RELATIVE CONTRIBUTIONS OF THE NIGERIAN CAPITAL MARKET TO THE GROWTH OF EXTERNAL RESERVES (2005-2014)

Abstract

Virtually all aspects of human endeavour entail the use of money either self generated or borrowed. In capital market, the stock in trade is money which could be raised through various instruments under well governed rules and regulations carefully administered and followed by different institutions or market operators .External reserves constitute an integral part of the wealth of the nation such that the lack of it brings worry to most nations and can limit the ability of the country to make foreign currency denominated payments and limits its spending abroad. Hence, countries are induced to hold reserves to allow monetary authorities to intervene in markets to control the exchange rate and inflation. Adequate reserves also allow the country to borrow from abroad and to hedge against instability and uncertainty of external capital flows. Therefore, the objective of this paper is to access the relative contribution of the Nigerian capital market if any to the growth of her external reserve. The methodology used is purely descriptive and narrative and the data used is secondary. The evidence provided in the study based on the statistical analysis, revealed that the Nigerian capital market can induce the growth of external reserve but it has not contributed to the growth of external reserve in Nigeria. Furthermore, the study recommended among others the need for availability of more investment instruments such as derivatives, futures, swaps, options in the market and the expansion of the Nigerian capital Market by the government creating an enabling investable environment that will increase both the volume of transactions and number of securities traded in the market. This will improve their ability to mobilize resources and efficiently allocate them to the most productive sectors of the economy hence, contributing its portion to the growth of her external reserve.