THE ROLES OF CENTRAL BANK OF NIGERIA
AND MERCHANT BANKS IN FINANCIAL INTERNATIONAL TRADE IN NIGERIA.
A CASE STUDY OF CBN ENUGU. AND CROWN
MERCHANT BANK BENIN.
classical economic theory, trading is good for you. You are better off
concentrating on producing and selling the commodities for the production of
which you have a comparative advantage and buying from others those commodities
you need which they can produce relatively more cheaply. This through the
market mechanism, a high level of output of goods and services is attained and
shared to the benefits of energy participant in the transaction. As with
individuals, so with nations. In Nigeria, international trade has contributed a
lot of the country’s infrastructural and manpower development. It therefore
becomes necessary to look at the central bank of Nigeria and the merchant banks
and their contribution towards financing international trade in Nigeria, with a
case study of CBN Enugu, and crown merchant bank Benin. In this work, the key
features of international trade are enumerated and well analyzed. This work
went a long way in attempting to see the specific roles played by merchant banks
and central bank of Nigeria in financing international in Nigeria. This work is
structure into five chapters the basic highest of all the chapters can be
summarized as follows:
- Introduction to the research
- International trade in Nigeria,
its feature benefits and constraint.
- Research methodology, analysis of
- Historical background, function
and structure of the banks.
This work opens with the introduction
and definition of international trade, aims of study, scope and limitation, and
the significance of the study. The literature are viewed which focuses on
international trade in Nigeria is contained in chapter Two. Topics of varying
nature and included here, among them are: Nigeria banking system, benefits of
international trade, trade restriction, balance payment and Nigeria foreign
trade. Chapter three looks at the research methodology and analysis of its
findings. The historical background, structure, functions of central bank is
highlighted in chapter four. This in charge their roles in international trade.
This work is concluded in chapter five with observation and recommendation.
TABLE OF CONTENT
DEFINITION OF INTERNATIONAL TRADE
AIMS OF THE STUDY
STATEMENT OF THE PROBLEM
SIGNIFICANCE OF THE STUDY
SCOPE AND LIMITATION
HISTORICAL BACKGROUND OF MERCHANT BANKING IN NIGERIA
RELATED LITERATURE AND STUDIES
NIGERIAN BANKING SYSTEM
INTERNATIONAL TRADE AND EXCHANGE RATE POLICIES IN NIGERIA
BALANCING OF PAYMENT AND NIGERIAN FOREIGN TRADE
RECENT DEVELOPMENT IN NIGERIA’S BALANCE OF PAYMENT
PRINCIPLE OF COMPARATIVE COST
INTERNATIONAL TRADE DEVELOPMENT AND EVOLUTION OF THE NIGERIA ECONOMY
BENEFIT OF INTERNATIONAL TRADE
FUNCTIONS OF MERCHANT BANKS
FUNCTIONS OF THE CENTRAL BANK OD NIGERIA
THE ROLE OF THE MERCHANT BANKS IN FINANCING INTERNATIONAL TRADE IN NIGERIA
THE ROLES OF CENTRAL BANK OF NIGERIA IN FINANCING INTERNATIONAL TRADE IN
INSTRUMENTS OF FOREIGN PAYMENT
SUMMARY OF THE LITERATURE REVIEW
SUMMARY OF PROCEDURE IN INTERNATIONAL TRADE.
ANALYSIS OF FINDINGS
The role of international in the acceleration of political
and socio – economic development of any nation deserves a good study. The term
international trade refers to the trading operation conducted beyond national
boundaries otherwise called export and import. It enables one country t have
access to those commodities they could not possible produce themselves. Thus a
country is able to shift its industry to those products and services for which
its resources are most suitable exporting its resources in exchange for the
specially of other countries.
Currently in Nigeria, the export growth rate is shown and
correctly perceived as a major ousted to accelerated development and in other
to avert this, virile export oriented strategies should be evolued. The import
and export sector of any economy has to be nurtured, protected and promoted to
enhance its positive and meaningful contributions to the survival of the
economic system. Apart from government incentives, private and public
companies, assistance and specialized financial institutional support, banking
institutions play vital roles in financing international trade. As a result of
this, it becomes necessary to study the roles of merchant banks and central
bank of Nigeria in financing this international trade in Nigeria.
The central bank stored as the apex of the banking system
of every country. It is the government representatives in the banking sector
and acts mainly as banker to the government.
It acts as banker and adviser to the federal government
banks, merchant banks and other financial institutions. It also has the
monopoly of issuing legal tender currency in Nigeria and materials external
reserves in order to safeguard the international value of the currency, promote
monetary stability and sound financial structure.
In relation to international trade the central bank
determines what and how much to approve in the areas within its justification
such as payment for visible and invisible imports and controls in inflow of
foreign exchange earnings from export. It processes exchange control application
and makes foreign exchange allocation to qualifying applicants, assist in the
monitoring and in the formulation of policies designed to ensure the optimum
employment and conservation of the country’s foreign exchange earnings. Apart
from the rules played by the central bank in the international trade, there are
two other licensed banks that supplement its rates. The commercial bank and the
merchant banks. The commercial banks are referred to as retail banks because of
the nature of their operations. They operate through a network of branches
throughout the country and have board deposit base. That is the commercial
banks accepts deposits from all and not from a particular sources (The deposits
are usually called demand deposits).
The second category of the licensed banks is the merchant
banks, which are wholesale bankers in the sense that their deposits are usually
in very large blocks. They operated from few branches in the commercial centers
of this country. They also accept deposits from the public and private
co-operations as well as wealthy individuals; their functions include medium
and long-term financing, investment. Management, management of unit trust, debt
factories equipment leasing and issuing and acceptance of bills of exchange.
As regards international trade the merchant banks have
acquired a reputation for fast and efficient processing of international
business transactions such as foreign exchange for companies engaged in
importing and exporting of capital goods, the merchant banks provide services
which include the processing of remittance and documentary draft for collection
and letters of credit. From the foregoing, the central bank and the merchant
banks are indispensable as for as international trade is concerned and as such deserved
a good study.
a. DEFINITION OF INTERNATIONAL TRADE
International trade is the movement of goods and services
between countries such that one country is able to shift its industry to those
products and services for which its resources are most suitable, exporting its
resources in exchange for the specialty of other countries.
It is defined by functions it performs, it is the nations
bank charged with the issuing of legal tender, maintaining external reserves,
supervisor of other banks, promoting of monetary stability, adviser to the
government on financial matters and maintaining sound financial structure.
c. merchant bank
A merchant bank is any financial institution that engages
in wholesale banking, median and long-term financing, investment management,
management of unit trust, debt fractioning, equipment leasing and issue and
acceptance of bills of exchange.
AIMS OF THE STUDY
The purpose of this study is to give an overview of the
activities of merchant banks and the central bank, particularly their roles in
financing international trade in Nigeria. In international trade the roles
being played by both banks are complementary in the sense that one cannot
function without the “acquit of the other”. Suffice it to say that
international trade financing activities of one bank is complemented by the
other hence the topic “the role of central bank of Nigeria and merchant banks
in financing international trade in Nigeria.
Merchant banks are recent occurrence in the country’s
banking industry. Not much is known by the public about their activities.
The aim of this research work therefore is to highlight the
roles of central bank and merchant banks in international trade financing.
STATEMENT OF THE PROBLEM
International trade is a trade between nations of the world
and this trade arises from two basic reasons. One of this reason is that most
countries find themselves in need of commodities they could not possible
produce. Another basic reason for international trade is that countries
different in their efficiencies in the use of national resources.
In Nigeria, international trade has contributed a lot to
the country’s infrastructure and manpower development. Promoting international
trade requires the assistance and financial support of specialized financial
institutions like the central bank and merchant banks.
This study attempts to identifying the roles these banks
play in financing international trade in Nigeria, these include:
their roles in terms of borrowing and lending.
the extent of their financial investment in financing the trade in Nigeria.
appraise the performance of these banks to know as far as possible the remote
causes of adverse balance of trade.
know how the banks have been encourage in playing the roles.
SIGNIFICANCE OF THE STUDY
The significance of the study could be seen on reflecting,
that international trade exists as a backbone of our economic system, which is
a subset of our national economy. It is and engine of growth, a potent strategy
for mutual interdependency among world nations and of course, an instrument for
technological and industrial emancipation.
It is aimed at identifying the roles of the central bank of
Nigeria and the merchant banks as it affect international trade. The roles as
identified are observed through recommendations to be made, where these roles
are not identified and encourage, development and growth of international trade
will continue to elude Nigeria which will invariably retord the development of
the nation as a whole.
The central banks roles in this country are often
misunderstand and as a result the central bank can become a target of public
criticism, particularly doing period of economic upheavals. This study has been
designed therefore to show the roles it plays in building the economy. It
should be noted that the central bank operated basically withing the provisions
of the 1958 central banks Act and its various amendments.
The merchant banks play rules germane to our economic
development country to public commitment. This study aims at revealing these
roles and making recommendation. The study is significant to business
executives, policy makers, economist, merchants and government agencies.
Through the study, attention is drawn on drawn on the roles the banks play and
ways to encourage these
HISTORICAL BACKGROUND DEVELOPMENT CONSTITUTION AND STRUCTURE OF THE CENTRAL
BANK OF NIGERIA
CBN Enugu was traced back to the 11th day of
June 1995 where its foundation block was laid by the, then governor of Eastern
Nigeria, His exchange Sir Francis Akanu Ibiam G.C.O.N K.C.M.G and later
commissioned on the 12th of April 1973, by the then Administrator of
the East central state. His Excellency Mr. Ukpabi Asika.
Further information reveals that its parent body was
established in 1958 under an Act of parliament known as the central bank Act.
For many years before the establishment of the, a rudimentary monetary system
had already began the process of transforming the Nigeria economy from a barter
economy. The media of exchange then were however multifarious and therefore not
very conducive to the operations of modern monetary system. Hence one could not
really regard Nigeria as having a monetary system, at least in terms of
orderliness until the establishment of the West African Currency Board (WACB)
and the introduction of single currency system for West African in 1992. The
establishment of the West African currency Board essentially prepared the way
for the emergent modern financial system in Nigeria.
However, the W.A.C.B itself as designed could hardly be
described as a monetary authority in terms of using any discretionary power to
control the growth of credit and money supply in the economy. Thus the W.A.C.B
has been described as simply a positive moneychanger. This major shortcoming of
the WACB provided the basic for agitation in favor of the establishment of a
central bank not only in Nigeria but also in other countries operating under
the West African currency Board system.
The first formed move towards the establishment of a
central banks in Nigeria was in April, 1952. Then a private members motion was
proposed in the then house of representative calling for the establishment of a
central bank in Nigeria to perform essentially those functions generally
associated with central bank. This because the colonial government considered
the establishment of a central bank in Nigeria then was premature in view of
the relative underdevelopment of the local financial system. The house however
passed amendment motion asking the government to examine and report back to it
on the possibility of establishing a central bank in Nigeria.
To this end, an adviser to the bank of England, Mr. J.L.
Finisher was accordingly given the task of examining this possibility. While
the finisher’s report did not favor the establishment of a central bank in the
country in the immediate feature, it did, however recommend a three step
programme which it hopped would eventually lead to the establishment of the
CBN. These steps in charge the transfer of the WASB headquaters from London to
West Africa. This it hoped would allow the local people to be move closely
associated with the board and also provided them with opportunity of acquiring
some experience from its operations.
The second step in fishers programme was that a Nigeria
currency should be established to replace the CBN.
In addition the programme called for the establishment of a
bank of issue, which was later to develop into central bank. None of these
steps was however implemented especially since its report itself did not
recommend any immediate establishment of a Nigeria central bank.
In 1953, a year after the fisher’s report a world bank
mission visiting Nigeria considered the same issue and while agreeing with
fisher that the establishment of a central bank Nigeria was premature however,
urged for a rapid reform of the WASB to remove some anomalies in its operation.
It also recommended, like fisher for the establishment of a state bank of
Nigeria which would take over the issue of currency from WACB.
What would eventually lead to the establishment of the
final study on the issue by Mr. J.B. Loynes who was also an adviser to the bank
Loynes in his report favoured the establishment of central
bank of Nigeria and his main recommendation because the basis of the CBN Act
that effectively established the bank. Thus following the J.B Loynes report,
the CBN was established by an Act of parliament known as the CBN Act to perform
the traditional central banking functions end serve as the pivotal national
With the establishment of the bank therefore, the west
African currency board operations in Nigeria were placed out and taken over and
refined by the bank.
OF THE BANK
Under the original statute of the bank, the policy and
general administration of the affairs and business of the bank was the
responsibility of a board of directors consisting of a governor, a deputy
governor and five other directors of all whom were to be appointment by the
president of the federation. The governor served as the chairman of the board
and he and the deputy were responsible for the day-to-day management of the
bank and were answerable to the board for their acts and decisions.
However, following the recommendation of a firm of
management consultants Mckingsay international Mc. Of the United Kingdom in
1977, the structure of the bank was changed. The firm of management consultants
was appointed by the bank to undertake a review of the organization structure
and management protectices of the bank. The board of directors is currently
made up of thirteen members that include the government and deputy governor;
three of the board members are executive directors. Thus the governors are
currently responsible for the day-to-day management of the bank. The management
of the bank is essential in the performance of its duty by ten departmental
directors all of whom are career staff of the bank and are responsible for
implementing the various decisions of the board. Each departmental director is
basically responsible for the activities of his department. Furthermore, the
current structure of the bank is such that a group of department directors
report to a specific executive director assigned to the overall supervision of
BACKGROUND OF MERCHANT BANKING IN NIGERIA
Crown merchant bank Benin is a private merchant bank
founded by chief Gabriel Igbinedion in April 1990.
Further information revealed that the two institutions that
commercial merchant banking in Nigeria were both registered in 1960. while
Philip Hill (Nigeria) was registered on 14th September 1960, later
they merged to form the Nigeria Acceptance Ltd (NAL) in 1969.
There was in new merchant bank until 1973 when no new (Nig)
Ltd was established. The names of the bank were changed in 1977 to Nigeria
merchant bank Ltd (NMB). In 1974, Two more merchant banks were established.
They were the first National city bank of New York and first National bank of
Chicago Ltd which is new international merchant bank (Nig) Ltd.
Five merchant banks in 1974 but only two opened for
operation that year. The others, ICON Ltd (merchant bankers and chose merchant
bank (Nig Ltd) commenced operations in 1975. in 1976 the First National city
bank of New York went into voluntary liquidation. In 1976, the Nigerian
American bank Ltd came into the merchant banking areas. Between 1982 and 1985,
six new merchant banks were establishes and today they are more than
thirty-five in number.
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