THE MANAGEMENT OF FOREIGN EXCHANGE RISK AND CORPORATE PERFORMANCE IN NIGERIA ECONOMY (A CASE STUDY OF UNITED BANK OF AFRICAN PLC, ILORIN

 

TABLE OF CONTENT

Title page

Certification

Dedication

Acknowledgement

Proposal

Table of Content

CHAPTER ONE

1.1 Introduction                                                             1

1 .2 Statement of the study                                             5

1.3 Objective of the study                                                        6

1 .4 Research question                                                    6

1 .5 Statement of hypothesis                                           7

I .6 Scope and limitation of the study                              8

1.7 Organization                                                             8

1.8 Definition of terms                                                   9

CHAPTER TWO

2.1 Literature review                                                                10

2.2 The evolution of foreign exchange                            11

2.3 Nigeria foreign exchange reserve                               12

2.4 The main causes of fluctuation in the exchange         12

2.5 Factor limitation fluctuation in the exchange   15

2.6 How foreign system operate in Nigeria            17

2.7 The foreign exchange rate                                         19

2.8 Foreign exchange transaction                                    20

2.9 The foreign exchange risk management           21

2.9.1 Elimination of exchange risk (forward exchange) 22

2.10 Limit to the exchange price of credit instruments 27

2.11 Control of foreign exchange                                    28

2.12 History briefing of united Bank for African (UBA) 29

CHAPTER THREE

3.1 Research methodology                                              31

3.2 Research design                                                                  31

3.3 Type and source of data                                            32

3.4 Sampling size of the study                                        32

3.5 Sampling technique                                                  32

3.6 Instrumentation                                                                  33

CHAPTER FOUR

4.1 Data presentation analysis and the Interpretation, introduction                                                                         34

4.2 Data analysis and interpretation                       34

4.3 Testing of hypothesis                                                         45

4.4 Hypothesis on foreign exchange policies                   46

4.5 Testing of hypothesis on the requirement for listing in FEM         (Foreign Exchanging Market)                                    48      CHAPTER FIVE

5.1 Summary of finding                                                 50

5.2 Conclusion                                                                        52

5.3 Research recommendation                                        52

5.4 Suggestion for future studies                                     54

Reference

CHAPTER ONE

1.1 INTRODUCTION

International trade and capital flows require foreign exchange market because common despite increase in economy interdependence in the world, each country maintain its own national medium of exchange. The official foreign exchange market in Nigeria s made up of the federal ministry of finance and the central bank of Nigeria as the apex institution, authorized dealers including commercial and merchant bank, development bank and bureau de exchange.

The federal ministry of finance and the central bank are jointly responsible for the formulation of exchange control policies and procedure, while the banking system and d bureau d exchange services as a channel for implementing official policy operation side by side with the official foreign exchanges, marketing is the parallel or black market (agene 1991).

Since 1985 the central bank of Nigeria (CBN) as attempted to evolve an optional exchange rate for local currency at the same sought to achieve a system that preferentially allocates the available of foreign exchange to the productive sector that agriculture and manufacturing. It as been reluctant to allow the inter play of forces of demand and supply to determine exchange rate and allocation of scare foreign exchange to the productive sector that is agriculture and manufacturing. it has been reluctant to allow the into play force of demand and supply to determine exchange rate and allocation of scarce foreign exchange, this subsidy combined with the private biding system has create service pressure on the domestic money market, as over #35 billion in subsidized foreign exchange in 1955.

However, against the background that foreign exchange market(fem) s faced with problem, the federal government of Nigeria (FGN) took two economic emergency in October 1985 and adopted structural adjustment programmed(sap) in July 1986. The programmed give birth to second tier foreign exchange market (SFEM) this legislation exchange regime in Nigeria since independence in terms of the dismantling of the restriction and bureaucracies which plagued previous regime (agene 1991).

Structural adjustment programmed (sap) refers to a set of comprehensive economic reform measure designed to correct imbalance in the economy arising from unfavorable external factors s well as in appropriate domestic policies.

The objective of (sap) was to effectively restructure the consumption and production pattern of the Nigeria economy to eliminate price distortion heavy foreign exchange earns and imports of consumption and producer goods.

The major thrust of structural adjustment programmed (SAP) include following

1. Achieve fiscal land balance on payment viable over the period
2. Restricting and diversity the productive base of the economy in others to reduce dependency on a single major foreign exchange earns and imports.
3. Lay the basic for a sustainable non inflationary economic growth.
4. Lesson the dominance or an production investment in the public sector efficiency and encourage the growth potential of the private sector.

The overvalued naira led to a fight of capital, it thus aided that naira was converted to harder currencies at the rate that decided to give more value to the naira than it was work now in the regime of foreign exchange market (fem) and banking business carried on in Nigeria in 1949 by the British and the France bank for wise man and woman strong representative in the co operate and wholesales market.

UBA also has a large and established retail franchise and two foreign branches in New York and Grand Cayman Island.

UBA group is known for its initiative and creativity some of the key milestone in its history includes:

1. First among international to be registered under Nigeria Laws.
2. First Nigeria bank to offer its share to the public following its listing on the Nigeria stock exchange in 1970.

III. First Nigeria bank to introduce a cheque guarantee scheme knows as UBA card in 1986.

1. Won the euro money 2000 award for excellence, as the best domestic bank in Nigeria.
2. First Nigeria bank/company to gain recognition of the international financial community through the establishment of global depository receipt (gob) programmed.
3. Consistent and solid financial performance over the past year.

1.2     STATEMENT OF THE HISTORY

The Britton woods conference (1944) established a fixed exchange rate system whereby each currency had a fixed parity (value) in relation to the dollar.

In Nigeria, the manufacturing or better still corporate sector depends heavily on imported raw materials machineries, spare part and services. However foreign exchange did not pose any problem on them simply because of the exchange rate.

However with dereligation of the foreign exchange market, this has resulted in high foreign exchange rate. Research in the past have neglected some specific issue that are capable of setting the whole economic system, one such issue and to its research will address in the impact of foreign exchange policy on the Nigeria co operate depend on foreign input for their production.

1.3 OBJECTIVE OF THE STUDY

This research work focused on the risk associated with fluctuation in foreign exchange rate and its effect the performance on co operate organization in Nigeria. The specific objectives of the study are as follow

1. To exchange the risk fluctuation in exchange rate ac control association with currency management in the multi currency settings.
2. To investigate on the policies one government cc operations have and how effective this policies have been.

III. To appraise the impact of the policy tools on the growth and development of the nation economy

1. To prefer recommendation based on research finding

1.4 RESEARCH QUESTIONS

1. Does the various exchange policies help their organization in its corporate performance?
2. Does fluctuation in the foreign exchange rate affect your net income?

III. Does profitability of the organization depend of the defendant between the naira and other major currency?

1. Do you feel the impact of competition in the faces of the development?
2. Does your unit lost fluctuate?

1.5 STATEMENT OF HYPOTHESIS

Base on the research question and objective of study. The following hypothesis stated will be tested.

HYPOTHESIS I

HO: Change in exchange rate and control have dramatic impact on profitability

HYPOTHESIS 2

HI:  Fluctuation exchange rate control is not determine by the manager

HYPOTHESIS 3

H0: Fluctuating exchange rate control does not associate with management of currency in multi currency setting.

 

1.6 SCOPE AND LIMITATION OF THE STUDY

It is essentially importance to state that the study focus on the general appraisal of the foreign exchange policy in Nigeria has this involve an assessment of how objective realized and attendance respect of the policy.

The research will be in historical and case study research which e limited by insufficient finance, lack of enough time, lack of co operation from the respondent and the case study. This may hinder through research.

However, effort will be made to ensure that the above constraints and limitation do not affect the effective completion of the research work. The time frame and resources of the study. How study will only cover a selected number of co operation organizations with high off store

activities ranging between the years  1986-2005.

1.7 ORGANISATION OF THE STUDY

The organization of the right from chapter one comprises the introduction which is sub divided into six sub section as follows:

Background of the study, statement of the study, statement of research question. While chapter two dealt with the literature review, the third chapter dealt with research methodology and the fourth chapter dealt with data analysis and presentation while the last chapter comprises summary, conclusion and recommendation.

1.8     DEFINITION OF TERMS

EXCHANGE CONTROL: A mechanism by which a country scale site harness its foreign exchange resources and rationalization for the settlement of international indebtedness while ensuring their sale favorable development of the domestic economy activities without diminishing the value of its currency (NWARACTIC 1982)

EXCHANGE RATE: The limit price of a currency in terms of currency of another country.

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