- Background of the Study
The fact that different currencies are used by different countries when they engaged in transaction makes it necessary to have a standard measure of exchange. For determining the relatives conversion values for the goods and services expressed in different currencies of the respective countries where settlement in foreign exchange is required such measures of values for foreign exchange conversion termed exchange rate referred to as the domestic price of foreign currency has dominated the discourse in international economics and finance. Exchange rate being price in monetary terms is a vital element for resources allocation and the removal of distortions arising from valuation under the barter system of exchange or counter-trade arrangements. Exchange rate determination methods derive their title from the techniques employed in obtaining value of the various currencies relative to each other, such as price mechanism method and fixed exchange rate method, Okigbo (2013, P.13).
However, this research was set out to determine the exchange rate differences and the performance of deposit money bank. According to Dougale ( 2016, P.4) exchange rate differences can be seen as change in the rate of major international currencies relative to the naira over a period of time as a result of several factors including manipulative operation of banks and changes in the policies of the government. These policies are usually targeted at protecting the foreign exchange value, preserve the external reserves maintaining favourable balance of payment and financial equilibrium. The banking operations is central to money supply mechanism in an economy as it provides the aggregate credit to the domestic economy as well as international liquidity through net foreign assets both of which are essential variables of money supply.
The activities and policy measures on the foreign exchange market intended to realize exchange rate policy objectives bank aggregate credit to the domestic economy and internationally liquidity have been affected with extended implication for the economy, Ajay U. (2008, P.11). This has elicited some concerns over the application of exchange rate policies that appears to influence aggregates in the operation of banks having relationship with money supply variables.
(Oyejide et at., 2012 P.4). It is even more so for Nigeria which had embarked on a course of rapid economic growth. The bank plays a catalyst role in a modern economy and have many dynamics aims that are crucial for economic transformation and also, it is hugely affected by activities in the foreign exchange market primarily because of their (bank) central role in financial intermediation.
Furthermore, the peculiarity of the Nigerian economy makes exchange rate management critical to the overall wellbeing of the economy. In particular, Nigeria’s mono-economy with its very high dependence on commodities export and high penchant for imported goods exposes the economy to the vagaries of the international foreign exchange market, Mark (2008, P. 10).
In advance country, its currency is a leading factor in many aspects. It is the avenue for increasing productivity in relation to import substitution and export expansion, creating foreign exchange earnings, faster rate than any other sector of the economy as well as wider and more efficient linkage among other sector, (Fakiysi, 2009, P.4). But the Nigerian economy is under-industrialized and its capacity utilization of Nigerian currency is also low. This is so in-spite of the fact that the Nigeria financial economy is the fastest growing sector since 1973-1974, Obadea.
(2014, P.11), this form the basis for investigation in this research work using deposit money bank as a case study in particular zenith bank PLC.
Zenith Bank Plc was establish in may 1990 by Jim Ovia and commenced operations in July of the same year as a commercial bank. The bank became a public limited company on June 17th 2014 and was listed on the Nigeria stock exchange (NSE) on October 21, 2014 following a highly successful initial public offering (IPO). Zenith Bank Plc currently has a share holder base of about one million and is Nigeria’s biggest bank by tier- capital. In 2013, the Bank listed and 850 million worth of its shares at $6.80 each on the London stock exchange (LSE).
Headquarters in Lagos, Nigeria, zenith Bank Plc has over 500 branches and business offices in prime commercial centers in all state of the federation and the federal capital territory (FCT). In March 2007, zenith Bank PLC was licensed by the financial services Authority (FSA) of the United Kingdom to establish zenith Bank (UK) limited as the United Kingdom subsidiary of Zenith Bank PLC. Zenith Bank PLC also has subsidiaries in Ghana, Sierra Leone, Gambia, a representative in South Africa and the people’s republic of China. The bank plans to take the zenith brand to other African countries as well as the European and Asian markets.
Zenith Bank Plc blazed the trail in digital banking in Nigeria scoring several first in the development ICT infrastructure to create innovative products that meet the needs of its teeming customers. Since in 1990, it has grown astronomically to become of the leading financial institution in Africa. Zenith Bank PLC currently ranks as the 6th biggest bank in the continent. The Bank grew its share holder’s fund of N2million in 1990 to N509.25 billion as at year end 2013. Today, the bank continues to thrive on the strong values, brand equity, corporate culture of professionalism and service excellence which are the foundations upon which the bank was built.
- Statement of the Problem
The experimentation and discarding of foreign exchange policies by the monetary authorities in Nigeria over the years have been a major source of concern. Worries have been expressed over the ability of these policies to stabilize the naira exchange rate and solve the macro-economic disequilibrium. While one school of thought opined that the monetary policy trust pursued by the Nigerian monetary authorities through banks is responsible for the excess liquidity prompting the macro-economic problems of inflation prevalent in the Nigerian economy. Another school of thought opined that the problem is lack of implementation and surveillance over the banks. And another school of thought opined that due to high volume of demand on imported goods, foreign operation and the changing nature of our resources (crude oil). Research review that Nigeria is experiencing a downward change in the price per barrel of crude oil thereby devaluating the work of naira in the economy. It has been argued that operations on the foreign exchange market, a variable component of banking operations has significant implication for banks credit to the domestic economy, external reserves and their general intermediation operations. The banks as the channel through which money supply process works by providing an array of interrelated facilities that interplay to provide financial services that facilitates transactions, mobilize funds and play the role of financial intermediation in the economy. The mechanism through the foreign exchange market impact on these variable of money supply is identified these variable of money supply is measures designed to control it.
This study therefore, tends to analyze the exchange rate difference and the performance of deposit money bank in Nigeria.