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EVALUATION OF THE DYNAMIC EFFECTS OF IOLE CASH HOLDING IN A DEVELOPING - ECONOMY

ABSTRACT

With the multifarious (many / various) increase in the economic system money become the most acceptable means of transaction and payment of debt. The proportion of money which is not used in normal recurring transaction or is held in excess of the normal need is called “idle cash” The excess of the normal need is called “Idle cash” The continuos with drawl of money from the circular flow of income between the household individuals, firms and industries becenies so alarming and devastating; it deprive the  users the great opportunity of making any meaningful and judicious use of idle cash. In the area of research methodology primary and secondary source of data collecting  will be adopted. The primary data source  includes oral interview administration on questionnaire observation and literature review. While the secondary sources of data collection to be adopted are the use of text books, financial standards etc. There are some constraint towards this project which I include money –which is inadequate time to combine my lectures, personal chores and project research work, protocols to be observed will surely delay this project. Inadequate libraries and materials to lay hands on. The researcher therefore wish to embark on this work to remedy some of these problems and their effects on the economy. The project work intend to highlight the pros and cons of the negative use of idle cash , constant flow of money in circulation , light interest rate and poor cross Domestic product (GDP) the research work will not only be in document for the accounts department.

CHAPTER ONE

INTRODUCTION

1.0    BACKGROUND OF THE STUDY

In a developing economy like ours, a sizeable amount of money is held in excess of  normal need. This excess money   is held is idle, because it does not produce any income, The business communities, individuals, household etc are holding a great proportion of this idle money. The involvement in the evil of boarding cash has a very serious effect on the financial institutions. The banking system ability of creating deposit money is constrained or hampered. The banks can only create small amount of deposit money, which is not enough to satisfy the teeming population seeking for loan. As a result of this, the interest rate will increase proportionately. Prices will increase while on the other hand demand will reduce increase in unemployment rate and drastic fall in national income.

The industrial sector is also affected because they depend on commercial and merchant banks loan for effective production and expansion. The consequences of bank not wholly honoring loan realest has put these industries in a light corner by producing below capacity, low quality product and retrenchment as an available means of production cost cut measure or to bread even.

Economic growth and development of any nation is a combination of many variable ie price, inflation deflation employment and interest rate. This variable. Money is the prime mover of economic development as a result of its relationship with economic activities. Increase in the volume of money supply in the economy will definitely bring a remarkable change in the interest rate.

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