CHAPTER ONE. GENERAL INTRODUCTION
Background to the Study
The financial system of every country regulates the mercantile environment. This is important because finance is key to investment and growth hence the need for efficient financial systems to help development. A nation‟s financial system comprises the money and capital markets that serve it. These two sub-sectors create financial assets and liabilities by intermediating between surplus and deficit units in the economy. While the money market is where short term loans are sourced, the capital market is one for medium and long term funds1.
All efficient financial systems are sustained by the level of investment that drives the system. Investment is a sine qua non of growth and development of any economic entity. Usually, investment involves postponing current consumption to put resources in capital formation activity or production of future income. The basic objective of any investment decision is the creation of wealth via returns on investments.2 The returns on investments are derived from visible manufacturing or commercial activities. These returns on investment benefit the individual and have multiplier effect on the society at large3.
Investment without doubt plays a crucial role in the economic well being of individuals and business enterprises. It is one of the vital ways of creating wealth. It is also an act that prepares one for a better future. An individual or a body with better investment potentials lays good foundation for eventual opportunities and good living in future; that is why it is essential and advisable for individuals, corporate bodies and even government authorities to invest for a better tomorrow. The objective of investment ranges from dividends, capital appreciation or growth, capital gains or adventure4. Investing in the capital or money markets provide the long or short term funds needed to develop a country.
According to the World Bank5, Gross Domestic Product (GDP) growth is higher for those countries, which have relatively higher investment ratio. Lately, the Nigerian economy has enjoyed global prominence. Following the 2014 April statistical rebasing, Nigeria emerged as Africa‟s largest economy and ranking twenty-sixth in the world with a Gross Domestic Product put at five hundred and two billion United States Dollar6. Generally speaking, investment refers to all economic activity which involves the use of resources to produce goods and services. Investments can broadly be classified into two: real and financial investments. Real investments refer to investments in tangible assets, such as machinery, land, factories and offices. These assets are used to produce goods and services for future consumption. This is regarded as capital investment4. In the case of financial investment (choses in action) the investor‟s sole interest is in the amount invested and the future streams of income it will generate8.
Financial investment must be distinguished from gambling/wagering transactions which in their nature are speculative and essentially games of chance9. Usually, when investors invest in any scheme, their basic objective is that they receive returns. Their intention of coming to the market is not to gamble their hard earned money but to invest into real and visible manufacturing or commercial activities not phony investment schemes. Risk and return are natural consequence of investment. The complex nature of an investment defines the peculiar exposure of investors to risk. Generally, all investors (individuals or institutions) have investment objectives and on the basis of risk tolerance can safely be classified into three categories. The risk averters are investors who do not like taking risks. Investors who are risk lovers are more willing to take chances with given expected return than accept an equal sure amount. They select attractive investments with good yield in income and capital appreciation. The third category is the risk neutral investors. They are indifferent to risk.
Any of these categories of investors can be a victim of phony or fraudulent investment schemes. Although their choice of investment vehicle is usually influenced by safety factors and certainty of returns, rational investors would normally avoid investing in worthless ventures. Nevertheless, occasionally, even the most rational investors could be victims of fraudulent investment schemes.
