ABSTRACT
This study explains the
effects of financial crisis on crude oil prices, stock prices and inflation
rates in Nigeria and the global markets. Data were obtained from major players
in the financial and oil sectors of the economy. They were analyzed using
statistical packages. The results showed that crude oil and stock prices were
both increasing before the crisis and decreased during and after the crisis. It
was also observed that the inflation rate was increasing. It is suggested that,
Nigeria should adopt a sustainable planning framework characterized by longer-
term perspective plan on the annual budget and the Government should put policy
intervention to track certain structural reforms to mitigate the impact on the
real economy which will boost demand and reduce inflationary pressures.
CHAPTER ONE
INTRODUCTION
1.1 INTRODUCTION
The world economy is deeply mired in the most severe
financial and economic crisis. With its increasing impact, both in scope and
depth worldwide, the crisis poses a significant threat to the world economic
and social development, including to the fulfillment of the Millennium
Development Goals and other internationally agreed development goals. The
crisis, if it lasts much longer, will likely also have profound consequences
for global security and stability.
Economic experts have noted that the global economic
crisis has clearly manifested in the Nigeria economy, with the nation facing an
underlying economic crisis characterized by structural inbalances, market
distortations, poor infrastructure, hostility, kidnapping and weak public
institutions. This crisis began in the United States of America and the United
Kingdom when the global credit market came to a standstill in July 2007
(Avgouleas, 2008). The crisis, brewing for a while, really started to show its
effects in the middle of 2008. Around the world stock markets have fallen,
large financial institutions have collapsed or been bought out, and governments
in even the wealthiest nations have had to come up with rescue packages to bail
out their financial systems.
The reasons for this crisis are varied and complex, but
largely it can be attributed to a number of factors in both the housing and
credit markets, which developed over an extended period of time. Some of these
include: the inability of homeowner to make their mortgage payments,
poor judgment by the borrower and/or lender, speculation and overbuilding
during the boom period, risky mortgage products, high personal and corporate
debt levels, financial innovation that distributed and concealed default risks,
central bank policies, and regulation (Stiglitz, 2008).
•
A financial crisis thus results in
the inability of financial markets to function efficiently, which leads to a
sharp contraction in economic activity.
The term financial crisis
is a nonlinear disruption to financial markets in which adverse selection and
moral hazard problems become much worse, so that financial markets are unable
to efficiently channel funds to those who have the most productive investment
opportunities, Bernanke (2009). Other situations that are often called
financial crises include stock
market crashes and the bursting of other
financial bubbles,
currency crises, and
sovereign
defaults
(Kindleberger. C.P and Aliber, 2005, Laeven and Valencia,
2008).
Also the effects of the
global financial crisis were worsened at the critical stage, by rising global
energy and commodity prices which pushed up inflation rates worldwide; emerging
and developing economies like Nigeria suddenly found themselves paying more for
energy and rising cost of food and other commodities.
IMF projections showed that
by the end of 2008 and early 2009, most developed economies will be on the
verge of a recession if not in a recession. As a result of this global slowdown
in economic growth, there is reduced demand for oil which has led to its price
crashing on the international markets.
Another factor is the collapse of the financial sector and
hence its inability to support international trade by way of offering credit
lines and providing insurance against certain financial risks.
The year 2008 exposed the
weakness in the world financial system. Indeed in line with the axiom that the
world is a global village, the global meltdown which started as a crisis in the
United States housing market soon spread to all other sectors of the U.S
economy, and eventually spread all over the world, becoming a worldwide
phenomenon.
As major financial
institutions and conglomerates crumbled like a pack of cards, one after the
other across the globe, their share prices on the major world stock markets
also took an abysmal downward plunge (as shown by their All share index
record), despite the massive injection of public funds into the various world
economies by the governments under the so-called stimulus package as a way of
bailing out these global economies from the crisis.
Recently released economic
and business activities indicators worldwide, all signal that economic
activities have slowed down significantly prompting job losses, fall in
production and a drop in retail sales.
Commodity prices, especially
crude oil prices, have taken a plunge from their highs earlier in the year.
Crude oil prices dropped to a four year low of $37pb from its peak of $147pb in
mid July; as a result, emerging markets, like Nigeria, are worst hit with their
stock market losing about 60% of their quoted value.
This fall in crude oil prices
has impacted negatively on the 2009 budget of Nigeria, which was predicated on
a bench mark of $45 per barrel, a daily output of 2.29mbpd and an exchange rate
of N116 to the dollar (all of which have been revised).
As a result of these economic
woes, the naira has had to be devalued by as much 18% against the dollar from
an average rate of N117.5 earlier in the year to N138 at the end of Dec. 2008,
with further declines in the first two months of 2009, which is clearly an
unhealthy inflationary trend.
Nigeria as a country which depends largely on oil exports
earnings for over 80% of its revenue had to devise ways and means of cushioning
the effects of these gloomy economic crises on its own economy.
1.2 OBJECTIVES OF THE STUDY
1.
To determine the trend in stock
prices movement before and during the financial crisis.
2.
To determine the trend of
inflation rate movement before and during the financial crisis.
3.
To determine the trend of crude
oil prices before and during the financial crisis.
4.
To compare the stock prices before
the crisis and during the financial crisis.
5.
To compare the inflation rates
before the financial crisis and during the financial crisis
6.
To compare crude oil prices before
and during the financial crisis
7.
To correlate crude oil prices,
inflation rate and stock prices of some selected companies in Nigeria.
1.3 SIGNIFICANCE
OF THE STUDY
The global financial crisis
has come to define the world which we live in. The crisis was triggered by the
sub-prime mortgage crisis in the US. This has destabilized the financial market
of the developed world, leading to the collapse of notable names in the banking
business. Production in these economies has also been adversely affected,
leading to a decline in output. This work is therefore timely as it will bring
to forefront the pending issues in the Global financial crisis.
This study addresses the Impact of Global Financial Crises
on Crude Oil Prices, Stock Prices and Inflation Rates in Nigeria Capital
Market, during the Global Financial Crisis of 2008 and to seek ways to
forestall future occurrences, to identify the factors responsible for the
crisis.
1.4 ORGANIZATION
OF THE STUDY
This thesis comprises five
chapters; chapter one deals with introduction to the global financial crises in
Nigeria. In chapter two the relevant literature review of global financial
crisis with particular reference to Nigeria are discussed. Chapter three
describes the sources of data, data presentation, data analysis techniques,
variables under study and model formulation while chapter four involves data
analysis, interpretation and hypotheses testing.
Chapter five is concerned with the summary, conclusions
and recommendations on how to deal with global financial crises more especially
with regard to Nigeria.
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Item Type: Project Material | Size: 78 pages | Chapters: 1-5
Format: MS Word | Delivery: Within 30Mins.
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