THE IMPACT OF RISING INTEREST RATE ON MANUFACTURING SECTOR OF THE NIGERIAN ECONOMY (A CASE STUDY OF SUNGLASS NIGERIA LIMITED, KADUNA)
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THE IMPACT OF RISING INTEREST RATE ON
MANUFACTURING SECTOR OF THE NIGERIAN ECONOMY
(A CASE STUDY OF
SUNGLASS NIGERIA LIMITED, KADUNA)
ABSTRACT
For the purpose
of clarity, the work will be divided into five (5) chapters and each of the
chapters will look at a relevant segments of the study as follows, chapter on
gives a general introduction, the aim of engaging in the study, definition of
the study, key terms and research questions. This chapter is therefore an overview
of the whole work. The second chapter contains the literature review, that is
the works of various authors in the field of impact of rising interest rate on
manufacturing was examined. Chapter three will take a look at research
methodology, sources of data collection, population and sample size, population
and sampling techniques instruments for data collection as well as technique
for data analysis. Chapter four contains data presentation, data analysis interpretation
and summary of findings. Finally the last chapter will be the conclusion of
what has been derived from the study and recommendation made; there
is need for manufacturing firm to have the basic intellectual and management
capacity that will help bring about efficiency in production and resource
utilization and the CBN should device a better method of monitoring the
activities of banks to ensure policy compliance, good corporate governance and
social responsibility.
TABLE OF CONTENT
Title page - - - - - - - - - - i
Declaration - - - - - - - - - - ii
Approval page - - - - - - - - - iii
Dedication - - - - - - - - - - iv
Acknowledgment - - - - - - - - - v
Abstract - - - - - - - - - - vi
Table of
contents - - - - - - - - - vii
CHAPTER
ONE
1.1 Background of the study - - - - - - - 1
1.2 Statement of Problems - - - - - - -
1.3 Objectives of the study - - - - - - -
1.4 Research Question 0- - - - - - - -
1.5 Significance of the study - - - - - - -
1.6 Scope and limitation of the study - - - - -
1.7 Definition of terms - - - - - - - -
CHAPTER
TWO
2.1 Definition - - - - - - - - -
2.2 Historical Development of Interest Rate - - - -
2.3 Concept of Manufacturing Sector - - - - -
2.4 Nigerian Economy - - - - - - - -
2.5 Policies of Interest Rate - - - - - - -
CHAPTER
THREE
3.0 Introduction - - - - - - - -
3.1 Research Design - - - - - - - -
3.2 Area of Study - - - - - - - -
3.3 Population of Study - - - - - - -
3.4 Sampling Technique - - - - - - -
3.5 Data Collection and Instrument - - - - - -
3.6 Validity and Reliability of Instrument - - - - -
3.7 Administration of the Instrument - - - - -
3.8 Method of Data Analysis - - - - - - -
CHAPTER
FOUR
4.0 Introduction - - - - - - - - -
4.1 Data Presentation - - - - - - - -
4.2 Data Analysis - - - - - - - -
CHAPTER
FIVE
5.0 Introduction - - - - - - - - -
5.1 Summary - - - - - - - - -
5.2 Conclusion - - - - - - - - -
5.3 Recommendation - - - - - - - -
Reference
Appendices
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The Central Bank of Nigeriais responsible for
implementing monetary policy, regulating and supervising banks, and operating
the payments system. With these responsibilities come the authority to raise
and lower national interest rates in the banking industry. Interest rate
movements help balance inflation and keep the economy stable. When the economy
slows and inflation is high, the CBN raises interest rates to change consumer
behavior
Interest has been variously defined both by
conventional economists and Islamic economists. In conventional economic
interest rate refers to that surplus income that is positive which a lender
receives from the borrower over and above, the principal amount, as a reward
for waiting or parting with the liquid part of his capital for a specified
period of time.
Given the prominent role of the banking sector in
the euro area’s financial system, it is of significantimportance for the ECB to
monitor the degree of competitive behaviour in the euro area bankingmarket. A
more competitive banking market is expected to drive down bank loan rates,
adding to thewelfare of households and enterprises. Further, in a more
competitive market, changes in the ECB’smain policy rates supposedly will be
more effectively passed through to bank interest rates.
This study extends the existing empirical evidence,
which suggests that the degree of bank competitionmay have a significant effect
on both the level of bank rates and on the pass-through of market rates tobank
interest rates. Understanding this pass-through mechanism is crucial for
central banks. However,most studies that analyse the relationship between
competition and banks’ pricing behaviour apply aconcentration index such as the
Herfindahl-Hirschman index (HHI) as a measure of competition. Wequestion the
suitability of such indices as measures to capture competition. Where the
traditionalinterpretation is that concentration erodes competition,
concentration and competition may insteadincrease simultaneously when
competition forces consolidation. For example, in a market whereinefficient
firms are taken over by efficient companies, competition may strengthen, while
themarket’s concentration increases at the same time. In addition, the HHI
suffers from a seriousweakness in that it does not distinguish between small
and large countries. In small countries, theconcentration ratio is likely to be
higher, precisely because the economy is small.
The main contribution of this paper is that it
applies a new measure for competition, called the Booneindicator (see also
Boone, 2001; Bikker and Van Leuvensteijn, 2008; Van Leuvensteijn et al.,
2007).The basic notion underlying this indicator is that in a competitive
market, more efficient companies arelikely to gain market share. Hence, the
stronger the impact of efficiency on market shares is, thestronger is
competition. Further, by analyzing how this efficiency-market share
relationship changesover time, this approach provides a measure which can be
employed to assess how changes incompetition affect the cost of borrowing for
both households and enterprises, and how it affects thepass-through of policy
rates into loan and deposit rates.Our study contributes also to the
pass-through literature in the sense that it applies a newly-constructeddata
set on bank interest rates for eight euro area countries covering the January
1994 to March 2006period.
This paper uses interest rate data that cover a
longer period and that are based on more harmonized principles than those used
by previous pass-through studies for the euro area. We find that
strongercompetition implies significantly lower interest rate spreads for most
loan market products, as weexpected. Using an error correction model (ECM)
approach to measure the effect of competition on thepass-through of market rates
to bank interest rates, we likewise find that banks tend to price their
loansmore in accordance with the market in countries where competitive
pressures are stronger.
Furthermore, where loan market competition is
stronger, we observe larger spreads between bank andmarket interest rates (that
is, lower bank interest rates) on current account and time deposits. Lowertime
deposit rates in countries with stronger bank competition are confirmed by the
ECM estimates.Apparently, the competitive pressure is heavier in the loan
market than in the deposit markets, so thatbanks under competition compensate
for their reduction in loan market income by lowering theirdeposit rates.
Furthermore, in more competitive markets, bank interest rates appear to respond
morestrongly and sometime more rapidly to changes in market interest rates.
1.2 STATEMENT
OF PROBLEM
The fundamental problem of any government vogue is
its economic or otherwise its implementation. a number of government monetary
policy instruments have been designed and applied in Nigeria in the hope of
achieving the desired result of stable price level, low level of unemployment,
efficient banking system etc. but the applications of direct monetary
instruments have not bring forth the desired objectives stated above hence,
left the government without any other alternative than to turn to the direct
monetary instrument. Therefore, the problem under study is the impact of rising
interest rate on manufacturing sector. One of the principal function of the
central bank of Nigeria (CBN) is to formulate and execute monetary policy to
promote stability and soundfinancial system in Nigeria.Monetary policy was
adopted when strategy shifted to demand management containing inflation
preseure, balance of payment, imbalance and high deflect in the federal budget
and the effect on the growth in money supply. Consistent with the monetary
targeting problems of the Central Bank of Nigeria (CBN) focuses on liquidity
management to achieve the objective by maintaining price and macro economic
stability.Despite all these efforts that put are in place by Central Bank of
Nigeria, the problem of monetary management have persisted and the main
constraints continue to be the ineffective control and the uncertainty created
by fiscal operation.
1.3 OBJECTIVE
OF THE STUDY
Ø To identify if loan interest rates are lower, and
deposit interest rates higher, in more competitive loan markets than in less
competitive loan markets
Ø To assess long-run loan and deposit interest rate
responses to corresponding market rates are stronger in more competitive loan
markets than in less competitive loan markets
Ø To identify bank interest rates in more competitive
markets adjust faster to changes in market interest rates than in less
competitive markets
1.4
RESEARCH QUESTION
i.
How does interest
rates are lower, and deposit interest rates higher, in more competitive loan
markets than in less competitive loan markets?
ii.
How does long-run
loan and deposit interest rate responses to corresponding market rates are
stronger in more competitive loan markets than in less competitive loan markets?
iii. Is bank interest rates in more competitive
markets adjust faster to changes in market interest rates than in less competitive
markets?
1.5 SIGNIFICANCE OF THE
STUDY
However, the research study will assist the
economic to derive possible solution to the problem e.g. inflation using
policies measures as adopted by the monetary authorities. Further, the
research, x-rays that types of monetary policy measure which can be use to
combat the problem of unstable economic and as a result will be a kind of it
may be concerning of their field of study.
Government will benefit immensely on the
research work as the research have put it down.
1.6 SCOPE OF THE STUDY
This
project covers the impact of rising interest rate on manufacturing. A general
overview of monetary policy and inflation in the Nigerian economy is the
foundation upon which the project is developed.
1.7 LIMITATION OF THE STUDY
However,
study of this nature is known to be subject to a number of problems or
constrains, which are peculiar to the Nigerian society such as financial
constraints.
This
research work was not an exception the problem of visiting the Central Bank of
Nigerian and some other places for data collection involved spending a lot of
money or transport expenses.
Hence, the predicament
of the overage students can therefore be imagined.
Furthermore,
the issue of office protocols time limit, secrecy inadequate research materials
also were some setbacks to the researchers in carrying out this research.
1.8 DEFINITION OF TERMS
The author considers it necessary to define the following
terms as applied within the context of this project.
Asset
portfolio: Arrangement of bank
assets on order of its
liquidity and
profitability.
Advances: These are
monies lent by a bank generally in
the form of an overdraft on a current account and
also by means of a loan or personal loan.
Affidavit
form: This is a written statement used as a legal
proof.
Bank
credit: Credit created by a bank
increasing the size of
the account of a depositor e.g. when making an
advance.
Branch
banking: the typical commercial
bank in most
countries is a very large institution with a large
number of branches.
C.O.T: Commission
on turn over or cost of
transaction, this is normally charged on the total
of debt turn over of current account.
C.O.F.O: Certificate
of occupancy
Cash
ratio: This is the ratio of cash to demand deposit
usually
calculated on percentage.
Clean
lending: Loan and advance
granted without any
security.
Collateral
security: properties perhaps in
the firming deeds to
a house or stock and shares deposited with a
creditors to guarantee that a loan will be repaid.
Demand
deposit: this is the total amount
of money deposited
with the
bank.
Deed of
release: this is the document
usually signed by
customers when any property held by bank is returned.
Equitable
mortgage: Property pledged to the
bank as security
without legal
backing.
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