Discount Houses Operations, the Money Market and the Nigerian Economy: A Preliminary Investigation
C. B. Ezirim and F. E. Enefaa
This paper investigates the relationships subsisting between the operations of discount houses and the performance indices of the money market and the general economy. The method used involved the estimation of regression models and subsequent analysis of results using conventional statistics. The findings indicate that positive and significant relationships existed between the indicators of discount houses and those of the money market and the macro economy. Thus, the operations of these houses reserve the potentials to boost the performances of the money market and the economy considerably. This calls for policy options that would favor the encouragement of existing houses and licensing of new ones to adequately carter for the needs of the overall economy.
It has been underscored that discount houses play very important roles in stimulating investments in the economy and in boosting the general operations of the money market. Not only do they serve as catalyst in the market, they are, on their own, large-scale investors in the money market as well. Their role in facilitating profitable open market operations is worth stressing (CBN, 2004; Ezirim, 2005). Notwithstanding these and other roles performed by discount houses in a typical economy, the Nigerian money market operations are said to be sub-optimal in terms of engineering desired growth in the economy. The observed sub-optimality of the Nigerian money market is blamed, in part, on the poor performance of discount houses and other money market institutions. Discount houses, from the onset of their operations in the country, were expected to cause the Nigerian money market to operate optimally. Since the money market is yet to achieve this objective, can we then say that the discount houses have failed in their expected duties? It is the burden of this study to ravel the true position by x-raying the relationships between relevant variables representing the operations of the money market and those of the discount houses.
Furthermore, the entire activity of the discount houses is expected to directly or indirectly boost aggregate domestic investment, output, and income. The levels of these macro magnitudes, even with the advent of discount houses, have left much to be desired. Does this suggest that these institutions, alongside others, have failed in their critical duty to the economy? The need to investigate the relationship between the
operations of these financial institutions and relevant macro indicators is only rife. It is, therefore, main purpose of this study to analyze the operational performance of discount houses in a bid to see how they relate with the general performance of the money market and the macro economy.
Theoretical Framework and Review
Concept and Roles of Discount Houses Discount houses are recent but novel developments that are meant to further the catalytic processes in the economic advancement of the less developed countries (LDCs) like Nigeria, especially in the money market sub-sector. By definition, discount houses are financial institutions devoted to trading in money market securities in the secondary market. As in Ezirim (2005), discount houses (DHs) were established to serve as financial intermediaries between the Central Bank of Nigeria (CBN), licensed banks, and other financial institutions. DHs mobilize funds for investments in securities by providing discounting/rediscounting facilities in government short-term securities. According to Central Bank of Nigeria (2004: 1) Revised Guidelines for discount houses in Nigeria, “a discount house means any person in Nigeria who transacts a discount house business which in the main consists of trading in and holding of treasury bills, commercial bills and other securities and whose operations are in the opinion of...
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