ABSTRACT
In every part of the world, financial reports form the basis of communicating the activities and performance of business entities to owners and outsiders. But it is rather unfortunate that most of these financial reports do not meet the need of users as a result of different accounting bodies with varying standards and codes. Most reports are published much more later than the date of the account when the state of affairs of the organization would have changed. Also, they do not disclose all the pieces of information necessary to make decision by users. They have therefore, created what the accountant refer to as “expectation gap”.
In a developing country like Nigeria, the need to address some of these problems stated above cannot be overemphasized. Certain rules such as companies and Allied Matters Act 1990 (CAMA), Statement of Accounting Standards for Banks and other Financial Institutions Degree (BOFID), Stock Exchange rules and CBN Presidential guidelines should be maintained and adhered to. The Statements of Accounting Standards are produced by the Nigerian Accounting Standard Board, which is the only standard setting body in Nigeria. The standard is also a compliance of the internationally accepted standards of financial reporting. If strictly adhered to, there is no doubt that the challenges and limitations being faced will pave way for qualitative accounting standards in Nigeria.
CHAPTER ONE
Financial Risk management is a relevant development that arises with deregulation of Nigerian economy through the introduction of Structural Adjustment Program (SAP) in 1986. The research was born out of an inquisitive mind and the desire to gain knowledge about the practice of financial risk management in Nigeria especially in the area of foreign exchange. It should be recalled that Nigerian economy moved away from fixed exchange regime in September 1986. The country returned back to fixed exchange regime in 1994 and guided deregulation in 1995.
Cliff (2003) notes that financial risk (which foreign exchange risk is a sub - set) is the chance or probability that some unfavouable event will occur and which will adversely affect the financial foreign exchange risk are financial position or cash flow stream of an organizations other examples of financial risk apart from foreign exchange risk are ownership, liquidity, credit, exchange rate, interest rate etc.
The topic foreign exchange risk management is relevant because humans are prone to making mistakes for business concern; all facts of its existence are fraught with risk exposure. The business environment in which companies operates is becoming increasingly complex and uncertain due to the globalization of business and rapid introduction of new technologies.
Most business decision are taken with complete knowledge about how the future will evolve with this mind, business managements in twenty first century will emphasize financial risk management. The successful ones will be assessed on the basis of its ability and capability to anticipate, plan and controls risks.
The subject will continue to be relevant in discourse because terms trading and investment are modern terms understood by the world.
As long as there is flexible and market determined exchange rate, exchange rate risk will exist and become inevitable.
Egwuonwu (1995) stated that foreign exchange risk management is a new phenomenon in the study of risk exposure. This is because little was known about the subject and its practice and also foreign exchange management itself has been given little cognizant in the past and as a result, it was not considered as a possible tool for long term development in the nations economy.
The breakdown in the fixed foreign exchange rate to a market determines exchange rate was the fundamental factor responsible for the demand for foreign exchange risk management. Also, development in the fields of communication information technology, emergence of global investment called derivative securities (currency futures) options and currency sways) are other factors which contributed to the emergence of the subject.
Nigerian business organization are involves in international trade at both export and import level: demand for exchange of currencies and the presence of exchange fluctuation is ever present under the arrangement hence exchange risk becomes a pre - requisities. The major objective of risk management is to maximize returns and to minimize risk.
It is therefore in this light and in an effort to improve the effectiveness of the foreign exchange risk management in Nigeria that this work was undertaken. It could therefore be said that the inherent problems as experienced by the banking industry today can be linked to the partial or total neglect of the cannons of lending by the officers of the bank, attitude towards risk.
Foreign exchange is regarded as a vital instrument in banking industry especially as it affects the commercial banking system and hence attention should be focused on this area of endeavor.
From what has been said earlier, business organization and firms operate in an environment that is characterized by numerous variables.
These variables are dynamic in nature. Two calls for corporate planning and management of foreign exchange risk in an organization in order to cope with the challenges facing foreign exchange risk management.
It is widely acknowledge today that the rate, magnitude and complexity involves in the management of risk has not been able to achieve their desired goal.
Over the years, the transaction involving the use of foreign exchange has increase so also the increase in the risk involve in foreign exchange transaction. The problem is how to effectively manage these foreign exchange risks.
Hence, some of these questions one is tempted to ask include.
The study will attempt to ask questions and provide answers to the following.
Research hypothesis is a testable statement regarding the relationship between two or more variables that comes from research problems. Aigbokhearvbolo and Ofanson (2004) in fact, research problems cannot be properly address unless it is reduced to hypothesis. Hypothesis is a reasonable guess or statement which is to be tested. (Emele and Emele, 1995).
Hypothesis are stated in Null and alternative form.
The null is the hypothesis one need to reject it states that the variables are mot related. The alternative is the compliments of the null hypothesis, once the null is rejected with the help of both statistical and quantitative analysis the alternative will be accepted and vice verse. Using the topic under study one can now establish the statement of research problem in hypothesis form.
1. Ho: the banks do not bother themselves with foreign exchange risk while transacting in foreign exchange currencies.
Hi: the banks do bother themselves with foreign exchange risk while transacting in foreign exchange currencies.
Hi: Banks do not evaluate the effect of foreign exchange exposure exposures using modern techniques before transactions.
Hi: the banks have administrative policies and control measures in place to reduce foreign exchange risk.
This research work emphasizes on the practice of foreign exchange risk management in Nigeria economy from bankers and its impacts.
Perspective: it is arranged to find out how losses on fluctuation in exchange rate are mitigated, controlled, transferred or minimized by the practitioners. Extensive investigation is conducted on the techniques or tools used and preference (if any) and why such.
This work is restricted to the bank under study. And no attempt was made to compare findings with what is obtained in other banks within the same sector. Information was obtained from head office of banks treasury, foreign exchange/ international departments and selected investing company.
The findings of this study will throw more light on the role of foreign exchange risk and why it is good for every organization.
As previously mentioned earlier foreign exchange risk management practice is not yet at it’s fullest in Nigeria. Few works are in existence on the subject in Nigeria seminars papers, work shop conference proceeding and few text are available.
Also, in the process of gathering the material needed for the project work and data that are relevant for the project the following constraints were witnessed; constraints to data availability, time duration posed a limitation, and the cost to get data and materials was experienced.
Since the historical emergence from the merger of former Standard Trust Bank and U.B.A Plc, the U.B.A group was positioned itself to be Nigeria dominant bank and a leading player in African continent. In 2000, Europe’s frontline finance and economy magazine, Euro money named UBA The Best Domestic Bank in Nigeria, in recognition of the banks exponential growth for the past couple of years and the comparatively higher inflow of investment from global finance player and in 2007 pan African Newsmagazine awarded UBA the Emerging Global Bank which has most positively influenced the African continent.
UBA has consistently positioned itself as the bank to beat in Nigeria financially strong banking industry. It has grown total assets by over 345.01 percent in the last five years, up from NGN 198.68 billion ($ 1.656 billion) in 2002 to NGN 884.14 billion central bank of Nigeria, 2007 Bulletin. ( $ 7.368 billion) in 2006 more recently, at the end of 2008 financial year, it recorded gross earnings of NGN 169.6 billion, profit before tax and exceptional items of NGN 56.8 billion and total assets of NGN 2.2 billion (central bank of Nigeria 2008 bulletin)
UBA has the largest distribution network in Nigeria with over 6.5 million customers in personal, commercial and corporate market segments, it has over 14,000 staff globally who are also referred to as a “lions and lioness”
Regionally, the group has a presence in 18 African countries and in all major financial centres. The bank currently operate in Nigeria, Ghana, Ivory coast, Cameroon, Sierra Leone, Liberia, Uganda, Benin, Burkina Faso and, Senegal, and has unfolded plans to expand its banking operations to 15 additional countries in African.
UBA is the only sub-Saharan Bank with dual presence in the U.S and the UK. It is under the direction of its G.M.D/C.E.O; Phillip Oduza the management team of the group is made up of people with skills in various backgrounds as well as depths of experience.
