Law, Economics, Accountancy and Risk

The recent financial crisis has highlighted the failure of monetary policy to target key
macroprudential tools as critical elements in determining the stability of the financial system and impact of monetary transmission to the real economy. We employed a two lag VAR to model the interaction between monetary policy and money market rates in a preliminary analysis in search of appropriate macroprudential levers in Nigeria. Time series data on a number of variables and proxies were obtained from 1998 to 2013. Given that Nigeria is a bank-based financial system, this study modelled the interaction between the policy rates and money market rates to ascertain the efficacy of the credit channel (which affects the lending rate) and money channels (which affects the
deposit rate) of monetary policy transmission mechanism in Nigeria. The money market rates used included the 3 months deposit rate (_3MDR), prime lending rate (PLR), maximum lending rate (MLR) and interbank call rate (IBCR). We found that monetary policy has no significant explanatory power for changes in 3 months deposit rate, prime lending rate and maximum lending rate while the policy rate has explanatory power for the interbank call rate. We also found evidence of a bi-directional feedback loop between short-term policy rates and interbank call rates (i.e. they both Granger-cause each other). We also calculated the multiplier effect of monetary policy on
money market rates using the Monte Carlo integration analysis. The result shows that a one unit shock in monetary policy will lead to a 13% change in the deposit rate after the second month while the same shock will result in a 13% increase in lending rate after the 13th month. A practical policy implication of this finding is that when the central bank adjusts the interest rate, banks are unlikely to simultaneously adjust their lending and deposit rates. In other words, sticky-lending and deposit rates may reduce the effects of monetary policy on money market rates.

This handbook aims to provide direction to financial services regulators and supervisors in central banks around the world with regard to best practice prudential guidelines for establishing, managing, supervising and regulating banks and financial conglomerates on a consolidated basis. The handbook places specific emphasis on the qualitative and quantitative aspects of international financial regulation and supervision of banks and financial conglomerates. The handbook also features some case studies and examples from selected financial groups and jurisdictions around the World.

This paper 1 uses the Geometric Brownian Motion (GBM) to model the behaviour of crude oil price in a Monte Carlo simulation framework. The performance of the GBM method is compared with the naïve strategy using different forecast evaluation techniques. The results from the forecasting accuracy statistics suggest that the GBM outperforms the naïve model and can act as a proxy for modelling movement of oil prices. We also test the empirical viability of using a call option contract to hedge oil price declines. The results from the simulations reveal that the single-step binomial price model can be effective in hedging oil price volatility. The findings from this paper will be of interest to the government of Nigeria that views the price of oil as one of the key variables in the national budget.