Management of foreign exchange by central bank of nigeria problems and prospects

Thesis Overview

<p> </p><p>INTRODUCTION</p><p>1.1 &nbsp; BACKGROUND OF THE STUDY</p><p><strong>MANAGEMENT OF FOREIGN EXCHANGE IN NIGERIA BY CBN</strong></p><p>There is scarcely any country that lives in absolute autarky in this globalised world. The economics of all the countries of the world are linked directly or indirectly through asset or/and goods in the markets. This linkage is made possible through trade and foreign exchange. The price of foreign currencies in terms of a local currency (i.e. foreign exchange) is therefore important to the understanding of the growth trajectory of all countries of the world. The consequences of substantial misalignments of exchange rates can lead to output contraction and extensive economic hardship. Moreover, there is reasonably strong evidence that the alignment of exchange rates has a critical influence on the rate of growth of per capital output in low income countries (Isard, 2007). Nigeria, like many other low income open economics of the world, has adopted the two main exchange rate regimes for the purpose of gaining internal and external balance.</p><p>Amidst complex economic development problems (broadly, summarized under huge external and internal debts, chronic fiscal deficit and serious economic decline, reflecting in stagflation pressure despite abundant primary resources), there is the general consensus in Nigeria that the primary goal of current macroeconomic policy is to put the economy back on a path of sustainable, non -inflationary and self reliant growth of output, employment and income. In this regard, this primary goal is subsequently reinforced by the general assumption that price and exchange rate stability are necessary for the growth of output, employment and income.</p><p>This assumption is couched under the awareness that price and exchange rate instability are injurious to existing producers, new investors and consumers alike as they introduce uncertainty which discourages long-term commitments without which sustained self-reliant growth of output, employment and income will be difficult to achieve. In recognition of the foregoing, both the monetary and fiscal authorities have usually aimed at the attainment of price and exchange rate stability. In this regard, while the monetary authorities in Nigeria constantly search for the optimal quantity of money and interest rate, that would support stable prices and exchange rate, the fiscal authorities on their part constantly look for the constellation of government</p><p>revenues and expenditure that will attain the same objective all in a bid to foster economic growth and development. Given the foregoing, it is conventional to assign the goal of price and exchange rate stability primarily to monetary authorities. Thus, over the years, the primary goal of monetary policy in Nigeria always relates to that of the achievement of price and exchange rate stability, enunciated by the Central Bank of Nigeria (CBN) in its various issues of Monetary, Credit, Foreign Trade and Exchange Policy Guidelines.</p><p>1.2 &nbsp; &nbsp; &nbsp;STATEMENT OF THE PROBLEM</p><p>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.</p><p>There problem include</p><p>i. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;Inadequate inflow of foreign exchange</p><p>ii. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;Balance of payments problems</p><p>iii. &nbsp; &nbsp; &nbsp; &nbsp;Debt services burden</p><p>iv. &nbsp; &nbsp; &nbsp; &nbsp; Continuous depreciation in the value of the naira.</p><p>v. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; Problem of funding sectorial allocation of foreign exchange in the foreign exchange market.</p><p>1.3 &nbsp; &nbsp; &nbsp;OBJECTIVE OF THE STUDY</p><p>The objectives of the study are</p><p>1. &nbsp; &nbsp; To examine the roles of the Central Bank of Nigeria in managing the countries foreign exchange.</p><p>2. &nbsp; &nbsp; To examine the impact of foreign exchange rate policy in the foreign exchange management.</p><p>3. &nbsp; &nbsp; To examine the effect of the activities of parallel market on the foreign exchange management.</p><p>4. &nbsp; &nbsp; Examine the problems facing foreign exchange management in Nigeria.</p><p>1.4 &nbsp; &nbsp; &nbsp;RESEARCH QUESTION</p><p>i. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;How can we determine the role of the central bank of Nigeria in managing the country’s foreign exchange?</p><p>ii. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;Is the impact of foreign exchange rate policy been encouraging?</p><p>iii. &nbsp; &nbsp; &nbsp; &nbsp;Is the activities of the parallel market operators negatively affect the effective operation of the foreign exchange management in Nigeria?</p><p><strong>1.5 &nbsp; &nbsp; &nbsp;</strong><strong>SIGNIFICANCE OF THE STUDY</strong></p><p>i. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;This work is in partial fulfillment of the requirement for the award of higher National Diploma (HND) in Banking and finance.</p><p>ii. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;The work will be of immense help to future researchers who will make their own investigation into this subject area.</p><p>iii. &nbsp; &nbsp; &nbsp; &nbsp;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.</p><p><strong>1.6 &nbsp; &nbsp; &nbsp;</strong><strong>SCOPE OF THE STUDY</strong></p><p>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.</p><p><strong>1.7 &nbsp; LIMITATION of the study</strong></p><p>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.</p><p>The negatives attitude of CBN officials towards disclosure of information was a limiting factor.</p><p>Finally, there for data collection and attending lectures was a limiting factor.</p> <br><p></p>