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CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND TO THE STUDY

Security market or financial market in a broad sense is an institutions arrangement that facilitates the intermediation of funds in an economy. Financial intermediation means the mobilization of financial resources from surplus –spending unity and channeling of such funds to deficit –spending units for productive investment and generation of assets or securities exchange such as bonds and shares, which is approved by the exchange authorities. And as a market it acts as a meeting place or where sellers and buyers of financial resources come into contact. It is also a financial market in which shares, bond debentures stock, treasury bill, treasury certificate, call money and other financial securities are exchanged provide a means through which firms and government raised long-term fund for business expansion and development projects through investors who own shares in business, firm for the eventual economic benefit of all members of all the society.

This market is segmented into two. The money market, which deals in short term funds, and the capital market, which is mainly for long-term, loan able funds. The reason for the distinction between money market and capital market is based on the degrees of liquidity of the instruments traded in. it can be sub-divided into primary market and secondary market. The primary market is that segment of the capital market where financial securities are first floated for subscription. Put differently, it is a market for the quotations of new issues of securities. Secondary market is a market where financial securities that have been fully subscribed and paid for, are offered for sale. In order words it is a market for the transfer of ownership of shares, debenture stock and bonds. In as much as the secondary market dose not has effect on the creation or allocation or newly created wealth (new issues), it still supports the primary market.

The market performs an economic function by facilitating the transfer of real economic resources from the lender to the borrowers. By the inducement of interest income, the market facilitates the transfer of purchasing power from the lenders to the investors who wish to exercise demand over real resources. As a real resources flow from the lenders to borrowers the production of goods and services is enhanced and consequently the welfare of the people is improved.  

1.2    PROBLEM IDENTIFICATION

The major features of any financial market is its ability to provide the credit needs of both the private and public sectors which result to economic growth and development. The fundament characteristic of a sound financial system is the ability to finance credit needs which contributed to economic growth without injury to stability. Though the market have provided the facilities for retaining funds in the economy but still lacks the in-depth and breadth. The major reasons are:

a) The number of individual investors are not still impressive because they do not consider financial market as a source of financing their organization

b) The attitude of investors in buying and holding of securities also contributed to its scarcity in supply irrespective of the establishment of the second tier security market.

c) The stringent rules and regulation imposed by the securities exchange commission for companies to be quoted in the stock exchange.

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