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EVALUATION OF THE DYNAMIC EFFECTS OF IDLE CASH HOLDING IN A DEVELOPING ECONOMY: A CASH STUDY OF OGBETE MAIN MARKET

CHAPTER ONE

INTRODUCTION

1.0 BACKGROUND OF THE STUDY

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 i.e 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.

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