MANAGEMENT OF FOREIGN EXCHANGE IN NIGERIA BY CENTRAL BANK
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MANAGEMENT OF FOREIGN EXCHANGE IN NIGERIA BY CENTRAL BANK
ABSTRACT
This thesis examines the Central Bank of Nigeria’s (CBN) regulation of foreign exchange in Nigeria from 1959 to July 2004. Foreign exchange management became necessary as a result of disequilibrium in the foreign exchange market caused by insufficient supply of foreign exchange resources.
Foreign exchange management is a deliberate attempt to harness foreign exchange resources and deploy them to service the economy in order to prevent the economy from experiencing shocks due to foreign exchange volatility.
The fundamental objective of this thesis is to investigate how the CBN regulates foreign exchange in the country through policy measures. The respondent uses both primary and secondary data to carry out this theory. The questionnaires were relevant to the study’s goal.
Based on the study’s objectives, the findings show that the CBN’s role in managing foreign exchange is unimpressive. The impact of exchange rate policy on foreign exchange management is not encouraging;
the operations of panel market operators have a detrimental impact on the effective functioning of foreign exchange management. The findings informed the conclusion and recommendations.
CHAPTER ONE
1. INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Money, as previously said, is a standard denomination in which the rate relative value of products and services can be expressed.
Throughout history, any community that forms itself into a nation for the purpose of self-government instantly introduces its own separate monetary unit of account (Legal currency).
In the words of (Obaseki 1991:15), “when there is no legal tender in the international reaches, value must be measured, accounts kept, and payments made by conversion process is known as foreign exchange.”
Foreign cash, often known as foreign exchange, is a scarce resource, especially in emerging economies. Unless and until the management of these precious resources is effectively specified in terms of revenue generation and spending, a country risks having balance of trade or balance of payment problems.
Furthermore, in order for a country to maximise the benefits of international trade, adequate foreign exchange management must be implemented.
As a result, the practise of managing foreign exchange resources has evolved broadly in accordance with the globalisation and liberalisation of economic and financial markets” (Anfourose 1997:19).
1.2 STATEMENT OF THE PROBLEM
The basic goal of foreign exchange management is to prevent currency volatility and its negative impact on the economy. Despite government efforts to achieve this goal through the Central Bank of Nigeria (CBN),
foreign exchange (Monitoring and miscellaneous provisions) decree No.17 promulgated in 1995 and the implementation of forms A and M, problems with foreign exchange operations in Nigeria remain.
There are several issues.
i. An insufficient influx of foreign exchange
ii. Problems with the balance of payments
iii. The burden of debt servicing
iv. The naira’s value has been steadily declining.
v. Issue of funding sectorial allocation of foreign exchange in the foreign exchange market.
1.3 STUDY GOAL
The study’s goals are as follows:
1. To investigate the Central Bank of Nigeria’s roles in controlling the country’s foreign exchange.
2. To investigate the role of foreign exchange rate policy in foreign exchange management.
3. To investigate the impact of parallel market activity on foreign exchange management.
4. Investigate the issues surrounding Nigeria’s foreign exchange management.
1.4 THE RESEARCH QUESTION
i. How can we determine the role of Nigeria’s central bank in controlling the country’s foreign exchange?
ii. Has the impact of foreign exchange rate policy been encouraging?
iii. Do the operations of parallel market operators have a negative impact on the effective operation of Nigeria’s foreign exchange management?
1.5 RESEARCH HYPOTHESIS
1. Ho: The function of the Central Bank of Nigeria in managing the country’s foreign exchange is unimpressive.
Hello, what is the CBN’s role in managing the country’s foreign exchange?
2. Ho: The impact of exchange rate policy on foreign exchange management in Nigeria is not admirable.
Hi: The impact of currency rate policy on foreign exchange management in Nigeria is admirable.
3. Ho: The actions of parallel market operators have a negative impact on the successful operation of Nigeria’s foreign exchange management.
Hi: The operations of parallel market operators have a favourable impact on the effective operation of Nigeria’s foreign exchange management.
1.6 THE SIGNIFICANCE OF THE STUDY
I. This work fulfils a portion of the requirements for the award of a Higher National Diploma (HND) in Banking and Finance.
II. The work will be extremely useful to future academics who will conduct their own research into this topic.
III. The work will allow the CBN to regulate the activities of banks in order to boost foreign exchange inflows and balance of payments, set a realistic exchange rate, and establish an adequate foreign exchange control system.
1.7 DEFINITION OF TERMS
THE FOREIGN EXCHANGE MARKET: is an arrangement that exists to help buyers and sellers of foreign exchange enter into contracts of buying and selling.
Unlike other markets where money exchanges for goods and services, money exchanges for money in the foreign exchange market; one currency is exchanged for another.
EXCHANGE RATE: The number of units of one currency that exchange for a specific number of units of another.
RESERVE OF FOREIGN EXCHANGE: The Central Bank of Nigeria (CBN) controls these international currencies.
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