TABLE OF CONTENTS
Title page………………………………………………………………ii
Certification……………………………………………………………iii
Dedication………………………………………………………………iv
Acknowledgement………………………………………………………v
Table of
contents……………………………………………………….vii
Abstract…………………………………………………………………vii
Chapter One (Introduction)
1.1
Background
to the Study ……………………………….….1
1.2
Statement of Research Problem…………………………………..5
1.3
Objectives of study……………………………………………….5
1.4
Statement
of hypotheses ……………………………………6
1.5
Scope
of the Study……………………………………………8
1.6
Significance
of the study…..…………………..……………9
1.7
Limitation of study ……………………………………………….9
1.8
Historical Background…………………….……...………….……10
1.9
Definition of Terms………………………………………………..12
References……………………………………………………….14
Chapter
Two
2.1
Literature Review……………………………………..………….…15
Reference
………………………………………………………...…50
Chapter
Three
3.0
Introduction…………………………………………………..….52
3.1
Population of Study ……………………...………..……………..53
3.2
Sampling and Sampling Design…………………….……………55
3.3
Source of data……………………………………………………..55
3.4
Research instrument……………………………………………...57
3.5
Statistical Techniques ………………………………………..…..57
References…………………………………..……………………60
Chapter
Four (Data Presentation and Analysis)
4.0 Introduction……………………………………………………..61
4.1
Analysis of bio-statistics………………………………………..62
4.2
Testing of Hypotheses…………………………………………..63
Chapter
Five
5.1
Findings…………………………………………………………..83
5.2
Recommendation ………………………….……………………..83
5.3
Conclusion …….…………………………………………………86
Bibliography……………………………………………………...88
Appendix………………………………………………………….90
ABSTRACT
In every part of the world, financial
reports form the basis of communicating the activities and performance of
business entities to owners and outsiders. But it is rather unfortunate that
most of these financial reports do not meet the need of users as a result of
different accounting bodies with varying standards and codes. Most reports are
published much more later than the date of the account when the state of
affairs of the organization would have changed. Also, they do not disclose all
the pieces of information necessary to make decision by users. They have therefore,
created what the accountant refer to as “expectation gap”.
In a developing country like Nigeria,
the need to address some of these problems stated above cannot be
overemphasized. Certain rules such as companies and Allied Matters Act 1990
(CAMA), Statement of Accounting Standards for Banks and other Financial
Institutions Degree (BOFID), Stock Exchange rules and CBN Presidential
guidelines should be maintained and adhered to. The Statements of Accounting
Standards are produced by the Nigerian Accounting Standard Board, which is the
only standard setting body in Nigeria.
The standard is also a compliance of the internationally accepted standards of
financial reporting. If strictly adhered to, there is no doubt that the
challenges and limitations being faced will pave way for qualitative accounting
standards in Nigeria.
CHAPTER ONE
1.0
INTRODUCTION
1.1 Background of the Study
Financial
Risk management is a relevant development that arises with deregulation of
Nigerian economy through the introduction of Structural Adjustment Program
(SAP) in 1986. The research was born out of an inquisitive mind and the desire
to gain knowledge about the practice of financial risk management in Nigeria
especially in the area of foreign exchange. It should be recalled that Nigerian
economy moved away from fixed exchange regime in September 1986. The country
returned back to fixed exchange regime in 1994 and guided deregulation in 1995.
Cliff
(2003) notes that financial risk (which foreign exchange risk is a sub - set)
is the chance or probability that some unfavouable event will occur and which
will adversely affect the financial foreign exchange risk are financial
position or cash flow stream of an organizations other examples of financial
risk apart from foreign exchange risk are ownership, liquidity, credit,
exchange rate, interest rate etc.
The
topic foreign exchange risk management is relevant because humans are prone to
making mistakes for business concern; all facts of its existence are fraught
with risk exposure. The business environment in which companies operates is
becoming increasingly complex and uncertain due to the globalization of
business and rapid introduction of new technologies.
Most
business decision are taken with complete knowledge about how the future will
evolve with this mind, business managements in twenty first century will
emphasize financial risk management. The successful ones will be assessed on
the basis of its ability and capability to anticipate, plan and controls risks.
The
subject will continue to be relevant in discourse because terms trading and
investment are modern terms understood by the world.
As
long as there is flexible and market determined exchange rate, exchange rate
risk will exist and become inevitable.
Egwuonwu
(1995) stated that foreign exchange risk management is a new phenomenon in the
study of risk exposure. This is because little was known about the subject and
its practice and also foreign exchange management itself has been given little
cognizant in the past and as a result, it was not considered as a possible tool
for long term development in the nations economy.
The
breakdown in the fixed foreign exchange rate to a market determines exchange
rate was the fundamental factor responsible for the demand for foreign exchange
risk management. Also, development in the fields of communication information
technology, emergence of global investment called derivative securities
(currency futures) options and currency sways) are other factors which
contributed to the emergence of the subject.
Nigerian
business organization are involves in international trade at both export and
import level: demand for exchange of currencies and the presence of exchange
fluctuation is ever present under the arrangement hence exchange risk becomes a
pre - requisities. The major objective of risk management is to maximize
returns and to minimize risk.
It
is therefore in this light and in an effort to improve the effectiveness of the
foreign exchange risk management in Nigeria that this work was undertaken.
It could therefore be said that the inherent problems as experienced by the
banking industry today can be linked to the partial or total neglect of the
cannons of lending by the officers of the bank, attitude towards risk.
Foreign
exchange is regarded as a vital instrument in banking industry especially as it
affects the commercial banking system and hence attention should be focused on
this area of endeavor.
1.2
Statement of Research Problems
From
what has been said earlier, business organization and firms operate in an
environment that is characterized by numerous variables.
These
variables are dynamic in nature. Two calls for corporate planning and
management of foreign exchange risk in an organization in order to cope with
the challenges facing foreign exchange risk management.
It
is widely acknowledge today that the rate, magnitude and complexity involves in
the management of risk has not been able to achieve their desired goal.
Over
the years, the transaction involving the use of foreign exchange has increase
so also the increase in the risk involve in foreign exchange transaction. The
problem is how to effectively manage these foreign exchange risks.
Hence,
some of these questions one is tempted to ask include.
i.
What is/are the problems with the management
of foreign exchange risk in the Nigerian economy?
ii.
What measures/steps could be taken to
substantially improve foreign exchange risk management in Nigeria?
iii.
What is/are the cause (s) of this/these
problem
iv.
What role has banks played in improving
foreign exchange risk management
v.
What are the impacts or strategy for
managing foreign exchange risk