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MANAGEMENT OF FOREIGN EXCHANGE BY
CENTRAL BANK OF NIGERIA PROBLEMS AND PROSPECTS
ABSTRACT
This with
foreign exchange management in Nigeria by the Central Bank of Nigeria (CBN)
from 2006 to 2012. The need to manage foreign exchange became imperative as a
result of this 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 this is to examine how CBN through its policy measures manages
foreign exchange in the country. To carryout this work, 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
i
Approval
page ii
Dedication
iii
Acknowledgement
iv
Abstract
v
Table of
content
vi
CHAPTER ONE
INTRODUCTION
1.1 Background of the study 1
1.2 Statement of the problem 4
1.3 Objectives of the study 5
1.4 Research questions 5
1.5 Significance of the study 6
1.6 Scope of the study 7
1.7 Limitation of the study 7
CHAPTER TWO
REVIEW OF
RELATED LITERATURE
2.1 Definition of foreign exchange 8
2.2 Foreign exchange in Nigeria 11
2.3 Structure of Nigeria's foreign exchange
market 15
2.4 Growth of the market exchange in Nigeria 16
2.5 Foreign exchange market and monetary manage
in Nigeria 20
2.6 The structure of the country's output 22
2.7 Overview of the Nigerian exchange rate
policy 24
2.8 The efficacy of monetary policies in the
management of firms
28
2.9 Foreign exchange management objectives and
policy 33
2.10 Foreign exchange problems 37
2.11 Foreign exchange control
39
CHAPTER THREE
METHODOLOGY
3.1 Design
of the study
41
3.2 Area of
the study
42
3.3 Population of the study 42
3.4
Sampling Method
43
3.5 Research
Instrumentation
44
3.6 Validity and Reliability of the
Instrument
45
3.7 Sources
of Data
46
3.8 Analytical Technique
48
CHAPTER FOUR
PRESENTATION
AND ANALYSIS DATA
4.1Data
analysis
49
CHAPTER FIVE
SUMMARY OF
FINDINGS, RECOMMENDATION AND CONCLUSION
5.1 Summary of Findings 61
5.2
Conclusion
62
5.3 Recommendation
63
Bibliography
64
Appendix I
69
Appendix II
70
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
MANAGEMENT
OF FOREIGN EXCHANGE IN NIGERIA BY CBN
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.
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.
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
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.
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
objectives 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 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.
1.6 SCOPE OF THE STUDY
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.
1.7 LIMITATION of the study
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.
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