International trade and other economic activities between
nationalities have greatly expanded in modern times. Movements of goods and
services over great distances have made possible the consumption of such goods
and services even in place or countries where they are not produced. The
implication being and improve the standard of living for many. However,
exporting countries and importing nations trace the enormous problems or
exchange rates fluctuations. In this work an attempt have been made to
examine the impact of exchange rates fluctuations and balance of
payment (export position) in Nigeria. This is study was carried out
through the use of a questionnaire, Oral, interviews and secondary data. It was
found that there is a positive relationship between foreign exchange earnings
and volume of imports in Nigeria that the importers do not think favourable of
the structural adjustment programme and some Bank do not pay interest on the
delayed export proceeds of FEM deposit account. Based on the findings we
re commend that government should intervene to the foreign regulation of
the sharp fluctuations in the foreign exchange market by improving the
real productive sector of the economy. The apex bank should punish severely
banks who do not repatriate export proceeds.
The historical development of international trade can be dated as
back the period of world war 1 (1914-1918).
Though world trade was heavy during world I, that world depression
of the 1930’s greatly brought a decline in world trade.
The actions of several governments aggravated the from in
the level of the world trade.
After world war ii era, the long run trend has been toward a
relaxation of trade barriers (Solomon, 1976).
International trade sprang up in both century courtesy of mergers,
acquisitions, consolidation and formulation of new companies and various types
of securities issued by co-operations from survival of expansion following the
development of financial management system, international trade was accelerated
International financial developments are having an increased
effect on people because all parts of the world are now more closely linked
together than ever before. Communications throughout the world take place
within a matter of minutes or even seconds (Weston and Copeland, 1986).
Trade and other economic contracts between countries have expended
greatly in modern time, the mass movement of commodities often over great
distance has made available many articles, which could nor be enjoyed, hitherto
and this has raised standard of living. As a result of international trade rule
now have both a greater amount and a greater variety of goods to consume. The
growth of international trade has gone hand in hand with technological
improvements in productions and with development in transportation. These
advances have made possible the large increase in the volume and variety of
goods produced and traded factories turn out large quantities of commodities
which are not only consumed locally, but are immediately distributed to
different parts of the world improvement in transportation and the expansion of
world markets have made possible this large and economic production.
Before the advents of oil exploration in 1958, Nigeria was
an exporter of some agricultural product such as palm oil, cocoa, palm kennel,
groundnut. Rubber etc the exchange earner for the country was also the greatest
employer of labour.the importance of Agriculture can be best appreciated when
it is realized that if accounted for greatest proportion of our Gross Domestic
product (GDP). In the immediate post independence years, Nigeria had about 72
percent of its total working population engaged in Agricultural sector.
As a matter of tract, export declined from 75.3 percent in
1960 to 3.6 percent in 1983, while import was from n56.7 million in 1962 to
n2.05 billion in 1980 (Nwachukwu 1989).
Export promotion, structural adjustment programme (SAP) as was
witnessed under the infamous Babangida regime. The main aim was to revitalize
the economic system and get rid of economic propriety for Nigeria in which
export revenues will as much from many other sources as from oil whose
fluctuations in the world market have come a nightmare for all those who plan
the economy. The deviation of the Naira was most instrumental in making prices
of export Hughes in terms of Naira because foreign currencies when converted
fetched more naira. As a result farmers now earn more for their crops than
before and this clearly has been an unprecedented inducement to farmers
to produce more for export. For instance, cocoa accounted for about 50 percent
of Nigeria’s non-oil export in 1989). Maintaining a realistic exchange rate for
exporters regardless of trade and foreign exchange rate regime is the first
requirement for export development and for sound investment planning and for
attracting meaningful foreign investment into the country. With the
introduction of sound tier foreign exchange market (SFEM) in 1986, which
gave rise to FEM and inter bank foreign exchange market (IFEM). The idea of
Thus, foreign exchange transactions are payment
mechanism operated by commercial and merchant banks to for the purposes
of exchange domestic money for foreign currency or vice versa (Ebony, 1989).
A foreign exchange market has several functions if others as a
mechanism for clearing payment related to international trade or investment on
multinational basis provide credits in different currencies including
facilities against lodging exchange and determines exchange rates between
convertible currencies (Abodo, 1989). The foreign exchange rate as well as
means by which both exporters and importers can be protected against unexpected
fluctuation in exchange rates. This could be seen by the way new companies are
seting up factories across the country. Businessmen particularly from the Far
East are now coming into the country because the exchange rate has been so
attractive to them (Ayobola, 1989).
Reports put together by Nigeria trading partners inclusive of
members of the European Economics April 1989 shows that Nigeria wa the
recipient of goods valued N36.496 which fell short of her export profile at
N724.7m (FEM) (Nwosu, 1989). The official exchange rate which was N1.55$1 just
before the inception of SFEM in 1989 was 4.25 to (1.00 in June, 1989
(Nwachukwu 1989) it went on further in 1990 and 1991, as at December 30,
1991 it was N9.86 to $1.00. this deteriorated at N112 to $ 1 as at
June 22, 2001. the Federal government of Nigeria is convinced that
the exchange rate of Naira will not fixed by
executive fact but will continue to be determined by the forces of demand and
supply. The demand for foreign exchange exceeds the supply in Nigeria.
Consequently, we pay high price to obtain foreign currencies.
To improve the value of Naira on the external front, we either
increase supply or reduce demand for foreign exchange. But most countries like
Nigeria, the monetary authorities, intervene from time to time on the side of
either demand and supply so as top limit the range within the rate has to clear
the market. When such intervention occurs it implies that the
exchange rate is not being allowed to move sufficiency to maintain a
continuous balance between normal external payments and receipts (Ebony, 1987).
The thrusts of the exchange rate policy under the structural
Adjustment programme are to discourage imports and promote
agricultural production, encourage local sourcing of raw materials something
they had considered impossible before the introduction of structural adjustment
programme. One cannot tail to notice that importation has decreased,
exports other than crude oil has increase over the months.
Problems crisis in this international transactions because of
the inefficiency in our financial system, which introduce “lag” between
the time the importer and the time of the fund are actually remitted to the
exporter. The remittance lag as we call it, introduces exchange rates risk into
the transaction. For example the rate prevailing at the time of payment by
imports may differ from the rate of which the commercial banks will use in
remitting the funds. These exchange rate differential results in either
exchange rate loss or gain on the part of the importers.
STATEMENT OF THE PROBLEMS
The foreign suggestion that the exchange rate risk as it affects
the importer as well as exporter is one that is enough to hinder development in
the country, thereby detecting the laudable objective of the government.
The remittance lag problem has far reaching economic implications
for the society at large especially because importers already has the business
risk to worry about in international trade transaction. The question that this
paper addresses is who bears the burden of delayed interest on transaction money
caused by “remittance “lag” lasting for as long as four months?
OBJECTIVE OF THE STUDY
The objectives of this research work as follows:
i. To seek
and determine as far as possible methods by which this risk associated with
exchange fluctuations can be minimized.
ii. To determined
who should equitably bear the burden of the delayed interest the commercial
banks, the central bank or the importer.
iii. To discover whether
government importers are given preferential treatment as regard the
remittance of funds.
iv. To ascertain whether
it’s widely believe that the FEM policy has not achieve a realistic
exchange rate for the Naira.
v. To ascertain
whether the introduction of structural adjustment programme by the
government through foreign exchange market (FEM) is reducing the problems
created by the dual nature of international trade and .
vi. Based on the findings to make appropriate
1.4. STATEMENT OF
This work will test the following hypothesis which shall form the
core of this study.
Hi: There is a significant
relationship between foreign earning and value of export in Nigeria.
Ho: There is a significant
relationship between foreign earning and value of export in Nigeria.
Hi: Nigerian banks have been paying
interest accruing on deposit exporters for letter s of credit.
SIGNIFICANCE OF STUDY
The significance of this study therefore, lies on the r recommendation
made at the end of the study and their implementation. In general, the research
is immense benefit to the following:
1. Importers and exporters who always trade
and are in need of direct finance.
2. Policy makers of the central bank of Nigeria who
issue guideline governing international trade practices.
3. Banks especially the commercial banks.
4. Students of finance and banking who might take a
cue from the work done have to further re search into the field of
exchange rate fluctuations and international trade.
5. The general public who have a right to
contribute and informed to the activities of our banking institutions.
It is hoped that the, findings and recommendations of this study
will be of great importance to the above mentioned group.
SCOPE OF THE STUDY
This research will be organized into five chapters. The first will
be devoted to a clear introduction of the concept. The second centers on the
literature review of related articles written on the topic. In the third
chapter the writer will examine the methodology to be used in the research.
Chapter four will be exclusively for data analysis and presentations. Finally,
chapter five will be devoted to recommendation and conclusion of the research.
DEFINITION OF TERMS
Deposits: The are
money kept in the bank by the customers for purchase of foreign exchange.
Multilateral and Bilateral: A state of freedom of trade. In Multilateral it
involves all countries of the world, while Bilateral, it involves only two
countries letters of credit: A document authorizing a bank to pay the bearer a
specified sum of money. It provides a useful means of settlement for a credit
on favor of his creditors at a bank.
Depreciation of Naira. This is a situation where a given a mount
of Naira buys less quantity of goods than it used to this is mainly
brought about by higher demand than supply in the exchange market.
Foreign exchange: This is the same with international liquidity.
An amount kept by a country in world or convertible currency example
dollar, with which such a country meets its international payment
External debts: These are debt owned to external bodies or
institutions by Nigeria.
Foreign exchange squeeze: This is a situation where Nigeria
has no foreign currency, for example dollar Dr. pound sterling to buy from
droning to the dividend from export.
This is the market where buyers and sellers of foreign exchange meet to
transact business. In Nigeria since the Naira cannot float effectively
alongside with other currencies like U.S Dollars due to its non-convertibility
and non- trading status, an alternative is create S (FEM) where the value of
Naira can be determined by the forces of demand and supply. For example it N20
billion constitutes effective demand for Dollar and $ 10 billion currencies
effective is supply would be N2$1. Most currencies now allow free movement of funds
for ordinary trade and commerce, so called current account items since that is
where such trade would appear in the country’s balance of payments statistics.
Deviation: A demand change in
the official parity of an exchange rate (often loosely used as synonymy for
A Naira devaluation of 5% in terms of sterling means that a Niaira
will buy 5% less sterling foreign exchange.
Exchange Market: It is a situation where a given amount of Naira
buys less quantity of goods. Than it used to but in this case it is mainly
increased supply of Naira by printing more notes or borrowing from
external bodies. Accrued interest in the FEM account of importers as a result
of time lag between the time the importer makes deposit and time actual payment
of good is made to the exporter Bureaux de change.
A systematic record of the economic transactions, during a
given period between the residents of a country and the rest of the
world it covers earning from flow of real resources change in country’s
foreign assets and liabilities that arises from economic transactions.
The balance of payments must always balance and it is therefore nonsense
to speak of a balance of payment difficult.
Exchange control: The set of rules introduced by the government to
prevent or just make more expensive, the ability of their residents to
invest in their countries and occasionally to restrict the inward flow of
TERMS AND CONDITIONS APPLY
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