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Foreign Exchange Management (Factors affecting exchange rate management in…
Foreign Exchange Management
Factors that affect/determine exchange rate
Public Debt (e.g. IMF's imposition)
Political Stability
Balance of Payment
Speculation
Interest Rate
Recession
Inflation Rate
Foreign Exchange Market
Interbank
(Wholesale)
(Corporate Buyers)
Bureaux De Change
(Retail i.e. less than $5000 per quarter)
(Individual buyers)
Sources of forex inflow
Oil Companies
Loans
Foreign Investments
Home Remittances
Export Proceeds
Sources of forex outflow
Payments for Services
(School Fees, Medical Services, Travels)
Capital Transfers
Payments for Imported Goods
Outward Remittance
(E.g. payment to expatriates for services)
Loan Repayments
Factors affecting exchange rate management in Nigeria
Weak responses from expected capital inflows
Effect of price system and rising inflation
Currency substitution/Asset switching from Naira to foreign currencies
Market skepticism and perceived inefficiency of the Bank’s intervention policy
Front – Loading of foreign exchange demand
Speculative activities
Political concerns on the impact of policy
Abuse of Naira denominated cards overseas
Impact of forex policy on external reserve position
Wide spread between interbank and the parallel market rates
High demand for forex for imports
Policy Responses
Currency Substitution and Dollarisation of The Nigerian Economy
(The policy is meant to preserve the value of the Naira and prevent incidences of assets switching from Naira to foreign currencies)
Review of Foreign Currency Trading Position Limits
(Regulation is to reduce the exposure of banks to foreign exchange risks and to preserve the stability of the market)
Usage of Naira Denominated Cards Overseas
(The policy is meant to minimize money laundering following observed incidences of some having multiple cards and the attendant high volume of offshore transactions)
Review Policy on Portfolio Investment in Nigeria
(Attract foreign currency inflows into Nigeria)
(Balances on exports and ordinary domiciliary accounts are not eligible for the investment)
Front-Loading of Forex Demand
(Moderation of forex demand with a view to minimizing rate of depletion of external reserves and ensuring exchange rate stability)
Mandatory use of BVN on all Forex Transaction by Banks and BDCs
Classification of Import Items Not Valid For Forex
(The policy measure aimed amongst others to discourage importation of the classified import items and enhance local production capacity of our industries)
Sale of Foreign Exchange Proceeds of IMTO to BDCs
Use of Exports Domiciliary Accounts
(The policy is intended to ensure all proceeds are duly repatriated before it can be used for other eligible transaction by the exporter)
Stringent Measure on Non-Repatriation of Exports Proceeds
Closure of the RDAS/WDAS window
(The policy is intended to avert the emergence of a multiple exchange rate regime and preserve the country’s foreign exchange reserves)
Adoption of a Flexible Exchange Rate
Initiatives
Electronic Certificate of Capital Importation
(eCCI)
Non-Oil Export Promotions
Trade Monitoring System (TRMS)