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CHAPTER ONE

Introduction

1.1   Background of the Study

This term paper goes into the analysis of the external reserves position in Nigerian. It embodies the previous problems currents problems and future recommendation. Its of a great important to the student of financial and business studies and those in economics. It is also important to business consultants and investors. To be Frank, the important to Nigerian and government stand to the entire Nigerian cannot be over emphasized which stand the chance of ascertaining the Nigerian economy and its external reserves position appropriately. In addition, the management of external reserves of Nigeria attracts a lot of public interest. This is so because unexpected changes in external reserve positions generally effects the welfare of the common man. A good example was the oil exploration and boom period, and the Nigerian shot over herself in reckless flirtation with the new sources of easy money and nation has all but was destroyed by arrogant and selfish political hyphens, our hitherto sources of export and foreign exchange were abandon because of the interest rested on the money generated from oil.

But as a result of all these, Nigerian started importing those food items, which we had hitherto been known for and had constituted to the world’s largest exporters. The face in world oil price over the years caught this country unaware and off balance. It therefore revealed to what extent we had mismanaged our external reserved. And the nation’s economy was abused by improvident, various incompetent and corrupt regimes who saw leadership as a means to privates good and self-enrichment. Nigerian discovered that value has nothing to tall back on, in absence of petroleum as the nation was wholly depends on money generated from crude oil. But in essence we must thank the present administration for trying to find out when we left the track of sanity and economics balance and its advice to the nation there is concrete evidence that the spending pattern of our people have rationalized to an extent and agriculture, each crop production are once more assuming their abandoned role Nigerian are now motivates towards the goals of self sufficient, and the export incentive recently released by federal government of Nigerian, will no doubt encourage manufactures to exploits foreign markets to the benefits our external reserves.

1.2    Statement of Problem:

This research work is to address itself on the task to determine the effective Management of Nigerian external reserves under section 25 of the Central Bank of Nigerian Act, 1959, as amended, the Central Bank is required to hold and maintain the country’s foreign exchange reserves inform of the following card combination there to:

(i)  Gold coins and bullions.

(ii) Foreign bank balance in convertible currency.

(iii)Foreign bills of exchange in convertible currency.

(iv)Securities of international financial institution of not more than 5 years maturity.

(v) International monetary fund financial assets like the I.M.T gold, trance, the Special Drawing Rights (SDRS) and the I.M.T oil facility balance.

(vi) Treasury bills of foreign governments.

(vii)Other foreign government or government guaranteed securities of not more than (10) year’s maturity.

In practice the bulk of reserve maintain of three main items. Convertible currencies foreign banks. These three have generally accoutered for over 70 percent of total reserve of the country.

1.3   Objective of the Study:

The essence of the reason why this project is embarked on could be enumerated as follows viz:

1.To examine the relative importances of the effective management of Nigerian in the External Reserves.

2.To analyze the behaviour of the effective management of Nigerian external reserves started in August 1987.

3.To determine the extent to which this effective management of Nigerian has affected the external reserves.

4. To make recommendation that may be of use to the monetary authorities towards a more effective/efficient use of this instrument through the use of appropriate management of Nigerian structure policy.

1.4   Significance of the Study:

This study will be of effective to the Nigerian external reserves as well as individual reserves this evident in the following ways.

1. It will serve as a tool for managerial decision when determining whether to continue to funds a particular reserves project or not.

2. Ability f getting finance will be easily determined.

3. It will ensure prompt repayment of loans including interest credits to themselves.

4. External reserves will find this research work very useful since they can now know more credits to themselves.

5. It will guide the policy makers on how to tackle the various reserves credit-financing problems in identified.

6. To the management at large, this study is of great importance since any attempt of developing reserve is a biggest.

7. Finally this research work is a useful addition to the existing literature in the area of management of external reserves and serve as useful reference.

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