EFFECT OF EXCHANGE RATE POLICIES ON THE PERFORMANCE OF DEPOSIT MONEY BANKS

TABLE OF CONTENTS

Title page i

Certification ii

Dedication iii

Acknowledgement iv

Table of Contents vi

List of Tables x

Abstract xii

CHAPTER ONE: INTRODUCTION 

1.1 Background to the Study 1

1.2 Statement of the Problem 3

1.3 Research Questions 6

1.4 Research Objectives 6

1.5 Research Hypotheses 7

1.6 Justification of the Study 7

1.7 Scope of the Study 8

1.8 Organization of the Study 9

CHAPTER TWO: LITERATURE REVIEW

2.0 Introduction 10

2.1 Conceptual Review 10

2.1.1 Exchange Rateand its Regime in Nigeria 10

2.1.2 Exchange RateManagement and Volatility 13

2.1.3 Causes of Exchange Rate Volatility 14

2.1.4 Exchange Rates Fluctuations and Financial Performance of Banks 16

2.1.5 Bank Performance Measurement 18

2.2 Theoretical Review 22

2.2.1 The Purchasing Power Parity (PPP) Theory 23

2.2.2 The International Fisher Effect 24

2.2.3 The Asset Approach 25

2.2.4 The Monetary Approach 26

2.2.5 The Portfolio Balance Model/ Theory 27

2.3 Empirical Review 28

2.4 Gap identified in the Literature 37

CHAPTER THREE: RESEARCH METHODOLOGY

3.0 Introduction 38

3.1 Model Specification 38

3.2 Research Design 41

3.3 Population of the Study 42

3.4 Sample Size and Sampling Technique 42

3.5 Sources of Data Collection 43

3.6 Method of Data Analysis 43

3.7 Variable Measurement  44

CHAPTER FOUR: RESULTS AND DISCUSSIONS

4.0 Introduction 46

4.1 Regression Analysis 46

4.2 Restatement and Testing of Hypotheses 57

4.2.1 Exchange rate policies and efficiency of deposit money banks 57

4.2.2 Exchange rate policies and solvency of deposit money banks 57

4.2.3 Exchange rate policies and liquidity of deposit money banks 58

4.2.4 Exchange rate policies and financial market performance 58

4.3 Discussion of Findings 58

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.0 Introduction 61

5.1 Summary 61

5.2 Conclusion 63

5.3 Recommendation 64

REFERENCES 66

APPENDIX I 73

APPENDIX II

ABSTRACT

Nigerian exchange rates have been fluctuating in relation to major international currencies due to several factors among which are changes in the policies of the government. These policies are usually targeted at protecting the foreign exchange values, preserving the external reserves, maintaining favourable balance of payment and financial equilibrium. This is perceived to have manipulative effect on operations of banks as well as their performance. In view of this, this study seeks to examine the effect of exchange rate policies on the performance of deposit money banks. The specific objectives were to: (i)examine the effect of exchange rate policies on deposit money banks’ efficiency, (ii) evaluate how exchange rate policies affect solvency of deposit money banks in Nigeria, (iii) investigate how exchange rate policies affect liquidity of deposit money banks in Nigeria, (iv) examine how exchange rate policies affect financial market performance of deposit money banks in Nigeria.Ex-post facto research design was used and the time series data of 8 deposit money banks were collected over the period under review (2005 – 2017). The technique used was multiple linear regression analysis. Hausman test was used in ascertaining the stationary state and relationship between the time series variables. The study revealed that (i)increase inflation rate and exchange rate lead to decrease in banks’ efficiency while increase in monetary policy rate leads to an improvement in banks’ efficiency, (ii) increase in inflation rate and monetary policy rate lead to increase in solvency of deposit money banks while increase in exchange rate reduces the solvency of deposit money banks in Nigeria (iii) increase inflation rate, monetary policy rate and exchange rate lead to decrease in banks’ liquidity, (iv) increase inflation rate, monetary policy rate and exchange rate lead to decrease in financial market performance The study therefore recommended thatbank managers should regularly analyses how exchange rate affects their revenue from different stream, and avail appropriate strategy, Regulatory body shall also focus on the composite effect of exchange rate variation and ensure the availability of policy that enforces banks to analyses how their revenue from different sources is affected by exchange rate, the board of director should focus more on effective management of the bank foreign exchange risk as it serves as the major source of income the bank and determine the success of the bank in the long run.