Evaluation Of The Dynamic Effects Of Iole Cash Holding In A Developing Economy: A Cash Study Of Ogbete Main Market

Project and Seminar Material for Accountancy / Accounting

Evaluation Of The Dynamic Effects Of Iole Cash Holding In A Developing Economy: A Cash Study Of Ogbete Main Market


One of the most prominent characteristics of under developed nation is the use of high proportion of cash, relative to demand deposit in business transaction. This cash relative to demand deposit has resulted to the existence of idle cash in such economics. In an under developed country like ours, a significant percentage of money is held in form of cash a sizeable portion of this cash is kept idle, with the resultant consequence that the productive sector is denied they of such fund. This sizeable amount of cash that is not used for anything. Under the banking system ability to create deposit money, thus affecting the volume and cost of loans. The effect of these idle money has system magnified itself that it has resulted to unemployment low business investment and declining national income.

This research has been organized into five chapters with the first chapter dealing on introduction, while the second chapter centers on review of related literatures chapter three showed the method of research used. Chapter four and five develled on analysis of data test of hypothesis summary of findings, recommendations and conclusion respectively.


With the multifarious (many / various ) increase in the economic system money become the most acceptable means of transaction and payment of debt. The proportion of money which is not used in normal recurring transaction or is held in excess of the normal need is called “idle cash” The excess of the normal need is called “Idle cash” The continuos with drawl of money from the circular flow of income between the household individual s, firms and industries becenies so alarming and devastating; it deprive the users the great opportunity of making any meaningful and judicious use of idle cash.

In the area of research methodology primary and secondary source of data collecting will be adopted. The primary data source includes oral interview administration on questionnaire observation and literature review. While the secondary sources of data collection to be adopted are the use of text books, financial standards etc.

There are some constraint towards this project which I include money –which is inadequate time to combine my lectures, personal chores and project research work, protocols to be observed will surely delay this project. Inadequate libraries and materials to lay hands on.

The researcher therefore wish to embark on this work to remedy some of these problems and their effects on the economy. The project work intend to highlight the pros and cons of the negative use of idle cash , constant flow of money in circulation , light interest rate and poor cross Domestic product (GDP) the research work will not only be in document for the accounts department

Table Of Contents

Preliminary Page(s)

  • Title Page
  • Declaration
  • Approval
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Content

Chapter One


  • 1.0 Background information of the study
  • 1.1 Statement of the problem
  • 1.2 Objective of study
  • 1.3 Hypothesis
  • 1.4 Significance of the study
  • 1.5 Scope of the study
  • 1.6 Limitations of the study
  • 1.7 Definitions of term
  • References

Chapter Two

Literature Review

  • 2.0 The role of money in a developing economy
  • 2.1 Money and banks
  • 2.2 Demand for money
  • 2.3 Motives of demanding money
  • 2.4 Banks functions and money creation
  • 2.5 Limitations of money creation
  • 2.6 Supply of money
  • 2.7 Velocity of circulation
  • 2.1 The concept of idle cash
  • 2.2 Reason that led to a fall in idle cash
  • 2.3 Effect of idle cash holding in a developing economy

Chapter Three:

Research Design / Methodology

  • 3.0 Area of study
  • 3.1 Source of data
  • 3.2 Data collection methods
  • 3.3 Questionnaire design.
  • 3.4 Sample design
  • 3.5 Method of data analysis
  • 3.6 Method of testing hypothesis

Chapter Four

4.0 Data Presentation and Analysis

  • 4.1 Test of hypothesis

Chapter Five

Summary of Findings, Recommendation and Conclusion

  • 5.0 Summary of findings
  • 5.1 Recommendation
  • 5.2 Conclusion
  • Bibliography
  • Questionnaires

Chapter One


1.0 Background Information Of The Subject Matter

In a developing economy like ours, a sizeable amount of money is held in excess of normal need. This excess money is held is idle, because it does not produce any income, The business communities, individuals, household etc are holding a great proportion of this idle money. The involvement in the evil of boarding cash has a very serious effect on the financial institutions. The banking system ability of creating deposit money is constrained or hampered. The banks can only create small amount of deposit money, which is not enough to satisfy the teeming population seeking for loan. As a result of this, the interest rate will increase proportionately. Prices will increase while on the other hand demand will reduce increase in unemployment rate and drastic fall in national income.

The industrial sector is also affected because they depend on commercial and merchant banks loan for effective production and expansion. The consequences of bank not wholly honoring loan realest has put these industries in a light corner by producing below capacity, low quality product and retrenchment as an available means of production cost cut measure or to bread even

Economic growth and development of any nation is a combination of many variable ie price, inflation deflation employment and interest rate. This variable. Money is the prime mover of economic development as a result of its relationship with economic activities. Increase in the volume of money supply in the economy will definitely bring a remarkable change in the interest rate. This effect will lead to increase investment, employment, national income and expansion of industries.

With increase in awareness and effective mobilization of idle cash held by these prime agents of the economic activities, the ability of creating deposit will be enhanced. Banks can now meet the loadable demands of the entire economy wholly

1.1 Statement Of Problems

The availability of capital is the most outstanding factor to consider in assessing the workability feasibility, survival and its ability to met business expenses as and when due. Are business organizations able to finance their business activities? If not what is responsible for this? Is it the inability of banks to give enough loans.?

With the increasing number of banks every day there is the assertion that banks are not able to meet the Loanable demand of theses business organization, both small and big organization. Why have these apex institution failed to meet up to the financial needs of these yearning organization? Is it that enormous amount of money is held idle in the pocket purses and homes of public.

What factors are responsible for high interest rate, unemployment, inflation etc? have the reasons of holding money ie transaction speculative and precautionary motives actually justified the need for continued holding of cash?

What has been done by government and financial institutions towards solving these problem?

The research will therefore analyze the problems facing the effective mobilization of idle cash held by the public with greater emphasis on ogbete main market. In line with this research the effects of idle cash holding to the economy in general and the holder in particular, will not be left out

Recommendation based on the findings will be made to rebuild the relationship between banks and business communities.

1.2 Objective Of The Study

The objectives of the study is centered on

  1. Examining the extend or level of relationship between banks and the businessmen
  2. Finding out the cost of holding cash relative to demand deposit and the consequences involve in holding money.
  3. Determining what the financial institution has been doing in respect to mobilizing these idle cash and channeling them to the productive sector of the economy.

1.3 Hypothesis

The following hypothesis will be focused and tested on:

  1. Idle cash holding and economic activities are not related.
  2. Idle cash did not contribute to the factors responsible for rising interest rate

1.4 Significance Of The Study

The idle of this study I aimed at the determination of the dynamic effects of idle cash holding in a developing economy like Nigeria and Enugu business communities is particular. Precisely, on completion of this research it will provide:

  1. An insight into the size of idle cash hold which does not contribute to the economic growths and development of the economy.
  2. A means solving the liquidity problem of banks
  3. Government with the knowledge of the effectiveness of banks activities and reveal areas of loop- hold that need arrest.
  4. The business communities the economic advantages of making use of banks.
  5. Solution to the problem of literature on idle cash on Enugu, which is scarcely available.

1.5 Scope Of Study

The research is limited to only Enugu business communities an important city in Enugu state. Discussions in most aspects affect Nigeria economic position and other countries.

1.6 Definition Of Terms

1. Money:

Money is anything used to facilitate transition. In other word, money is anything that is generally acceptable as an instrument for settling debts and carrying out different transaction. Money must function as a standard of differed payment store of value unit of account and medium of exchange.

Moreover before money can perform this function effectively it must have some characteristic as general acceptability divisibility etc.

Different commodities that have various time and culture served as money paper gold silver mental cigarettes etc.

2. Financial Institution:

This is an organization or institution that acts as a middle may in order to being lenders and borrowers together making available, Loanable funds to those willing to pay for the cost.

3. Bank:

This is a financial institution whose main motive is to maximize profit through the maximization of deposit and extension of loans and advances to the economy. Banks pays interest to fund owners and change interest on; loans extended to fund users.

4. Cash:

This is the aggregate amount of notes and coins held in the bank branches, head offices and also the amount that are in the hand of the public

5. Banking Habits:

This portrays the degree of responsive of the public in a given territory to the use of banking facilities available to them. In another words, it is seen as the rate at which the populace makes use of banks.

6. Idle Cash:

Cash that is put into unproductive use because it does not contribute anything to the holder. This sis also an accumulation of currency in excess of the normal needs usually motivated by fear of future scarcity

7. Economic Growth And Development:

Economic growth is the process of increasing national output and income per head of a nation. It demonstrates the extent to which real national output head has increased

Economic development is where a country real per capital gross national product of income increases over a sustained period of time. It is also the desirable change in the economic and social super structure of the society.

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