FOREIGN EXCHANGE RISK MANAGEMENT IN NIGERIA ECONOMY AND ITS IMPACT ON PROFITS OF BANKS


FOREIGN EXCHANGE RISK MANAGEMENT IN NIGERIA ECONOMY AND ITS IMPACT ON PROFITS OF BANKS

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FOREIGN EXCHANGE RISK MANAGEMENT IN NIGERIA ECONOMY AND ITS IMPACT ON PROFITS OF BANKS
FOREIGN EXCHANGE RISK MANAGEMENT IN NIGERIA ECONOMY AND ITS IMPACT ON PROFITS OF BANKS

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

FOREIGN EXCHANGE RISK MANAGEMENT IN NIGERIA ECONOMY AND ITS IMPACT ON PROFITS OF BANKS

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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. .. accounting project topics

FOREIGN EXCHANGE RISK MANAGEMENT IN NIGERIA ECONOMY AND ITS IMPACT ON PROFITS OF BANKS

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