The Role of Commercial Bank in Achieving Stability in Foreign Exchange

The Role of Commercial Bank in Achieving Stability in Foreign Exchange

ABSTRACT

This research project work was undertaken to determine and evaluate the effect of the Role of Commercial Bank in Achieving Stability in Foreign Exchange.

The effect of the Role of the Commercial Bank on the behavioral aspect of a management information system is Aggression Avoidance and Projection on the other hand other operational pressures are maintaining the system.  Personal problems in the book-keeping department maintaining book-keeping machines.

Exparching volume of operation’s need to accommodate the increasing volume needs to maintain or reduce cost-unsatisfactory output.  Errors in terms of reports and statement delays in work processing needs or system change.

The study has library research and empirical study.  Additional information was collected from journals bullies textbooks and newspapers etc. it was been clear to me from what I found out that the Role of Commercial Bank in Achieving Stability in Foreign Exchange plays a very big positive better information for commercial loan management improve the speed limit & accuracy of services to customers and also provides necessary data input for an advanced financial information system.

It leads to problem awareness permits feedback on the implementation of decisions.  It supports problem analysis and the selection of alternatives it influences the choice of the most appropriate option.  Also, computers are used in the implementation.  Strategies or plans for they can also be used for daring up the budget in constituting investment port failed and in bank’s balance sheet management.

From the work been mentioned above, it is quite clear that if Nigeria bank continues to encourage the use of the Role of Commercial Bank in Achieving Stability in foreign exchange would have a better standard of living & the work of science & technology as regards to computer services.

TABLE OF CONTENT

CHAPTER ONE

Introduction

Background of study

Statement of problem

The objective of the study

Significance of the study

The limitation and study

Definition of terms

CHAPTER TWO

The literature review

CHAPTER THREE

Research design and methodology

Sources of data

Location of data

Method of data collection

CHAPTER FOUR

Summary findings

CHAPTER FIVE

Conclusion

Recommendations

Bibliography

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The goal of every government of any country is to achieve equilibrium in the economic system.  It is therefore very important that the authorities concerned must regulate the system indirectly with the policies.

This necessitates that the government of any country must adopt certain economic policies to achieve specific macro-economic goals or objectives; some of such major macroeconomic policies include monetary policy fiscal policies, exchange rate policy.  Most of these policies can only be administered through the agency of commercial banks, which is the pivot of the research work.  In Nigeria, for instance, monetary policy has been conducted under a wide-ranging economic environment since the establishment of the Central Bank of Nigeria (CBN) many years ago.

Monetary and fiscal policies adopted by the government of a country are posturing economic development to achieve certain growth, the sustainable balance of payment, maintaining a stable exchange rate of international competitive levels, combating inflation, price stability, and fall employment.

Monetary policy is defined according to CBN briefs (1994) as the combination of measures designed to regulate the values, supply, and cost of money in an economy.  In consonance with the level of economic activities.

Anyanwu (1993;140) refers to monetary policy as a major economic stabilization weapon that involves measures designed to regulate and control the volume, cost, availability, and direction of money and credit in an economy to achieve some specified macro-economic policy objective.

Fiscal policy, on the other hand, is an attempt by the government to use its expenditure and tax policy to shift the aggregate demand and aggregate expenditure functions towards desired positions.  According to Anwanwe (1997:241), fiscal policy is taken to refer to that part of government policies.  Concerning the raising of revenue and deciding or the level and pattern of expenditure for the purchase of influencing economic activities or attaining some desirable macroeconomic good.

The intricacy in handling the monetary and fiscal policies to achieve the desired macro-economic objectives necessitates the need for an independent authority.  So in Nigeria today, the Federal Government is the sole monetary authority, but it has delegated some aspects of the implementation to both the Ministry of Finance and Central Bank of Nigeria (CBN) to formulate, execute monetary policy; to promote the financial system.  To achieve the desired policy objectives, the CBN is empowered to use monetary policy techniques or instruments, and the CBN does most of its functions through commercial banks.

This technique can be classified: the direct portfolio contrary and indirect portfolio approach.  The indirect portfolio includes Open Market Operations (OMO), Minimum Reserved requirements, discounts rate mechanism.  While direct instruments include: selective credit controls, credit ceiling, and moral suasion.

Furthermore, monetary policy presupposed that there is some relationship between the supply and the demand for money and economic aggregates such as output, income, savings, general price level, and investment.  The mix of monetary policy instruments to be used and their effects depend on this relationship.

Monetary policies involve monetary management.  Monetary management according to Ojo (1992:3) is defined as the art of controlling the movement of monetary and credit aggregate in the pursuance of stable price and sustainable economic growth.

Therefore, the Central Bank or the Central Monetary authority must attempt to keep the money supply growing at an appropriate rate to ensure sustainable economic growth, domestic and external stability.

However, in Nigeria, the role of monetary and fiscal policy has increased tremendously since after independence.  Both civilian and military governments have adopted their policies to achieve micro-macro objectives.  But despite their measures, to suit the constant changes in the economic situation of Nigeria still a lot of problems deviled the economy, ranging from high unemployment, inflation, and balance of payments.  This prompted me to research the topic: “the role of commercial banks in foreign exchange.

1.2 STATEMENT OF PROBLEM

The application of the monetary and fiscal policies by the monetary authorities using monetary instruments such as Open Market Operation (OMO), Bank reserve ration, etc.  In consonance with the prevailing economic situation is aimed at achieving the macro-economic goals of the country such as full employment, low level of inflation, favorable balance of payments.  But in Nigeria, despite these numerous monetary policy measures adopted, the economy still suffers the problem of a higher rate of unemployment, inflationary pressure, the balance of payment deficit, and unstable foreign exchange.

The questions that follow are: how effective are monetary and fiscal policies are in controlling some of these variables, inflation in particular?  Why have monetary and fiscal policies failed in our economy despite that they have worked in other countries?

What may be the reason militating against the effectiveness of the monetary policies?  As the commercial banks are the enzymes used by the CBN in administering economic measures; what can they do to aid in achieving foreign exchange stability?  Given the above-outlined question, this research work will try as much as possible to proffer some answers.

1.3 OBJECTIVES OF THE STUDY

This study aims at finding the following:

i.  To re-examine the instruments of monetary and fiscal policies and their performance.

ii. To examine the major policy objectives and their achievement in the country.

iii. To appraise some monetary and fiscal policies measures in Nigerian and see how commercial banks respond to their instruction.

iv. To make recommendations to policymakers.

1.4 SIGNIFICANCE OF THE STUDY

This research work is significant because it strives to establish the relationship between monetary and fiscal policies and the role commercial banks play in economic stabilization.  It is hoped that this work will enhance and improve the use of monetary and fiscal policies in the realization of macro-micro economic goals associated with economic growth and development.

1.5 DEFINITION OF TERMS

1. COMMERCIAL BANKS:  Any institution approved by the central government (usually through CBN) to engage in acceptance of deposits, charging of bills of payments, and performance of retail banking operations.

2. FOREIGN EXCHANGE:   Refers to transactions in international currencies emanating from the exchange of goods and services between nations not using a common currency.

3. BALANCE OF PAYMENTS:        This shows the estimates in transactions of a country’s visible and invisible export and import from foreign countries.

4. MACROECONOMIC GOAL:      This refers to the aggregation of all resources within a given country in achieving a stated goal or objective for the economy.

5. MONETARY INSTRUMENTS:    They are governmental policies/instruments used in the stabilization of the prevailing economic situation.