Foreign Exchange Market: Problems and Prospects in Nigeria Economy.
ABSTRACT
The Nigeria economic prior to the period of deregulation was one characterized by increased deficit financing by the government, low external reserves and unfavourable balance of payments. The acquisition of foreign exchange of
finance the importation of industrial imports poses a serious problem to the industries.
The inadequacy of foreign exchange needed, led to capacity underutilization in most developing countries. Lack of raw materials locally, led to dependency on imported raw materials. Also, differences in natural endowments of different nations necessitate importation of raw materials from countries with surplus.
This study seeks to determine the extent at which foreign exchange market has helped in the growth of the Nigerian economy. It is a survey method of research with 105 as the sample size. Simple percentage was used as the method of data analyses.
At the end of the study, it was found out that the use of Letters of Credit (LC) as means of financing import via foreign exchange market have increased the level of economic activities in Nigeria.
Again, the Domiciliary Account Operation contributed a great deal to the level of economic activities in Nigeria. It should equally be noted that the Nigerian environment is such that does not encourage capital investment, which implies that a de-regulatory interest rate economy will not help in the growth of the economy.
From the foregoing, it is crystal clear that the value of naira is comparatively weak thereby turning the economy into a cargo economy with its attendant effect on import dependency which lead primarily to huge debt, affecting socio-political environment of business in Nigeria.
It is therefore, recommended that the Federal Government should remove all the subsidy on sales of foreign currencies at all level irrespective of the transaction involved as this will remove disparity between the official and parallel market rate of price without government having to intervene.
The federal government should equally abolish the existence of parallel market (that is black market) by legislation and strongly implement the dictate of the law to the later on any offender without discrimination.
TABLE OF CONTENTS
Title Page.. .. .. .. .. .. .. .. .. .. i
Certification.. .. .. .. .. .. .. .. .. .. ii
Approval Page.. .. .. .. .. .. .. .. .. iii
Dedication.. .. .. .. .. .. .. .. .. .. iv
Acknowledgements.. .. .. .. .. .. .. .. .. v
Abstract.. .. .. .. .. .. .. .. .. .. vii
List of Tables.. .. .. .. .. .. .. .. .. viii
Table of Contents.. .. .. .. .. .. .. .. .. ix
CHAPTER ONE
1.0 Introduction.. .. .. .. .. .. .. .. .. 1
1.1 Background of the Study.. .. .. .. .. .. .. 1
1.2 Statement of the Problem.. .. .. .. .. .. .. 6
1.3 Objectives of the Study.. .. .. .. .. .. .. 7
1.4 Research Questions.. .. .. .. .. .. .. .. 7
1.5 Formulation of Hypotheses.. .. .. .. .. .. .. 8
1.6 Significance of the Study.. .. .. .. .. .. .. 9
1.7 Scope of the Study.. .. .. .. .. .. .. .. 10
1.8 Limitation of the Study.. .. .. .. .. .. .. 10
1.9 Definition of Terms and Concepts.. .. .. .. .. .. 10
References.. .. .. .. .. .. .. .. .. 12
CHAPTER TWO
2.0 Review of Related Literature.. .. .. .. .. .. 13
2.1 Introduction.. .. .. .. .. .. .. .. .. 13
2.2 Evolution of the Foreign Exchange Market.. .. .. .. .. 18
2.3 (i) The Foreign Exchange Market and Management Before 1986.. .. 20
2.3 (ii) The Foreign Exchange Market and Management since 1986.. .. 24
2.4 The Balance of Payments Objective of the Foreign Exchange Market.. 29
2.5 Nigeria Exchange Rate Policies.. .. .. .. .. .. 29
2.6 What is a Foreign Exchange Market (FEM)…. .. .. .. 33
2.7 Market Structure.. .. .. .. .. .. .. .. 36
2.8 Naira Exchange Rates.. .. .. .. .. .. .. 38
2.9 Factor Affecting Exchange Rate.. .. .. .. .. .. 42
References.. .. .. .. .. .. .. .. .. 50
CHAPTER THREE
3.0 Research Design and Methodology.. .. .. .. .. .. 52
3.1 Research Design.. .. .. .. .. .. .. .. 52
3.2 Research Method.. .. .. .. .. .. .. .. 52
3.3 Sources of Data.. .. .. .. .. .. .. .. 52
3.4 Population of the Study.. .. .. .. .. .. .. 53
3.5 Sample Size Determination.. .. .. .. .. .. .. 53
3.6 Validity and Reliability of the Data …. .. .. .. .. 55
3.7 Method of Data Presentation/Analysis.. .. .. .. .. 55
3.8 Test of Hypotheses.. .. .. .. .. .. .. .. 55
References.. .. .. .. .. .. .. .. .. 57
CHAPTER FOUR
4.0 Data Presentation and Analyses.. .. .. .. .. .. 58
4.1 Data Analyses Based on Objectives.. .. .. .. .. .. 58
CHAPTER FIVE
5.0 Summary of Major Findings, Conclusion and Recommendations.. .. 68
5.1 Summary of Major Findings…. .. .. .. .. .. 68
5.2 Conclusion.. .. .. .. .. .. .. .. .. 72
5.3 Recommendations.. .. .. .. .. .. .. .. 73
Bibliography.. .. .. .. .. .. .. .. .. 75
APPENDIX I
INTRODUCTION
1.1 Background of the Study
Industrial firms are very important component of any developing nation due to economic and social benefits they confer on the nation, which include aiding the government in achieving its economic and social objectives such as creation of employment opportunity, simulation of indigenous entrepreneurship, improvement of Gross National Product (GNP) and provision of ready market for agricultural products.
The Nigeria economic prior to the period of deregulation was one characterized by increased deficit financing by the government, low external reserves and unfavourable balance of payments (Adeoti, 2000).
The acquisition of foreign exchange of finance the importation of industrial imports poses a serious problem to the industries. The inadequacy of foreign exchange needed, led to capacity under-utilization in most developing countries, (Ayokunle, 1999).
Lack of raw materials locally, led to dependency on imported raw materials. Also, differences in natural endowments of different nations necessitate importation of raw materials from countries with surplus (Okafor, 1997).
Although, the manufacturing sector which is the main user of foreign exchange ironically contribute little to the pool of foreign exchange resources, (Okafor, 1997).
The importance of industrial firms in a nation’s economy bred the need for the deregulation of Foreign Exchange Market.
BIBLIOGRAPHY
Adeoti, K.L. (2000): The Autonomous Foreign Exchange Market: Challenges and Prospects; Lagos: Topclass Publishers.
Agene C.E. (1991): Foreign Exchange and International Trade in Nigeria; Lagos: Gene Publication Limited.
Ayokunle, Y.A. (1999): Promoting Excellence in the Nigerian Capital Market; Lagos: Ebenezer Printing & Publishing Ltd.Business Guardian (1996): Guardian, Tuesday, April 23, 1996, Vol.12, No.2.
CBN Bullion (1986): “CBN Public Enlightenment Campaign on SFEM:, Vol.12, No. 6375.
Central Bank of Nigeria (1986): “Guidelines for the Conduct of Weekly Tender Session” Mimeo, Lagos: September.
Central Bank of Nigeria (1998): “Management of Nigeria Foreign Exchange Recourses”,
The Bullion; Vol. 9 No.1