This project is titled foreign exchange and international trade
it’s effect on bank profitability. It examines the extent and effect of foreign
presence in domestic banking markets. It investigate how net interest margins,
overhead tax paid and profitability differ between foreign and domestic banks
we find that foreign banks have higher profit than domestic bank in developing
countries but the opposite is the case for developed countries. Estimation
result suggest that an increased presence of foreign bank is association with a
reduction in profitability and margins for domestic banks are regard to foreign
exchange and international trade.
1.1Background of the
1.2Statement of Problem
1.3Objectives of the
1.6Significance of the
1.7Limitation of the
1.8Definition of Terms
2.1 The effect of Foreign Exchange and International Trade
2.2 Foreign Exchange Market
2.3 Foreign Currency Exposure of a Commercial bank
2.4 Exchange Rate Volatility
2.5 Foreign Exchange and International Trade Risk management
2.6 Foreign exchange and International Trade
2.7 Foreign Exchange and International Trade Risk and
2.8 Central Banks Role in Foreign Exchange Risk
2.9 Foreign Exchange and International Trade Risk and its
Association with other types of
3.1 Research Design and
3.3 Research Population and
3.4 Sampling Technique
3.6 Method of Data
3.7 Method of Data
Data Analysis and
Summary of Findings Conclusion and Recommendation
5.1 Summary of Findings
Foreign exchange is define by
1.Selshy gishen as: the conversion of one
country’s currency into that of another in a very free economy a countr’y
currency is valued according to factors of demand and supply.
2.By fortex clipart he defined foreign exchange as
a system by which one currency is exchange for another to enable international
transaction to take place.
3.Harper Collin he defined exchange as the system
by which one currency is converted into another to enable international
transaction to take place without physical transportation of good.
4.By Houghton Mifflin he defined foreign exchange
as a transaction of international monetary business as between government or
business of different countie, negotiable bill drawn is one country to be paid
in another country.
1.1 BACKGROUND OF THE STUDY
In recent decades, international
trade in goods and financial services has become increasingly important. To
facilitate such trade, many banking institution have also become international.
Foreign exchange market
(currency market) is a form of exchange for the global decentralized trading of
international currencies. Financial centres around the world function as
auchors of trading between a wide range of different types of buyers and
sellers around the clock.
The foreign exchange market determines the relative valve of
The foreign exchange market
assist international trade and investment by enabling currency conversion for
example, it permits a business in Nigeria import goods from European union
member states especially Eurozone members and pay Euros. Ever through its
income is in Nigeria. It also support direct speculation in the valve of
currencies and the carry tradE, speculation basat on the interest rate
differential between two currencies.
In a typical foreign exchange
transaction a party purchases some quantity of one currency by paying some
quantity of another currency. The modern foreign exchange market began forming
during the 1970s after three decades of government restrict on foreign exchange
transaction (the Bretton wood system of monetary management established the
riles for commercial and financial relations among the world’s major industries
states after world war II) when countries gradually switched to floating
exchange rate from previous exchange rate regime which remained fixed as per
the Bretton wood system.
The foreign exchange market
is unique because of the following characteristics.
1.Its huges trading volume representing the
largest asset class in the world leading to high liquidity.
2.Its geographical dispersion
3.The variety of factors that affect exchange rates
4.Its continuous operation hours a day
except weekend i.e trading from 20:15 GMT on Sunday until 22:00 GMT Friday.
5.The law margins of relative profile compared
with markets of fixed income.
6.The use of leverage to enhance profit and loss
margins and with respect to account size.
As such it has been referred to as the market closest to the ideal
of perfect competition not withstanding currency intervention by central banks.
According to the bank for international settlement as of April 2010, average
daily turnover in global foreign exchange market is estimated at $3.98 trillion
a growth of approximately 20% over the %3.21 trillion daily volume as of April
2007. Some firms specializing on foreign exchange market had put the average
daily turnover in excess of US $4 trillion.
Banks have expanded
internationally by establishing foreign subsidiaries and branches or by taking
over established foreign banks. The internationalization of the banking section
has been spurred by the lateralization of financial market worldwide. Developed
and developing countries alike now increasingly allow banks to be foreign owned
and allow foreign entry on a nation treatment basis.
Financial liberalization of
this kind of proceeds, among other reasons on the premise that the gains from
foreign entry to the democratic banking system out weight any losses several
authors have addressed the potential benefits of foreign bank entry for the
domestic economy in terms of better resource allocation and higher efficiency
Levine (1996) specifically mention that foreign bank may:
i.Improve the quality and availability of
financial services in the domestic financial market by increasing bank
competition by enabling the greater application or more modern banking skills
ii.Serve to stimulate the development of the
underlying bank supervisory and legal framework.
iii.Enhance a country’s access to international
capital. There may also be cost to opening financial market to foreign
competition stightz (1993) for instance discusses the potential costs to
domestic banks local entrepreneurs and the government resulting from foreign
Domestic banks may incur costs they have to compete with larger
international bank with better reputation local entrepreneurs may receive less
chess to financial service since foreign generally concentrate on multinational
firms and government may find their control of the economy diminished since
foreign banks tend to be less sensitive to their wishes.
As yet little evidence exist of the effects of an
internationalization of the banking sector other than several case
studies of foreign bank entry MC Fadden (1994) reviews foreign bank entry
in Australia and finds that this has led to improved domestic bank entry operations.
Bhattacharaya (1993) reports on specific cases in Pakistan, Turkey, and korea
where foreign banks facilitated access to foreign capital for domestic project
pigott (19986) describe the policies that have made increased foreign bank
activity possible in nine pacific Basin countries and provides some aggregate
statistics on the size and scope of foreign banking activities in these markets.
1.2 STATEMENT OF
The statement of problem of the research work is to discuss the
effect of foreign exchange and international trade on bank profitability.
1.3 OBJECTIVES OF THE STUDY
the researcher our aims are to provide a systematic study of how banks profit
from foreign exchange and international activities. However, the objective of
the study are as follows:
1.To know the effect of foreign exchange on bank
2.To know the effect of international trade on
3.To know the size and scope of foreign banking
4.To know the quality and availability of financial
services in the domestic financial market by increasing bank competition.
5.To know the use of leverage to enhance profit
and loss margins and with respect to account size.
1.4 RESEARCH QUESTIONS
i.Do foreign exchange affect bank profitability?
ii.Do international exchange affect
iii.Do foreign exchange and international trade
affect the size and scope of foreign banking activities?
iv.Do foreign exchange and international
trade affect the quality and availability of financial services in the
domestic financial market by increasing bank competition.
foreign exchange affect bank profitability
foreign exchange do not affect bank profitability
international trade affect bank profitability
international trade do not affect bank profitability
foreign exchange and international trade affect the size and scope of
foreign banking activities.
foreign exchange and international trade do not affect the size and scope
of foreign banking activities.
foreign exchange and international trade affect the quantity and
availability of financial services in the domestic financial market by
increasing bank competition.
1.6 SIGNIFICANCE OF THE STUDY
This work will be immense bat
to the economy of the country at large. It will serve as a guard to students of
banking and finance who wish to carryout the same research. Finally it will of
importance to the banking because it proffers ways on how bank can increase
their profit through foreign exchange and international trade.
1.8 DEFINITION OF TERMS
InternationalTrade: This may be defined as the
exchange of goods and services between two or more countries.
Foreign Exchange: Is
seen as the transfer of bank
deposits and credit instruments that serves as a means of
be defined as a financial institution where
money and other valuables are kept for safe keeping.
This may be defined as the money
the bank earn from the fees that it charges for its services and
the interest that its earn on it’s asset.
TERMS AND CONDITIONS APPLY
For more informations on project materials and more