MANAGEMENT OF FOREIGN EXCHANGE IN NIGERIA BY CBN

ABSTRACT

This thesis deals with foreign exchange management in Nigeria by the Central Bank of Nigeria (CBN) from 1959 to July 2004. the need to manage foreign exchange became imperative as a result of dis equilibrium in the foreign exchange market caused by inadequate supply of foreign exchange management is a conscious attempt to harnesses foreign exchange resources deploy them to service the economy so as to prevent the economy from experiencing shocks due to foreign exchange volatility.

The central focus of thesis is to examine how CBN through its policy measures manages foreign exchange in the country. To carryout this thesis, the respondent makes use of both primary and secondary data. Questionnaires were in line with the objective of the study.

Based on the objective of the study the findings reveal that the role of CBN in managing foreign exchange is not impressive. The impact of exchange rate policy in managing foreign exchange is not encouraging, the activities of panel market operators negatively affect the effective operation of the foreign exchange management . conclusion and recommendations were made in line with the findings.

CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

It has already been stated that money is a common denomination in which the rate relative value of goods and services can be expressed.

Throughout history any community which form itself into a nation for the purpose of self-government immediately introduce its own distinctive unit of account –monetary unit of account (Legal tender)

In the words or (Obaseki 1991:15) “ in the international reaches no legal tender exists value must be measured, accounts kept and payments made by conversion process is known as foreign exchange.

Foreign currency, otherwise known as foreign exchange, is one of the scare resources particularly in developing economy. Unless the management of this scarce resources is properly articulated in terms of its revenue generation and expenditure, or unknown and out now a country runs the risks of balance of trade or balance of payment problems. Moreover, in order that a country may optimize the advantages of international trade, it become imperative for that country to institute appropriate foreign exchange management.

The practice of managing the foreign exchange resources has, therefore evolved broadly in line with the globalization and liberalization of economics and financial markets” (Anfourose 1997:19)

1.2 STATEMENT OF THE PROBLEM

The primary objective of foreign exchange management is to reduce foreign exchange instability and its adverse effect on the economy. Despite government effects to achieve this objective though the Central Bank of Nigeria (CBN), foreign exchange (Monitoring and miscellaneous provisions) decree No.17 promulgated in 1995 and the introduction of the use of forms A and M, a handled problems are still identified with foreign exchange operation in Nigeria.

There problem include

i. Inadequate inflow of foreign exchange

ii. Balance of payments problems

iii. Debt services burden

iv. Continuous depreciation in the value of the naira.

v. Problem of funding sectorial allocation of foreign exchange in the foreign exchange market.

1.3 OBJECTIVE OF THE STUDY

The objective of the study are

1. To examine the roles of the Central Bank of Nigeria in managing the countries foreign exchange.

2. To examine the impact of foreign exchange rate policy in the foreign exchange management.

3. To examine the effect of the activities of parallel market on the foreign exchange management.

4. Examine the problems facing foreign exchange management in Nigeria.

1.4 RESEARCH QUESTION

i. How can we determine the role of the central bank of Nigeria in managing the country’s foreign exchange?

ii. Is the impact of foreign exchange rate policy been encouraging?

iii. Is the activities of the parallel market operators negatively affect the effective operation of the foreign exchange management in Nigeria?

1.5 RESEARCH HYPOTHESIS

1. Ho: The role of Central bank of Nigeria in managing the countries foreign exchange is not impression.

Hi: The role of the CBN in managing the countries foreign exchange

2. Ho: The impact of exchange rate policy in the management of foreign exchange in Nigeria not admirable

Hi: The impact of exchange rate policy in the management of foreign exchange in Nigeria is admirable

3. Ho: The activities of parallel market operators negatively affect the effective operation of the foreign exchange management in Nigeria.

Hi: The activities of parallel market operators positively affect the effective operation of the foreign exchange management in Nigeria.

1.6 SIGNIFICANCE OF THE STUDY

I. This work is in partial fulfillment of the requirement for the award of higher National Diploma (HND) in Banking and finance.

II. the work will be of immense help to future researchers who will make their own investigation into this subject area.

III. The work will CBN regulate the activities of the bank with their in getting them to find foreign exchange market adequately, increase foreign exchange inflow and balance of payment, determine a realistic exchange rate, and adequate foreign exchange control system.

1.7 DEFINITION OF TERMS

FOREIGN EXCHANGE MARKET: is an arrangement which exists to assist buyers and sellers of foreign exchange to enter into contract of buying and selling, unlike other markets where money exchange for good and services, in the foreign exchange market, money exchange for money; one currency is being exchanged for another.

EXCHANGE RATE: This the number of units of one currency which exchange for a given number of unit of another.

FOREIGN EXCHANGE RESERVE: These are foreign currencies had by the control Bank of Nigeria (CBN).