ROLE OF COMMERCIAL BANK IN ACHIEVING STABILITY IN FOREIGN EXCHANGE
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ROLE OF COMMERCIAL BANK IN ACHIEVING STABILITY IN FOREIGN EXCHANGE
ABSTRACT OF THE ROLE OF THE COMMERCIAL BANK IN ACHIEVING FOREIGN EXCHANGE STABILITY
The goal of this study project activity was to determine and evaluate the influence of the role of commercial banks in achieving foreign exchange stability.
The effects of the Commercial Bank’s role on the behavioural aspects of management information systems are aggression avoidance and projection, while other operational constraints keep the system running. Personal issues in the bookkeeping department keep the book-keeping equipment running.
Extending the amount of operations required to accommodate the increased volume required to sustain or lower cost-inadequate production. Errors in reports and statements, as well as delays in job processing requirements or system update.
The study includes both a library research and an empirical study. Additional information was gathered from journals, bullies, text books, and newspapers, among other sources. It was clear to me from what I discovered that the role of commercial banks in achieving foreign exchange stability plays a very large positive role.
Better information for commercial loan management improves the speed limit and accuracy of services to customers, and also provides necessary data input for advanced financial information systems.
It raises problem awareness and allows for feedback on decision implementation. It aids in problem analysis and alternative selection, and it influences the selection of the best option.
Computers are also employed in implementation. Strategies or plans for they can also be employed for daring up the budget in constituting investment port failure and in managing the bank’s balance sheet.
From the work indicated above, it is fairly evident that if Nigerian banks continue to support the use of the Role of Commercial Bank in Achieving Stability in Foreign Exchange, the country’s standard of living would improve, as would the work of science and technology in the field of computer services.
INTRODUCTION TO CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Every government’s goal in any country is to establish economic system equilibrium. As a result, it is critical that the authorities in charge use policies to indirectly regulate the system.
This implies that every country’s government implement certain economic policies in order to attain specific macroeconomic goals or objectives; some of these important macroeconomic policies include: Monetary policy, fiscal policies, and exchange rate policy.
The majority of these policies can only be implemented through the agency of commercial banks, which is the focus of the research. In Nigeria, for example, Monetary Policy has been implemented in the context of a diverse economic environment since the formation of the Central Bank of Nigeria (CBN) many years ago.
Essentially, monetary and fiscal policies implemented by a country’s government aim to promote economic development by achieving certain levels of growth, sustainable balance of payments, maintaining a stable exchange rate of international competitive levels, combating inflation, price stability, and falling employment.
According to CBN briefings (1994), monetary policy is the mix of policies meant to govern the values, supply, and cost of money in an economy. In line with the degree of economic activity.
Anyanwu (1993;140) defines monetary policy as “measures designed to regulate and control the volume, cost, availability, and direction of money and credit in an economy in order to achieve some specified macroeconomic policy objective.”
Fiscal policy, on the other hand, is an attempt by the government to manipulate the aggregate demand and aggregate expenditure functions through expenditure and tax policy. According to Anwanwe (1997:241),
fiscal policy refers to a subset of government policies. Concerning revenue generation and determining the volume and pattern of expenditure for the purchase of influencing economic activities or achieving some intended macroeconomic good.
The complexity of managing monetary and fiscal policy to achieve desired macroeconomic goals needs the establishment of an independent authority. So, while the Federal Government is the exclusive monetary authority in Nigeria today,
it has delegated some aspects of implementation to the Ministry of Finance and the Central Bank of Nigeria (CBN) to create and execute monetary policy and to promote the financial system.
The CBN is authorised to utilise monetary policy techniques or instruments to achieve desired policy objectives, and the CBN performs the majority of its tasks through commercial banks.
This technique is divided into two categories: direct portfolio contra and indirect portfolio approach. Open Market Operations (OMO), Minimum Reserved requirements, and the discount rate mechanism are all part of the indirect portfolio. Direct instruments include credit regulations, credit ceilings, and moral suasion.
Furthermore, monetary policy assumes a link between the supply and demand for money and economic aggregates such as output, income, savings, general price level, and investment. The mix of monetary policy instruments to be utilised, as well as their effectiveness, are determined by this connection.
Monetary policy is the management of money. According to Ojo (1992:3), monetary management is the art of regulating the movement of monetary and credit aggregates in order to achieve stable prices and sustainable economic growth.
As a result, the Central Bank or Central Monetary Authority must make an effort to keep the money supply rising at a suitable rate in order to ensure long-term economic growth, domestic and external stability.
However, in Nigeria, the influence of monetary and fiscal policy has grown significantly since independence. Both civilian and military regimes have implemented policies to attain micro and macro goals.
However, despite these steps, the economy of Nigeria continues to face a number of challenges, including high unemployment, inflation, and the balance of payments. This inspired me to conduct research on the topic of “commercial banks’ role in foreign exchange.”
1.2 STATEMENT OF THE PROBLEM
Monetary authorities use monetary instruments such as Open Market Operations (OMO), bank reserve rationing, and so on to implement monetary and fiscal policy.
In accordance with the current economic circumstances, the goal is to achieve the country’s macroeconomic goals, such as full employment, low inflation, and a favourable balance of payments.
However, despite the multiple monetary policy measures implemented in Nigeria, the economy continues to suffer from rising unemployment, inflationary pressure, a balance of payment deficit, and volatile foreign exchange.
The following questions are: how effective are monetary and fiscal policies in managing some of these variables, particularly inflation? Why have our economy’s monetary and fiscal policies failed, notwithstanding their success in other countries?
What could be the impediment to the success of monetary policies? What can commercial banks do to help achieve foreign exchange stability, since that they are the CBN’s instruments in delivering economic measures? In response to the above-mentioned query, this research will attempt to provide as many answers as feasible.
1.3 AIM OF STUDY
The following are the objectives of this research:
i. To re-examine the instruments of monetary and fiscal policy, as well as their performance.
ii. To investigate the primary policy objectives and their achievement in the country.
iii. To assess some monetary and fiscal policy initiatives in Nigeria and see how commercial banks respond to their instructions.
iv. To make policy recommendations to policymakers.
1.4 THE IMPORTANCE OF THE STUDY
This study is significant because it seeks to establish the relationship between monetary and fiscal policy, as well as the role of commercial banks in economic stabilisation.
This work is intended to strengthen and improve the application of monetary and fiscal policies in the realisation of macro-microeconomic goals related to economic growth and development.
1.5 DEFINITION OF TERMS
1. COMMERCIAL BANKS: Any institution authorised by the central government (typically through the CBN) to take deposits, charge bills of payment, and conduct retail banking operations.
2. FOREIGN EXCHANGE: Transactions in foreign currencies resulting from the exchange of commodities and services between nations that do not use a common currency.
3. BALANCE OF PAYMENTS: This indicates the estimated transactional value of a country’s visible and unseen export and import from other countries.
4. MACROECONOMIC GOAL: This is the aggregation of all resources inside a certain country in order to achieve a defined goal or target for the economy.
5. MONETARY INSTRUMENTS: These are governmental policies/instruments employed to stabilise the current economic situation.
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