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Management Of Foreign Exchange In Nigeria By CBN

5 Chapters
|
69 Pages
|
8,436 Words

The management of foreign exchange by a central bank is a crucial aspect of monetary policy and economic stability. Central banks, acting as the monetary authorities of a country, intervene in the foreign exchange market to influence the value of their currency. This is done through various tools such as buying or selling foreign currencies, adjusting interest rates, and implementing monetary policy measures. The primary objectives include maintaining exchange rate stability, supporting economic growth, and ensuring price stability. Central banks often hold foreign exchange reserves to intervene during periods of currency volatility, helping to mitigate the impact of external shocks and safeguard the overall economic health of the nation. Effective management of foreign exchange by central banks plays a pivotal role in fostering confidence in the financial markets and promoting a conducive environment for international trade and investment.

PROPOSAL

This thesis deals on the management of foreign exchange in Nigeria by central Bank of Nigeria; (CBN) from 1959 to July 2004.
In carrying out this thesis the researcher examine how CBN through the policy measures manages foreign exchange in the country.
That is why this thesis is divided into five chapters, chapter one introduce the , the background, the problems, the objectives, significance if the study and limitation.
Chapter two is a direct attempt to review the related literature, elimination of foreign exchange.
Chapter three deals with the research methodology and design adopted for presentation of information.
Chapter four is concerned with the presentation of data, data analysis techniques and test of hypothesis to enable one provide answers to related questions
Chapter five summarizes the findings makes conclusion and recommends solutions to the problem under study.

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.

TABLE OF CONTENT

TITLE PAGE
APPROVAL PAGE
ACKNOWLEDEMENT
ABSTRACT
DEDICATION
TABLE OF CONTENT
LIST OF TABLE
LIST OF FIGURE
PROPOSAL

CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
1.2 STATEMENT OF THE PROBLEM
1.3 OBJECTIVES OF THE STUDY
1.4 RESEARCH QUESTIONS
1.5 RESEARCH HYPOTHESIS
1.6 SIGNIFICANCE OF THE STUDY
1.7 SCOPE LIMITATION AND DELIMITATION
1.8 DEFINITION OF TERMS
REFERENCE

CHAPTER TWO
2.0 LITERATURE REVIEW
TABLE 4.3. DEFINTION OF FOREIGN EXCHANGE
2.2 MANAGEMENT OF RESERVE FLOURS
2.3 EXCHANGE RATE MANAGEMENT
2.4 TRADE AND EXCHANGE CONTROL
2.5 ADMINISTRATIVE CONTROL
2.6 MANGEMENT OF RESERVE STOCKS
2.7 LIQUIDITY AND SECURITY
2.8 ASSETS DIVERSIFICATION
2.9 FOREIGN EXCHANGE PROBLEMS
2.10 FOREIGN EXCHANGE CONTROL
2.11 FOREIGN EXCHANGE MARKET – IFEM
REFERENCE

CHAPTER THREE
3.0 RESEARCH DESIGN & METHODOLOGY
TABLE 4.3. RESEARCH DESIGN
3.2 SAMPLE SIZE
3.3 POPULATION SIZE
3.4 SIMPLES AND SAMPLING TECHNIQUES
3.5 SOURCES OF DATA
3.6 DATA LOCATION
3.7 METHOD OF DATA PRESENTATION
3.8 METHOD OF DATA ANALYSIS.

CHAPTER FOUR
4.0 DATA PRESENTATION AND ANALYSIS
TABLE 4.3. DATA ANALYSIS TECHNIQUES
4.2 ANALYSIS OF THE QUESTIONNAIRES
4.3 TESTING OF HYPOTHESIS
4.4 OPERATION ASSUMPTION
4.5 DESCISION RULE

CHAPTER FIVE
5.0 SUMMARY OF FINDINGS, RECOMMENDATION AND CONSLUSIONS
TABLE 4.3. SUMMARY OF FINDINGS
5.2 RECOMMENDATIONS
5.3 CONCUSLION
BIBLIOGRAPHY

CHAPTER ONE

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 liberization 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 SCOPE AND LIMITATIONS
SCOPE: The area of this thesis is Enugu. The research is to determine how foreign exchange could be effectively managed in Nigeria by CBN. The period under the study is 1959- to July 2004.
LIMITATION: in the process of carrying out this study. The researcher encountered some problems which include finance – the cost of transportation to areas where data are to be collected was high.
The negatives attitude of CBN officials towards disclosure of information was a limiting factor.
Finally, there for data collection and attending lectures was a limiting factor.

1.8 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).

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Management Of Foreign Exchange In Nigeria By CBN:

The Central Bank of Nigeria (CBN) is responsible for formulating and implementing monetary policy in Nigeria. One of the key aspects of its monetary policy is the management of foreign exchange reserves and the regulation of forex transactions in the country. The CBN aims to maintain exchange rate stability, preserve the value of the Nigerian Naira (NGN), and ensure the efficient functioning of the foreign exchange market.

Here are some of the common measures and strategies that the CBN has historically used for the management of foreign exchange in Nigeria:

  1. Exchange Rate Management: The CBN plays a role in determining the official exchange rate of the Nigerian Naira against major foreign currencies. It often intervenes in the forex market to stabilize the exchange rate and prevent excessive volatility.
  2. Foreign Exchange Reserves: The CBN maintains foreign exchange reserves as a buffer against external shocks and to ensure liquidity in the foreign exchange market. These reserves can be used to intervene in the market to support the Naira or to meet external obligations.
  3. Foreign Exchange Auctions: The CBN conducts regular forex auctions where it sells foreign exchange to authorized dealers, such as banks. This helps to ensure that there is a supply of forex in the market and can influence the exchange rate.
  4. Capital Control Measures: The CBN may implement capital control measures to regulate the flow of capital in and out of the country. These measures can include restrictions on certain types of transactions or limits on the amount of forex that individuals and businesses can access.
  5. Import and Export Regulations: The CBN may impose certain regulations on imports and exports to manage the demand for foreign exchange. This can involve requiring importers to obtain forex at a specific rate before conducting transactions.
  6. Forex Access for Priority Sectors: The CBN may allocate forex to certain priority sectors, such as agriculture, manufacturing, and critical infrastructure projects. This is intended to support economic development and reduce reliance on imports.
  7. Forex Bans or Restrictions: In certain situations, the CBN may ban or restrict the use of forex for specific purposes. For example, there have been instances of restrictions on accessing forex for certain types of goods to conserve foreign exchange reserves.

It’s important to note that the effectiveness of these measures can vary, and managing forex in an economy can be complex and challenging. Changes in global economic conditions, oil prices (since Nigeria is a major oil exporter), and other factors can influence the success of the CBN’s forex management efforts.