ABSTRACT
This study is aimed at analyzing the problems of foreign exchange management with a view to evaluating the belief of the public that the Central Bank of Nigeria was to blame for the foreign exchange problems and to examine if indeed there were other factors responsible for the frequent instability in the external value of the domestic currency - the Naira. Thus the focus on the Apex bank - The Central Bank of Nigeria.
Management of nation’s foreign exchange resources is important to reduce the adverse effect of foreign exchange volatility. This is because of the strong allegation that the instability in the foreign exchange is from the poor management at the apex bank.
Foreign exchange control act was looked into in the second chapter of the work. Foreign exchange is a process of converting a particular countries’ currency into that of another country and this is done in a foreign exchange market whose structure was looked at in the same chapter.
The study however was analytical. Secondary data were collected and used for analysis and for testing, inferences made and conclusions arrived at based on observations made from the calculations on the collated data. The conclusive part of the work reveals that the instability experienced is attributed to the ineffective implementation of the regulatory policies of the CBN and the “unwholesome practices” by the operators. However, in order to arrest the dwindling fortunes of the naira and ensure the stability of the exchange rate, the operators of the economy have to look at the programs, policies which the scope of this work is not meant to cover. A further study on this is therefore recommended.
TABLE OF CONTENTS
Title page
Abstract
Table of contents
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
1.2 Statement of the Problem
1.3 Objective of the Study
1.4 Significance of the Study
1.5 Research Hypothesis
1.6 Scope and Limitation of the Study
1.7 Organization of Study
1.8 Definition of Terms
References
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.0. Introduction
2.1 Exchange Control
2.2 Foreign Exchange Control Act - Historical
Background
2.3 Foreign Exchange - An overview
2.4 Evolution of the Foreign Exchange Market
2.5 The Dutch Auction System
2.6 Structure of the Nigerian Foreign Exchange Market
2.7 Foreign Exchange Management
2.7.1 Foreign Exchange Management in the CBN
2.7.2 Foreign Exchange Management in the Second- tier
Foreign Exchange Market Era
2.8 Rationale behind the Introduction of Second-tier
Foreign Exchange Market (SFEM)
2.9 Examining the Foreign Exchange Management
Problems in Nigeria and the Strategies for Correction
by the CBN
2.10 Foreign Exchange Theories and models applicable to
Nigerian Foreign Exchange Management
2.10.1. The Models include
2.11 Exchange Rate Concept
2.11.1 Exchange Rate Strategy
2.11.2 Causes of change on Exchange rate in some
developed and developing countries
2.12 Methods of Payment under Nigerian Foreign
Exchange Management
2.13 The Impact of the foreign Exchange Management
on the Nigerian banks and the economy
References
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research Design
3.2 Sample Size/Population of the Study
3.3 Sampling Techniques
3.4 Nature and Sources of Data
3.5 Techniques for Data Analysis
3.7 Validity and Reliability of the Instrument
References
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Data Presentation
4.2 Data Analysis
4.3 Correlation/Regression Analysis
4.4 Hypothesis Testing
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 Summary of Findings
5.2 Conclusion
5.3 Recommendation
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The Governor of the Central Bank of Nigeria, Professor Charles Chukwuma Soludo was quoted in the year 2006 as saying “that the Central Bank of Nigeria is planning to ensure full liberalization of the nations’ foreign exchange market pointing out that “for over 20 years we have moved gradually towards deregulation of the foreign exchange market” (Soludo 2006).
It is important to note that foreign currency known as foreign exchange has been variously defined by different schools of thought, but these definitions tilt towards the same meaning. The encyclopedia of social sciences for instance defines foreign exchange as “a mechanism by which payments and receipts between two points or areas operating under different systems are effected without the passing of actual money or articles that have intrinsic value”.
Because countries engage in international trade, the need for management of foreign exchange became imperative. This need is underscored by the economic theories of comparative advantage, comparative cost as well as differences in international resource endowment and imbalance. Unless there is a policy framework and effective management of the foreign exchange market, a country runs the risk of balance of trade or balance of payment problem.
According to Whiting (1981) “There must exist financial transaction between two countries whether they are in respect of the sale and purchase of goods and services or relative to capital transactions, which do not involve physical movement of currency from one country to another. These transactions are carried out through the banking systems of the two countries
Foreign Exchange management strategy attempts to achieve macro-economic objectives. Exchange rate is one of the principal policy tools a country would properly use to align its economic and financial activities with those of the rest of the world to achieve satisfactory growth in income and employment. When there is disequilibrium in the foreign Exchange market which is caused by inadequate supply of foreign Exchange Reserve, pressure may be exerted on the foreign exchange reserves where the reserves are inadequate, balance of payment problems may arise.
There is therefore, the need to manage nation’s foreign exchange resources so as to reduce the adverse effects of foreign exchange volatility. The management of foreign exchange market would guarantee adequate supply in relation to the demand for foreign exchange resources. Since resources are limited and scarce, the need for policy formulation geared towards adequate management of resources becomes inevitable. Developing countries like Nigeria depend mostly on imported goods. This led to the establishment of the foreign exchange market by the law for the buying and selling of foreign currencies (Decree No. 36 of 1986).
The foreign exchange market provides adequate information for policy decisions while exchange control is directed towards both the balance of payments and development needs. Usually, Nigeria has chosen to determine her exchange rate through basket of currencies. Naira was also pegged to the U.S dollar and British pound in a bid to ensure that the rates have some bearing with the factor that affect the balance of payment and domestic economy.
The liberalization advocated by the CBN therefore means allowing the value of our currency to be determined by the forces of demand and supply in the FOREX market with a view....
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