediately the central bank of Nigeria came into existence, the banks started pioneering the development of Nigerian financial market comprising the money market for short-term funds.

The development of the Nigerian money market for short term funds started in 1960 with the issue of the first Central Bank of Nigeria Treasury Bills. Subsequently, other short-term debt instruments such as Treasury certificates, commercial Bills, certificate of Deposits e.t.c were introduced by Central Bank to increase the volume and depth of the money market.