TIME SERIES ANALYSIS OF YEARLY EXTERNAL RESERVES OF THE COUNTRY OVER THE YEARS FROM 2000 – 2008
CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
The time series analysis of external reserves of the country is basically embarked on the international monetary fund. However, Nigerian country’s external reserve serves as financial storms.
The international monetary fund (IMF) has changed the central bank to concentrate on managing interest rate and external reserves as well. It was in 1944 in Breton wood new Hemisphere’s international conference that some of the present world power discuss the need for stability in foreign exchange rate system and to replace the old gold standard that had collapsed in the thirties (30s) as a result of the devastating effects of the war which besieged western Europe.
Contrary to this view was that of white the head of the American delegation who saw no need for surplus nations to lend out their foreign exchange at zero interest rate to deficit nations.
Alternatively suggested the need for surplus nations to lend at fixed exchange rate and only to a limited obligation to deficit nations. It was on this basis that the international monetary fund was established to help facilitate world financial exchanges.
The international monetary fund operates on a quote basis and any country upon becoming a member was assigned her own quota of fund which must be deposited in her own currency or in gold with the monetary fund.
Finally, the system of quota allocation took into consideration the economic position of members. Basically on statement of the country fiscal constraint should be prepared taking into consideration the current economic realities. Especially, the fluctuation in oil prices. According to Dr. Mrs Deborah Okafor and Mr. Moellar commended Nigeria for tackling fiscal constraint overall macro-economic outlook remain positive. The probable guiding principle of the current reserve policies of the federal government investors are investment shy in area where they do not see the feasibility of returns on investment, no matter the amount of bowl-begging.
Here in lies the public relation of external reserves. Apart form constituting the reservoir to find the foreign exchange demand of nationals. A nation external reserve ratio to debt profile is also an indication to foreign investors of the country’s sound economy and the ability to pay its bills as and when demanded.
1.2 STATEMENT OF THE PROBLEM
The economic situation in Nigeria has drawn the time series Analysis of the external reserves in the country from the year 2000 – 2008 and there is no organization no matter how good, that does which international monetary fund is not an exception. The problems are as follows:
Domination of the fund by a few countries which one of the source of fund is member contribution. Because of the poor nature of the economic developing countries they have been unable to contribute adequately their required quota to the fund.
The operations of the international monetary fund and its being a watch dog of nation’s economics have posed some difficulties especially to the developing countries. Many of the developing countries has not been able to cope with the stringent conditional ties of the international monetary fund for granting loans.
The problem of international reserves: Because of the growing balance of payment difficulties for many countries, it has not been possible to cater for all requiring loans.
The issuing of special drawing rights have had to supplement other international reserves assets and that ensured greater international liquidity.
1.3 AIMS AND OBJECTIVES OF STUDY
The problems specifically designed to this work are traced as follows:
To promote monetary stability in the country.
To safeguard Nigerian interest in international economic bodies.
To give guidance on agreement between countries.
To promote cooperation in monetary financial and banking matters.
To reduce trade barriers between nations
To improve the unfavorable situation of particular countries.
To promote international confidence in tariff policies by promoting constitution between nations.
1.4 SIGNIFICANCE OF STUDY
This work is motivated by the need on the basis that the international monetary fund was established to help facilitate world financial exchanges.
The international monetary fund however operates on a quota basis and any country upon becoming a member was assigned her own quota of fund which must be deposited in her own currency or in gold with the monetary fund. Moreover, borrowing by any single member of the country was restricted to a maximum of twice that country’s quota and the unused position of any member borrowing quota was called its reserve position in the international monetary fund (IMF).
The main job or purpose of this international monetary fund was for it to be a watch dog of the world currencies and the disciplinarian of prodigal economic policy maker, which was to help regulate the rate at which the world or foreign currencies are traded in the foreign exchange market through the use of the concept of adjustable peg. The international monetary fund market allows the buying and selling of foreign currencies through the market dealers or bank based on some speculations.
The foreign exchange market deals with the actual purchase of foreign currencies for an investment and without any speculations.
1.5 STATEMENT OF HYPOTHESIS
Hi: International monetary fund helps to encourage cooperation among members of the country on monetary matters.
Ho: International monetary fund has not help to encourage cooperation among members of the country on monetary matters.
Hi: IMF has help to advice members of the country on how to overcome their internal economic problems.
Ho: IMF has not help to advice members of the country on how to overcome their internal economic problems.
Hi: IMF has help to maintain stability of foreign exchange rate.
Ho: IMF has not contributed to maintain stability of foreign exchange rate.
1.6 DEFINITION OF TERMS
According to Dr. Mrs. Deborah Okafor and Mr. Moellar representatives of ministry of finance, commended Nigeria for tackling fiscal constraint, overall macro-economic outlook remain positive.
External reserves: are variously called international reserves, foreign reserves or foreign exchange reserves.
External reserves: this refers to the official public assets that are readily available to and been controlled by the monetary authorities.
International reserves: As consisting of official public sector, foreign assets that are available for direct financing of payment imbalance and directly regulating the magnitude of such imbalances.
Foreign reserve: This refers to as the interaction by the monetary authority as reserves used to manage the exchange rate in addition to enabling an orderly absorption of international money or capital flows.
Time Series: This refers to the record of values-sales, volume, stock level and collection of observation made in the time sequence.
TIME SERIES ANALYSIS OF YEARLY EXTERNAL RESERVES OF THE COUNTRY OVER THE YEARS FROM 2000 – 2008