PENTECOST UNIVERSITY COLLEGE
FALCULTY OF BUSINESS ADMINISTRATION
(DEPARTMENT OF ACCOUNTING AND FINANCE)
THE IMPACT OF BLACK MARKET OPERATIONS ON THE FORMAL
EXCHANGE RATE SYSTEM IN GHANA
THEOPHILUS BUCKMAN
PUC/140137
SUPERVISOR
MR. SETH APPIAH-KUBI
A DISSERTATION SUBMITTED TO THE PENTECOST UNIVERSITY
COLLEGE, DEPARTMENT OF ACCOUNTING AND FINANCE IN PARTIAL
FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF A DEGREE IN
BUSINESS ADMINISTRATION
(BANKING AND FINANCE).
APRIL, 2018
DECLARATION
I hereby do solemnly declare that the work presented in this study has been carried out by me
and been presented in partial fulfillment of the requirement of the award of Bsc. Banking and
Finance.
I affirm that, to the best of my knowledge, this work has not been submitted to any other
university for any award except for the references of the author’s work, which has been duly
acknowledged.
I further take responsibility for any error in or mistake in this work as well as undertake to
indemnify the University against any such loss or damage arising from breach of foregoing
obligation.
THEOPHILUS BUCKMAN
(STUDENT ID: PUC/140137)
……………………
SIGNATURE
…………………….
DATE
CERTIFIED BY:
MR. SETH APPIAH-KUBI
(SUPERVISOR)
…………………………
SIGNATURE
…………………………
DATE
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DEDICATION
This work is dedicated to the Lord Almighty for granting me the strength and wisdom in carrying
out this project. I also dedicate this work to my mother, Madam Margaret Asamoah, my father
Mr. Christian Buckman, my sister, Abigail Buckman and my supervisor, Mr. Appiah-Kubi.
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ACKNOWLEDGEMENT
The people who supported me throughout the study deserve to be acknowledged.
Special thanks go Mr. Appiah-Kubi for his supervision. I appreciate his intellectual guidance,
time and effort spent for the completion of this project. Also, I am grateful for the lovely support
showed to me by Rev. Charles Biney and Miss Leticia Anderson as well as friends. I am always
grateful.
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ABSTRACT
The main objectives of the study were to examine the impact of the black market operations on
the formal exchange rate system in Ghana, make a comprehensive study of the structure of the
black market and the key participant and their roles, To investigate the efficiency of the black
market by looking at how the market transmit information on the exchange rates over time and to
examine the demand and supply for currencies in the black market. Purposive sampling was used
for the research.
Questionnaires were administered to all respondents. The main findings of the study indicated
that, the black market is an exchange rate system and therefore people go there to exchange
currencies. The market can be located at many places in the Accra metropolis. Information
obtained were analysed with tables, chairs and text. The study concludes that, the black market is
an exchange rate system. It also concluded that the black market operation does not affect the
formal exchange rate system in Ghana.
It is therefore recommend that, the participants in the formal exchange rate system should
promote togetherness between themselves in order to strengthen industry.
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TABLE OF CONTENTS
DECLARATION………………………………………………………………i
DEDICATION………………………………………………………………...ii
ACKNOWLEDGEMENTS…………………………………………………...iii
ABSTRACT…………………………………………………………………...iv
TABLE OF CONTENTS……………………………………………………...v
LIST OF TABLES…………………………………………………………….ix
LIST OF FIGURES……………………………………………………………x
CHAPTER ONE……………………………………………………………...1
NATURE AND BACKGROUND OF THE
STUDY..............................................................................................................1
1.0 Background..…..………………………………………………………………………...1
1.1 Problem Statement............................................................................................................4
1.2 Objectives of the study.....................................................................................................5
1.3 Research questions............................................................................................................6
1.4 Definition of terms………………………………………………………………………6
1.5 Scope and limitation of the study……………………………………………………….7
1.6 Significant of the study………………………………………………………………….7
1.7 Outline of the study……………………………………………………………………..8
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CHAPTER TWO
LITERATURE REVIEW……………………………………………………………………….9
2.0 Introduction………………………………………………………………………………....9
2.1 Overview of black market……………………………………………………………….…9
2.2 Conceptual framework…………………………………………………………………….10
2.3 Black market for foreign exchange………………………………………………………...10
2.4 The black market exchange rate …………………………………………………………..12
2.5 The background of foreign exchange black market……………………………………….14
2.6 The structure of the black market for foreign exchange in Ghana…………………….…..16
2.7 How operators of the black market operate in Ghana……………………………………..17
2.8 Statute law made against the black market for foreign exchange in Ghana………………17
2.9 Overview of formal exchange rate system…………………………………………….…..18
2.10 Foreign exchange exposure……………………………………………………………….21
2.10.1 Managing foreign exchange exposure…………………………………………………..22
2.11 Theoretical review……………..…………………………………………………………..25
2.12 The relative purchasing power (PPP) approach……………………………………….….27
2.5.2 Edwards (1989) model…………………………………………………………………...28
2.6 Overview and history of formal exchange rate regimes in Ghana………………………....29
CHAPTER THREE
METHODOLOGY…………………………………………………………………………...33
3.0 Introduction………………………………………………………………………………..33
3.1 The research design………………………………………………………………………..33
3.2 Population………………………………………………………………………………….34
3.3 Sampling technique and sample size………………………………………………………34
3.4 Data collection and sources………………………………………………………………..35
3.5 Research instrument……………………………………………………………………….36
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3.6 Statistical (data) analysis………………………………………………………………..37
3.7 Limitations……………………………………………………………………………....38
CHAPTER FOUR
PRESENTATION OF FINDINGS AND ANALYSIS
4.0 Introduction………………………………………………………………………………39
4.1 Age……………………………………………………………………………………….39
4.2 Gender……………………………………………………………………………………40
4.3 Level of Education……………………………………………………………………….41
4.4 Employment status of respondents………………………………………………………42
4.5 How often do respondents exchange currency…………………………………………..44
4.6 Quantity of foreign exchange done ……………………………………………………..45
4.7 How much money respondents exchange……………………………………………….46
4.8 Reasons why respondents exchange currency…………………………………………..47
4.9 Where exchange of currency is done……………………………………………………48
4.10 Reasons why respondents go to black market to exchange currency………………….49
4.11 Respondents who did not choose black market were asked if they have been to
black market before………………………………………………………………………….51
4.12 Location of the black market…………………………………………………………...52
4.13 Respondents were asked if they go the black market to exchange currency or
make inquiry………………………………………………………………………………....53
4.14 The level of exchange rates at the black market………………………………………..54
4.15 Respondents satisfaction with dealings at the black market for foreign exchange…......56
4.16 If “yes” to satisfaction, things that could have gone wrong……………………………57
4.17 If “no” things that went wrong…………………………………………………………58
4.18 Respondents response to if they prefer to exchange currency at the black market again…60
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4.19 Respondents response to whether they will recommend the black market to anyone…..61
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0 Introduction…………………………………………………………………………….62
5.1 Summary………………………………………………………………………………..62
5.2 Conclusion………………………………………………………………………………64
5.3 Recommendations………………………………………………………………………66
REFERENCES…………………………………………………………………………….69
APPENDIX…………………………………………………………………………………73
QUESTIONNAIRE……………………………………………………………………….73
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LIST OF TABLES
Table 4.1 Age……………………………………………………………………………….40
Table 4.2 Gender……………………………………………………………………………41
Table 4.3 Level of Education……………………………………………………………….42
Table 4.4 Employment status of respondents………….……………………………………43
Table 4.5 How often do respondents exchange currency…………………………………..45
Table 4.6 Quantity of foreign exchange done ……………………………………………..46
Table 4.7 How much money respondents exchange……………………………………….47
Table 4.8 Reasons why respondents exchange currency…………………………………..48
Table 4.9 Where exchange of currency is done……………………………………………49
Table 4.10 Reasons why respondents go to black market to exchange currency………….50
Table 4.11 Respondents who did not choose black market were asked if they have been
to black market before……………………………………………………………………..51
Table 4.12 Location of the black market…………..……………………………….……...52
Table 4.13 Respondents were asked if they go the black market to exchange currency
or make inquiry…………………………………………………………………………....53
Table 4.14 The level of exchange rates at the black market……………………………..54
Table 4.15 Respondents satisfaction with dealings at the black market for foreign exchange...56
Table 4.16 If “yes” to satisfaction, things that could have gone wrong……………………57
Table 4.17 If “no” things that went wrong…………………………………………………58
Table 4.18 Respondents response to if they prefer to exchange currency at the black market
again………………………………………………………………………………………..59
Table 4.19 Respondents response to whether they will recommend the black market to
anyone………………………………………………………………………………………60
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LIST OF FIGURES
Figure 4.1 Age……………………………………………………………………………….40
Figure 4.2 Gender……………………………………………………………………………41
Figure 4.3 Level of Education……………………………………………………………….42
Figure 4.4 Employment status of respondents………………………….……………………43
Figure 4.5 How often do respondents exchange currency……………….…………………..45
Figure 4.6 Quantity of foreign exchange done ……………………………………….……..46
Figure 4.7 How much money respondents exchange…………….………………………….47
Figure 4.8 Reasons why respondents exchange currency…………………………………..48
Figure 4.9 Where exchange of currency is done……………………………………………49
Figure 4.10 Reasons why respondents go to black market to exchange currency………….50
Figure 4.11 Respondents who did not choose black market were asked if they have been
to black market before………………..…….……………………………………………….51
Figure 4.12 Location of the black market…………………………………………………...52
4.13 Respondents were asked if they go the black market to exchange currency or
make inquiry………………………………………………………………………………....53
Figure 4.14 The level of exchange rates at the black market………………………………..54
Figure 4.15 Respondents satisfaction with dealings at the black market for foreign
exchange……………………………………………………………………………………..56
Figure 4.16 If “yes” to satisfaction, things that could have gone wrong……………………57
Figure 4.17 If “no” things that went wrong…………………………………………………58
Figure 4.18 Respondents response to if they prefer to exchange currency at the black market
again…………………………………………………………………………………………60
Figure 4.19 Respondents response to whether they will recommend the black market to
anyone………………………………………………………………………………………..61
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CHAPTER ONE
NATURE AND BACKGROUND OF THE STUDY
1.0 BACKGROUND OF THE STUDY
Black market is a market characterized by unlawful activities. These activities are economic
activities and they include exchange of goods and services as well as it take places outside
government-sanctioned channels. Illegal, parallel, informal or shadow are some terminologies
that are established by existing literature in relation to black market. Parties that engage in
exchanging goods and services in such market are members of illegal economy. Activities that
take place in the black market are not recorded and as such, tax evasion is likely the norm of the
participants in the black market.
Cash utilization is the favored medium of trade in illicit exchanges since money used does not
leave a footprint. Normally, the totality of such action is alluded to with distinct article as a
supplement to the official economies. Black money is therefore the proceeds of an illegal
transaction, on which income and other transactions taxes have not been paid and which can only
be legitimized by some form of money laundering. Because of the clandestine nature of the black
economy, it is not possible to determine its size and scope.
There are several goods and services that are traded on the black market of which some include
weapons, drugs, alcohol, currencies and etc. The trading of currency in this market is referred to
as black market for foreign exchange. Black market foreign exchange is a clandestine market
with some aspect of ‘illegalities’ where currencies are bought and sold openly by individuals,
businesses, and others. Many countries such as United States, Britain, and other developed
countries, developing countries such as Ghana also do not allow such free markets in foreign
exchange, and hence, they put more restrictions on the dealings of foreign exchange which as
results bring about the formation of black market for foreign exchange.
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Its supply generally comes from domestic residents connected to the tourist industry as well as
its demand comes from the domestic residents travelling abroad. Exchange rate is the price of
one currency in terms of another currency and therefore the black market exchange rate is the
price at which one currency is being exchanged for another at the black market. The margin
between the black market exchange rate and the formal exchange rate system is known as the
black-premium. A significant spread between black market and official market rate may be a
signal of macroeconomics misalignments, and consequently central banks will intervene in the
official market to eliminate the spread (Kiguel and O’Connell, 1995). Hence there is the need to
investigate whether operations in the black market have impact on the formal exchange rate
system in Ghana.
From 1983, Ghana embarked on an economic recovery program (ERP), with an important
feature which was trade and foreign exchange liberalization. This called for a legalization of the
black market into foreign exchange bureaus (Kofi A. Osei, 1996). Meanwhile, there is still an
increasing foreign exchange activities which is been done openly without any regulation. It has
always been the monopoly of the central bank and some commercial banks that were designated
as authorized dealers in the dealings of foreign exchange until February 1988, which the foreign
exchange bureaus came into existence.
Due to exchange controls, the replacement of foreign currencies for local currencies happens
through the black market and it might be viewed as the market setting equilibrium exchange rate
that mimics the activities of the market powers. The adjustment takes place next to the other with
an official exchange rate standard. The outcome of the foreign exchange rate devaluation prompt
an ascent in an expected come back from holding foreign assets and so tend to expend the
opportunity cost for holding household money.
Foreign exchange is defined as a system by which one currency is exchanged for another
currency and the transaction is carried out on the spot market or future exchange market. The
spot rate also known as the nominal exchange rate is the present rate at the market for the
exchange whiles the future market is cited and exchanged in the present time frame for future
conveyance. The nominal exchange rate measures the value of one currency in terms of another
and it can be expressed in two ways: the direct and the indirect quotation (Clement, 2013).
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More often, there are two types of formal exchange rate systems that are practiced. These are
fixed exchange rate system and floating exchange rate system. Fixed exchange rate system is a
system where the currency rate is pegged to another country’s currency. Where the currency is
pegged to another, there is a currency fluctuation within the narrow margin. Floating exchange
rate system has two types; namely the free float system and the managed floating exchange rate
system. Free float is where the country’s market demand and supply are allowed to determine the
free-market exchange rate. Managed floating on the other hand is an exchange rate system where
rates are determined by market forces (demand and supply) and stabilized with intervention
rules.
In economic growth, price level changes and the interest differentials in turn will have effect on
the supply and demands of currency; hence any changes in the economic parameters, market
participants will adjust the currency and the expected future currency needs accordingly. This
type of exchange rate system is also known as pure float and that is exchange rates are
determined by the market forces and not the involvements of public sector interventions.
Adler and Dumas (1984) according to them, exchange risk is the responsiveness of exchange rate
risk to economic reaction. Exchange rate sensitivity plays a role on the rate of returns of foreign
investors who tend to invest in the domestic market and domestic investors who tend to invest in
foreign market. Currency risk is not the same as the currency exposure. The exposure from
currency exchange rates comes in three forms; transaction exposure, economic exposure and
translation exposure. These exposures are of importance as they help in understanding the
concept of foreign exchange exposure. This paper therefore capture into details the major
parameters of the area the researcher is delving into.
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1.1 PROBLEM STATEMENT
Black markets for foreign currency develop mainly as a result of government restrictions on
capital outflow. Black markets for foreign currencies open up the financial markets of a country
to international forces and among other effects raise the costs and lower the benefits of
overvalued exchange rates and restricted commercial policies.
It has increased in size and sophistication in recent years, mainly because of a combination of
institutional, technological and economic changes (Banuri, 1989).
Black market for foreign currency develops in conditions for excess demand for a particular
currency subject to legal restriction on sale or to official price ceilings or both. Generally, the
supply of foreign currency such as dollar on the black market come from four possible sources:
under-invoicing or smuggling of export, over-invoicing of import, foreign tourist and worker
remittances sent from abroad.
The effect of illegal transactions, including black markets of foreign exchange, has been
explored by several authors. Those including adopting a monetary approach view the black
market as a financial phenomenon, emerging out of a disequilibrium exchange rate in the
macroeconomic sense (Banuri, 1989). Thus Blejer (1978) assumes that the black market is
simply a means of adjusting private portfolios in the face of capital controls. Similarly, Gupta
(1980) sees illegal foreign currency as a n alternate asset, whose relative price (the black market
premium) is determined by domestic money supply, real income, interest rate, the world price
level, and the price of precious metals.
In contrast, there are partial equilibrium models of the real economy, which see the black market
simply as a sideshow. These include: Sheikh (1974, 1976), who attempts to estimate the welfare
consequences of smuggling and its connections to capital flight and the black market; Culbertson
(1975) who examines the link between purchasing power parity and the black market exchange
rate.
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Hence, there is the need to examine this market and know the proper policy direction that has to
be taken in an economy like that of Ghana. There is now an active black market for foreign
exchange in almost every city in Ghana of which several articles has been published online to
back this fact. For instance; on the 25th January, 2016, an author by the name Abdul-Karim
Mohammed published an article entitled, the booming black market foreign exchange business in
Accra on graphic online (www.graphic.com.gh).
Well-organized research into black market for foreign exchange which is done openly without
regulation in Ghana is not adequate and hence, this research is therefore an attempt to fill this
gap. Moreover, there is a real need for a high degree of knowledge for the proper policy direction
of this market. This research will therefore look at the black market as an exchange rate system
alongside the formal exchange rate system in Ghana. Also, the study will concern itself on
whether the operations of the black market for foreign exchange affect or have impact on the
formal exchange rate system in Ghana. It is hoped that, the study will form a basis for future
research to be conducted on the foreign exchange (black market) activities done openly without
any regulation.
1.2 OBJECTIVES OF THE STUDY
To meet the general objective of the study which is to make known the impact of the black
market operations on the formal exchange rate system in Ghana, the study will focus on the
following specific objectives.

To examine whether the black market is an exchange rate system alongside the formal
exchange rate system in Ghana.

To give an overview of the formal exchange rate system in Ghana

To examine whether the operations of the black market affect or have impact on the
formal exchange rate system in Ghana.
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1.3 RESEARCH QUESTIONS
The research addressed the following relevant questions or statements:

The Black market an exchange rate system

The formal exchange rate system in Ghana

The black market operations does not affect or have impact on the formal exchange rate
system in Ghana
.
1.4 DEFINITION OF TERMS
The following terms are used in the study frequently and therefore have to be defined.

Black market

Exchange rate

Formal exchange rate

Operations
Black market is a forum whereby goods or services are exchanged illegally. What makes the
market "black" can either be the illegal nature of the goods and services themselves or the illegal
nature of the transaction or both. Examples of goods that are bought and sold in a black market
include currencies, drugs and etc. Black market in currencies refers to the illegal or parallel
market in foreign exchange in various countries around the world (Staff, 2013). Black market
foreign exchange is a clandestine market with some aspect of ‘illegalities’ where currencies are
bought and sold openly by individuals, businesses, and others.
Exchange rate is the price of one currency in terms of another currency and therefore the black
market exchange rate is the price at which one currency is being exchanged for another at the
black market.
Formal exchange rate system is therefore the legal exchange of currencies. Participants in the
formal exchange rate system include the banks and the Forex bureaus.
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Operations: This can be referred to as the day to day activities or transactions that take place in
a business environs. It is also a planned activity involving many people performing various
actions. An example is the act of buying or selling currencies.
1.5 SCOPE AND LIMITATIONS OF THE STUDY
This study will concentrate on the impact of black market for foreign exchange on the formal
foreign exchange rate systems in Ghana by looking at specific cities (Sowutuom, Santa Maria,
Lapaz and Kwashiman) where respondents were chosen within Accra Metropolis. The study will
therefore cover a lot concerning the issue but will have to be completed within a period one
academic year.
Primary data collection in Ghana is difficult in terms of confidentialities and unconcerned
behavior on the part of the interviewees and respondents. Unwillingness of interviewees to
corporate with the researcher at the beginning of my study will delay my results.
There is insufficient fund to carry out necessary findings about the research as well as limited
time available for the completion of this project.
1.6 SIGNIFICANCE OF THE STUDY
There is now an active black market for foreign exchange in almost every city in Ghana of which
there has not been any well-organized research about this emerging market trend and as such this
study will assist the regulatory bodies in relation to foreign exchange activities to make proper
policies that will slow down the growth of this market or if possible eliminate it from the
Ghanaian economy.
This study will also enable the players in the formal exchange rate system to lay down some
measures in order to compete against the black market for currencies by way of ensuring
collaboration. It will also help the banks, Forex bureaus and other financial institution that play a
role in the formal exchange rate system to identify and know the perception the public has about
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exchanging currencies in both the black market and the formal exchange rate system. The study
will also make known some risk associated with dealings in the black market and this will create
awareness of the fact that dealing in the black market carries some level of risk to the public.
1.7 OUTLINE OF THE RESEARCH
This study is structured into five chapters. Chapter one deals with the introduction of the study,
statement of research problem, objectives, scope, significant of the study as well as the research
hypothesis. Chapter two reviews the various theories which form the basis for the study as well
existing literature on the impact of black market operations on the formal exchange rate system.
The third chapter is on the methodology aspect and focuses on the techniques that would be used
to achieve the study objectives. Chapter four would concentrate on the result and discussion of
the findings from the study whiles chapter five looks at the summary of the major findings,
conclusions and recommendations of the study.
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CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION
This chapter reviews existing literature on black market for foreign exchange and the impact it
has on official exchange rate. The literature is also presented in order of the specified objectives
of the study including definition of terms related to it. This research activity enables the
researcher to recognize with gratitude of the theoretical and empirical basis of the research topic.
2.1 OVERVIEW OF BLACK MARKET
Black market is an illegal market in which goods and services are bought and sold in violation of
rationing or controls. They are economic activity that takes place outside government-sanctioned
channels. Existing literature on black market has not established a common terminology but
rather offered many synonyms which include clandestine, illegal, parallel, informal, grey,
shadow and etc. There is no single underground economy; there are many. These underground
economy are omnipresent, existing in market oriented as well as certainly planned nations, be
they developed or developing.
Black market transactions usually occur “under the table” to let participants avoid government
price controls or taxes. These transactions have some aspect of illegalities or characterized by
some form of noncompliant behavior with an institutional set of rules. If the rules defines the set
of goods and services whose production and distribution is prohibited by law, non-compliance
with the rule constitute a black market trade since the transaction itself is illegal.
Parties engaging in the production of prohibited goods and services are members of the illegal
economy. Examples include drug trade, illegal currency transactions and human trafficking.
Violations of the tax code involving income tax evasion constitute membership on the
unreported economy.
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Since tax avoidance in the bootleg economy is unlawful, members will endeavor to conceal their
conduct from administrative authority. Cash utilization is the favored medium of trade in illicit
exchanges since money used does not leave a footprint. Common intentions in working in
underground market are to exchange stash, stay away assessment and directions, or skirt value
controls or apportioning. Normally, the totality of such action is alluded to with a distinct article
as a supplement to the official economies; by advertise for such merchandise and ventures, e.g.
the underground market in shrub meat.
Black money is therefore the proceeds of an illegal transaction, on which income and other
transactions taxes have not been paid and which can only be legitimized by sine form of money
laundering. Because of the clandestine nature of the black economy, it is not possible to
determine its size and scope. There are several goods and services that are traded on the black
market of which some include weapons, illegally logged timber, illegal drugs, prostitution,
alcohol, tobacco, racketeering, currencies and many others.
2.2 CONCEPTUAL FRAMEWORK
Black market for foreign exchange refers to the illegal or parallel market in foreign exchange in
various countries around the world. The currency black market forms part of the underground
economy by virtue of operating outside legal banking channels. This section will look at the
conceptual framework of the study by drawing the relationship between the black market
exchange rate and the formal exchange rate system in Ghana.
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Independent variables
Dependent Variable
Formal Exchange Rate System
Banks
The Black Market Exchange Rate
Forex Bureaus
Other Financial Institution
2.3 BLACK MARKET FOR FOERIGN EXCHANGE
In a currency black market, cash transactions are almost always the norm, since participants
would be obviously reluctant to leave any trace of their involvement in such transactions.
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The black market for currency exist and typically spring up in countries that have the following
characteristics in common:

Weak economic fundamentals, such as a high rate of inflation and limited foreign
exchange reserve.

Strict currency controls that limit the amount of foreign currency available to residents.

A fixed exchange regime where the domestic currency is pegged at an unrealistic high
exchange rate to the U.S dollar or another global currency.

A lack of confidence among the citizenry in the value of the domestic currency.
Black markets for foreign exchange are a widespread phenomenon in developing countries. The
existing literature illustrates that the black market for foreign exchange emerges as a result of
two spectra of policies (Koji, March 2015). One exchange rate regimes whereby authorities
target the exchange rate to a specific level or band, leading to excess demand foreign exchange
and rationing in the official market (Kiguel and O’Connell 1995).
When the official exchange rate overvalues the domestic currency vis-‘a-vis foreign currencies,
excess demand would arise for foreign exchange in the official market (Koji, March 2015).
Authorities then need to restrict access to the official market, which in turn leads to the
emergence of the black market wherein foreign exchange is traded at a premium. To maintain the
supply of foreign exchange in the official market, authorities need to tighten the surrender
requirements on the export earnings; otherwise, exporters would channel their export earnings to
the black market for higher returns until the exchange rates in two markets equilibrate (Koji,
March 2015).
The difference between the black market exchange rate and the official exchange rate is known
as the black-premium. A significant spread between the black market and official market rate is a
signal of macroeconomic misalignments and consequently central banks will intervene in the
official market to eliminate the spread (Kiguel and O’Connell, 1995). As the premium on the
black market exchange rates rises, the tighter are the controls that authorities need to implement.
The other policy area involves restrictions on foreign trade transactions and capital controls
(Agenor and Haque 1996). There are several components in this category of policies. One is the
controls on import by quotas, and another is high tariffs and taxes on imports (Koji, March
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2015). Yet another is capital controls that restrict domestic residents’ holdings of foreign assets.
Koji (2015) added that, in order to circumvent these restrictions, domestic residents turn to black
market, where by they raise foreign exchange to settle payments for illegal purchases of
restricted foreign goods and foreign assets.
Whatever the root causes of the black market for foreign exchange, illegal trades are the primary
source and the use of foreign exchange in the black market. Exporters seeking to obtain a higher
return from their sale of foreign exchange use illegal trade such as under-invoicing and
smuggling to channel to channel their export earnings to the black market. Furthermore, when
importers’ access to the official foreign exchange market is restricted, they resort to the illegal
imports using foreign exchange raised in the black market (Koji, March 2015).
In contract, the bootleg market containing unapproved exchanging partner may not combine the
other two dimensions when foreign exchange for (from) legitimate use (source) is exchanged at
costs inside the solicit offer spreads from the official market. Such black market black market
exchanges are generally cash based, for small amounts, including overseas travelling
consumptions of inhabitants. In any case, contingent upon foreign exchange controls, such
transactions can take place between exporters and importers for substantial sum exchanges.
2.4 THE BLACK MARKET EXCHANGE RATE
This section is to examine existing literature on how the black market participants specifically
the sellers do set their exchange rates and the relationship it has on the official exchange rate.
Exchange rate is the price of one currency in terms of another currency or it’s the value of one
currency for the purpose of conversion to another. Therefore the black market exchange rate is
the price at which one country’s currency is being exchange for another at the black market, thus
the transaction is done illegally. The difference between the black market exchange rate and the
official exchange rate is called the black-premium. A significant spread between the black
market and the official market rate may be a signal of macroeconomics misalignments, and the
consequently central banks will intervene in the official market to eliminate the spread (Kiguel
and O' Connell, 1995)
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According to (Rehman & Afzal, 2003), most of the developing countries with exchange controls
or restrictions, both black market exchange and official exchange rate exist and operate
simultaneously; with substantial discrepancies between official and black market exchange rates
in these countries. Historically, Pakistan’s exchange rate framework has been managed floating
type combined with a lot of regulation.
In Pakistan, with exchange controls, it has been observed that two kinds of foreign exchange
rate, official and black market exchange rate exist and operate next to the other. Individuals tend
to alter their wealth portfolio by substituting foreign currency for domestic money whenever they
expect foreign exchange rate depreciation. This adjustment takes place mostly in the black
market.
Due to the trade controls, the substitution of foreign currency for local money happens through
the black market and it might be viewed as the market setting equilibrium exchange rate that
mirrors the activity of the market powers. This adjustment happens next to the other with an
official exchange rate standard. The expectation of the foreign exchange rate devaluation prompt
an ascent in an expected come back from holding foreign assets and, thusly, tend to expand the
opportunity cost for holding household money.
Blejer (1978) examined the effects of the black market exchange rate expectations on the
domestic demand for money in three developing countries namely Brazil, Chile, and Columbia
with foreign exchange. His study concluded that a depreciation in the black market exchange rate
led to a decrease in domestic money demand. He contended that in nations where there is
discrepancy between the official and the black market exchange rate was quite observable.
Following Blejer (1978) and (Hassan, Choudhury, & Waheeduzzaman, 1995) investigated the
money demand function in Nigeria using quarterly data from the period of 1976-88. Like Blejer,
he used conventional regression analysis and his study supported the findings of Blejer (1978).
He concluded that expected black market exchange rate depreciation had a significant impact on
the domestic money demand causing an effect on the official exchange rate. He pointed out that
depreciation in the black market exchange rate led to a decrease in demand for money and
suggested that it should be taken into account in the execution on monetary policy.
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Furthermore, since the black market exchange rate is the product of exchange restrictions or
controls, it should not be regulated because it might lead to the flight of capital through illegal
means (Hassan, Choudhury, & Waheeduzzaman, 1995).
Arize and Shwiff (1998) tried to estimate a money demand function that included the black
market exchange as another determinant of the demand for money in 16 developing countries
using annual data from 1951 to 1988.
The primarily motivation behind their investigation was to test experimentally the suggestion
inferable from Bahmani-Oskoee (1996) that in a nation where “there is a bootleg market for
remote monetary forms, it is the underground market swapping scale and not the official rate that
ought to go into the formulation for demand for money.”
Through the Hausman test, they found that the underground market exchange rate is a proper
regressor in the empirical specification in the money demand function which confirmed
Bahmani-Oskoee (1996) hypothesis. The authors recommend that the policy makers and
monetary authorities in these countries should use currency depreciation to bring together the
underground market with the official market for foreign exchange while following stabilization
strategies.
Arize and Shwiff (1998) estimated the money demand function from 25 developing countries
utilizing an indistinguishable strategy from they had utilized for 16 developing countries. They
found the black market exchange rates as a vital money demand function.
Tabesh (2000) explored the interest for money in Iran utilizing yearly information over the 195994 periods. The principle reason for his examination was to test regardless of whether a long-run
interest for genuine M2 money in Iran is determined by real income, the inflation and expected
black market exchange rate. Tabesh (2000) inferred that in a steady money demand function,
speculation as to black market exchange rate, alongside real income and the inflation determined
the household interest for real money balances.
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2.5 THE BACKGROUND OF FOREIGN EXCHANGE BLACK MARKET
IN GHANA
One of the pressing economic problems faced by all post-independence Ghanaian government
was the devaluation of the currency. In 1961, Ghana broke with the British pound sterling and
pegged the value of the cedi to the US dollar. As Ghanaian terms of trade worsen in 1960s, the
real value of the cedi fell; however successive governments feared wither to float the cedi or to
adjust its value, thereby raising the cost of import and consumer prices.
The overvalued cedi, on the one hand, and low, regulated prices for commodities, on the other,
led to a robust smuggling industry and to an extensive black market in currency. It became a
common practice for Ghanaians, especially those living along the country's border, to smuggle
Ghanaian produce such as cocoa and minerals into neighboring francophone countries. After
selling on the local market, Ghanaians would then return home and trade their hard currency
Central African francs for cedis on the black market, making handsome profits.
Smuggling and illegal currency operations had become so extensive by 1981 that the black
market rate for cedis was 9.6 times higher than the official rate, up from 1.3 in 1972. At the same
time, reliable estimates placed transactions in the parallel economy at fully one-third of Ghana's
GDP. It has always been the monopoly of the central bank and some commercial banks that were
designated as authorized dealers in the dealings of foreign exchange until February 1988, which
the foreign exchange bureaus came into existence.
From 1983, Ghana embarked on an economic recovery program (ERP), with an important
feature which was trade and foreign exchange liberalization. This called for a legalization of the
black market into foreign exchange bureaus (Kofi A. Osei, 1996).
In September 1986, the government sought alternative methods for establishing the value of the
cedi. At that time, the government relinquished its direct role in determining the exchange rate.
The rate was instead determined at regular currency auctions under the pressure of market forces
on the basis of a two-tier exchange-rate system, with one rate for essentials and another for nonessentials. In April 1987, the two auctions were unified.
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In subsequent reforms also designed to diminish smuggling and illegal currency dealings, private
foreign-exchange bureaus were permitted to trade in foreign currencies beginning at the end of
March 1988. By July 1989, there were 148 such bureaus operating, ninety-nine in Accra and
thirty in Ashanti Region, with the remainder in other urban centers.
2.6
THE
STRUCTURE
OF
BLACK
MARKET
FOR
FOREIGN
EXCHANGE IN GHANA
Market structure refers to the number and size distribution of sellers and buyers and the extent of
product differentiation (Brigham and Pappas, 1976). Seo (1991) indicates the five important
determinants of market structure as; sellers’ characteristics, buyers’ characteristics, product
characteristics, conditions of market entry and exit, and economies of scale.
The buyers and sellers of currency as well as the volume of purchases and sales from the black
market are hard to determine under market structure for black market due to the clandestine
nature of the market. Currency availability, pricing and problems related to the market are also
hard to determine. Buyers and sellers in this market trade “under the table” and therefore it is
difficult for the researcher to lay hands on the exact numbers of buyers and sellers who deal in
this parallel market.
Buyers in this market are dominated by traders followed by Ghanaians purchasing the cedi with
a foreign currency in order to spend in cedis. The main suppliers of foreign currencies are from
Ghanaians who receive remittances regularly from their relatives overseas. Sellers in this market
are dominated foreign nationals who look like nationals from the neighboring countries.
The black market for foreign exchange can be found in almost all the ten (10) regions. They are
situated mostly in the cities where there are large commercial activities. For instance in Accra,
the market is common in cities with huge commercial activities such as Accra-Tudu, Cricle, Cow
Lane, Nima and etc. In regions without much commercial activities, the demand and supply
volumes are usually smaller and since the purchases are usually not for commercial purposes,
most of the transactions are low in value. Hence the volume of currencies traded in this market is
low.
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2.7 HOW OPERATORS OF THE BLACK MARKET OPERATE IN
GHANA
Operators of the black market for currencies operate in an open space without any office and
they are mostly non Ghanaians. They target areas with heavy commercial activities and set up an
avenue for brisk currency trade. They sit on benches and brazenly call for customers fearlessly
with the promise for better deal than offered by official dealers. These operators do not issue any
receipt for transactions made (purchases and selling) neither do they computerize their activities.
Due to thus reason, they are able to forfeit in paying taxes and other fees to the government.
2.8 STATUTE LAW MADE AGAINST THE BLACK MARKET FOR
FOREIGN EXCHANGE IN GHANA
Statute laws are written laws set down by a body of legislature or by a singular legislator (in the
case of absolute monarchy). This is as opposed to oral or customary law; or regulatory law
promulgated by executive or common law of the judiciary. Statutes may originate with national,
state legislatures or local municipalities. Statutes that have been organized by a subject matter in
this case “black market” is termed as codified law.
The Bank of Ghana is the central bank for Ghana and has the right to make laws that ensure the
smooth operations of the banking system and other financial institution. They are responsible for
controlling the demand and supply of foreign currencies in the country and as such can act as a
legislative body to make by-laws that will enforce proper circulation of both domestic and
foreign currencies. Since black market for foreign exchange deals in illegal buying and selling of
foreign currencies, the Bank of Ghana (BoG) has laid down certain regulations against the
operations of the participants in the black market.
According to section 29 of the Foreign Exchange Acts 2006, it is a crime to deal in exchange of
foreign currencies without license. The 2014 Bank of Ghana regulations also require Forex
operators to computerize their operations by adopting the certified software approved by BoG.
Operators are also to cease issuing manual receipts and only issue electronic receipt for all
transactions (purchases and sales) in the format prescribed by Bank of Ghana.
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They are further required to keep electronic records of all purchases and sales that will include
the name of the customer, the date of transaction and the amount purchased or sold and proof of
identity, such as passport, a voter’s or national ID or a driving license. They are also to submit
monthly returns electronically to the BoG within a period of a five working days after the end of
the month, with no manual returns being accepted.
These requirement or regulations laid down for Forex operators are to be followed when
exchanging currencies and contrary to that makes the transaction illegal. It therefore can be
concluded that deals made on the black market for foreign exchange are one illegally since none
of these requirements are being complied to.
2.9 OVERVIEW OF FORMAL EXCHANGE RATE SYSTEM
This section reviews the previous literature and articles behind official exchange rate system as
this research paper seeks to find the impact of black market operations on an official exchange
rate system. Foreign exchange is defined as the system by which one currency is exchanged for
another and it enables international transactions to take place. Olweny and Omondy (2011)
define exchange rate as the price paid for a country’s currency relative to another country’s
currency.
Exchange rate is therefore referred to as the price at which one currency is exchanged for another
currency and the transaction is carried out on the spot market or forward exchange markets. The
spot also known as the nominal exchange rate is the present market for the exchange rate whiles
the forward market is cited and exchanged in the present time frame for future conveyance. The
nominal exchange rate measures the value of one currency in terms of another and it can be
expressed in two ways: the direct and the indirect quotation (Clement, 2013).
The indirect citation communicates the cost of a foreign currency relative to the local currency.
By assumption; let say the Ghana cedi is the home currency and the United States of America
dollar (USD) is the foreign currency, an indirect quotation of GHc.100 can be composed as USD
/ GHc.100. The direct quotation then again communicates the price of the local currency in terms
of a foreign currency.
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A direct quotation in this situation will be the units of the USD per Ghana Cedi. The spot rate is
especially helpful since it is straightforwardly detectable along these lines making it conceivable
to look at the cost of products. An issue that emerges with the spot rate however is that it
neglects to demonstrate an adjustment in the quality of a home currency concerning the home
country’s trading partners. The spot rate also fails to indicate the effect of acquiring foreign
goods and services on the exchange rate itself (Appleyard, Cobb, & Field, 2006).
The real exchange rate is the elective measure of the spot exchange rate which represents price
changes in the local country and in the trading accomplice country. One of its most important
attributes is that it is a good indicator of the overall economic performance of a country. There is
no generally agreed measure of the real exchange rate; however there are two common measures
of the real exchange rate system which are recurring in literature (Clement, 2013).
An increase in real exchange rate in indicative of a real depreciation whereas a decrease in real
exchange rate is indicative of a real appreciation (Kemme and Roy, 2006). The most common
challenge of using this definition of the real exchange rate is the problem of finding proxies as
well as identifying which price indices to use (Clement, 2013). In this case, an increase implies
real exchange rate appreciation whereas a fall in the real exchange rate indicates depreciation.
At the point when the cost of tradables rises with respects to the cost of non-tradables, the real
exchange rate deteriorates though if the cost of the non-tradables increments with respect to the
cost of tradables, the real exchange rate increases in value. This meaning of the real exchange
rate is gotten from the two-great model. Nominal exchange rates play a major role in the day to
day operation of the foreign exchange market whereas the real exchange rate is often regarded as
more significant in policy decisions and for economic performance (Clement, 2013).
Fixed exchange rate system is a system where the currency rate is pegged with other country’s
currency. Where the currency is pegged with another currency, there is a currency fluctuation
within the narrow margin. Pegged exchange rate within horizontal bands is where the value of
the currency is maintained within a present band, where through interventions endpoints are
defined, this kind of regimes allows to mix market determined rate with stabilized exchange rate
interventions Crawling pegs is a rule based system to alter the par value where small amounts of
periodical adjustments are made in currency value at a fixed pre-announced rate.
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Free Float system is where the currency’s market demand and supply are allowed to determine
the free-market exchange rate. In economic growth, price level changes and the interest
differentials in turn will have effect on the supply and demands of currency; hence any changes
in the economic parameters, market participants will adjust the currency and expected future
currency needs accordingly. This type of exchange rate system is also known as pure float and
that is exchange rates are determined by the market forces and not the involvements of public
sector interventions.
Managed Floating exchange rate system is an exchange rate system where rates are determined
by market forces (demand and supply) and stabilized with intervention rules. Here nations will
actively intervene in the foreign exchange market so as to reduce the economic uncertainty. Euro
zone is a good example for rigidly fixed regime, where the euro is the single currency for its
members. Moreover, comparing euro to all other currency, euro itself is an independently
floating currency. Forty seven (47) countries follow independent floating currencies; most of
these countries are developed countries such as Australia, Japan and etc.
In June 1993, the Reserve Bank of India made a decision that Indian currency will be allowed to
float, before it was pegged to the US dollar. Meanwhile, evidence shows that, the Indian Reserve
Bank have been intervening in the management of the exchange rate regime by increasing the
currency reserve. Hence, the exchange regime of India was said to be managed floating.
Currency Board Arrangements is a form of system practiced by countries that intend to discipline
their central bank. Under this system, the exchange rate is fixed to an anchor currency with a
legislation commitment to exchange domestic currency to specific foreign currency at a fixed
exchange rate. Monetary Union on the other hand is a system that exists in zones where there is
no separate legal tender. That is, where a single monetary policy exists with a single currency or
currencies, which are perfect substitutes, circulate freely. This form is also known as exchange
arrangements with no separate legal tender, 39 countries follow this kind regime.
Page | 21
2.10 FOREIGN EXCHANGE EXPOSURE
Adler and Dumas (1984) according to them, exchange risk is also the responsiveness of
exchange rate risk to economic reaction. Exchange rate sensitivity plays a role on the rate of
returns of foreign investors who tend to invest in the domestic market and domestic investors
who tend to invest in the foreign market. Adler and Dumas (1984) distinguish the currency risk
and currency exposure by suggesting that, a currency risk is not risky because devaluation is
likely to happen. If we know the magnitude and timing of the currency fluctuation, then no risk
at all will exist. Most firms and individuals denominate their debt in a strong currency so the
currency does not become risky, although weak currency compared to strong currency will be
less risky.
Statistical quantities are used to identify the currency risk, which gives brief statements of the
profitability that the actual value of a currency will differ on a given future date from its original
expected value. Currency risk is not the same as the currency exposure; a currency exposure
could be defined as the degree to which a company or an economy is affected by the fluctuation
in the exchange rates.
The exposure from currency exchange rate comes in three forms – transaction exposure,
economic exposure and translation exposure. These exposures are of importance as they help in
understanding the concept of foreign exchange exposure.
Transaction risk is the exposure that firms’ faces when it has gone into agreement (contract)
denominated in a foreign currency however which will be settled in later on. These contracts
include normal trading transactions on credit terms relating to both imports and exports as well
as borrowing or lending funds denominated in foreign currency or company having a foreign
exchange contract which has not yet to be fulfilled. For example, in all situations if the currency
should devaluate, the parent currency received when converted will be reduced in amount.
An adjustment in the exchange rate implies that the estimation of a future inflow or outflow will
consequently be impacted. Transaction exposure is a clear-cut measurer which does not really
mirror the exposure of the firm. However, it is often just this exposure that firm hedge, as the
transient effect from exposure on individual transactions can be hedged rather effectively by
utilizing financial instruments.
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Economic exposure is the exposure that measures the adjustments in the present value of the firm
resulting from any future operating cash flows caused by an unexpected change in exchange
rates. It can also be said that, economic exposure is the change in the value of a company,
measured by the net present value of the company’s expected after cash flow, cause by
unexpected changes in exchange rate. Unexpected currency fluctuations can affect the size and
risks of future cash flow. If the finance manager believes that foreign exchange rate exposure
will have a significant effect on the company, there are a number of hedging strategies that may
be adopted.
Translation exposure exists when firms need to translate financial statement of a foreign
subsidiary into the reporting currency of its parent in order to construct a consolidated statement.
Translation exposure arises because financial statements of foreign subsidiaries which are stated
in foreign currency must be restated in the parent’s reporting currency for the firm to prepare
consolidated financial statements. Translation exposures also known as accounting exposure
translation exposure is the results of the requirement for international companies to consolidate
activities of their foreign subsidiaries in a group-wide set of financial statement according to the
predetermined accounting rules. Assets, liabilities, revenues and expenses must be translated and
restated in terms of the company’s home currency.
Translation exposure may result in large changes in reported earnings, but this is only an
accounting reporting effect and may not have any impact on the actual cash flow of the company.
It reflects the impact of changes in value of a company’s foreign currency denominated assets
and liabilities caused by a change in exchange rate.
2.10.1 MANAGING FOREIGN EXCHANGE EXPOSURE
This section looks at alternative measure and techniques of currency risks management that can
be used to deal with translation, transaction and economic exposure. There should be a decision
as to whether to adopt an aggressive or defensive policy with respect to dealing with foreign
exchange risk. Foreign exchange exposure has increased in important due to the increase in
international trade and financing, an increase in the volatility of exchange rate and the increase in
the visibility of foreign exchange gain or losses.
Page | 23
Managing Transaction and Translation Exposure
Active management of these exposures are justified by:
1. The degree to which foreign exchange market and money markets are not efficient
2. Management’s risk aversion to higher variability in cash flow and reported earnings per
share owing to foreign exchange gains and losses
Foreign exchange and money markets display efficiency at some periods but are unlikely to be
consistently efficient. Individuals or firms should take advantage of this inefficiency whenever
possible to at least protect against the exchange risks implied by such inefficiencies.
 Reasons for such inefficiencies may include:
 Gov’t intervention in the foreign exchange and money markets
 Political instability
 Changes in tax laws
 Other gov’t restriction such as exchange controls
Even when markets are efficient individuals or firms should prepare for eventualities such as
unexpected changes in the spot rate. It is extremely difficult to eliminate both transaction and
translation exposure simultaneously because translation exposure does not constitute cash flow
whereas transaction exposure does. The latter involves a realized loss or gain. As such the
management of translation exposure is not advocated.
Hedging:
Hedging may be defined as the partial or total elimination of a risk by some compensating
action. In order to assess whether to hedge or no hedge, strategy is to be undertaken, it is
important to evaluate all the cost involve in making a decision
Most hedging strategies involve fees or transaction cost, which can be considerable especially if
options are involved. A company or individuals must first identify the foreign exchange risk that
exist, and then decide whether or not such risks are material and acceptable. If the risks are not
considered as acceptable, then the risks must be hedged with the cheapest effective means of
protection.
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There are different hedging methods or strategies that can be used to manage foreign exchange exposures.
These include:

Leading and Lagging

Exposure Netting

Currency Invoicing

Money Market Hedges

Foreign Currency Borrowing

Currency Risk Sharing

Currency and Interest Rate Swaps

Foreign Currencies Options
Managing Economic Exposure
The management of economic exposure is justified by the deviation from the purchasing power
parity theory (PPP). This absolute version of this theory states that the “price of an
internationally traded commodity should be the same in every country”
The relative version states that “if the spot rates between two countries start in equilibrium and
changes in differential rates of inflation between them tend to be offset over the long run by an
equal but opposite change in the exchange rate”. PPP holds reasonably well over the long run,
but in the short term large fluctuations are possible. As such management should therefore
manage economic exposure in times of when PPP does not hold.
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2.11 THEORETICAL REVIEW
The theoretical framework introduces various models to determine the formal exchange rate and
aims to provide definition for the exchange rate.
The Mundell-Fleming one composite good framework can also be referred to as the complete
specialization model. The model assumes that each country specializes in the production of one
good with no perfect substitute. According to this model, the real exchange rate is defined as the
number of units of the goods produced domestically that has to be foregone to gain a single unit
of a foreign good. Because these manufactured goods tend to be imperfect substitute and raw
materials may have close substitutes, the framework is therefore applicable to countries whose
trade is more of manufacturing rather than countries whose trade is focused on raw material
production (Montiel, 2003).
One of the limitations of the Mundell-Fleming one composite good model is the assumption of
complete specialization in production of goods. This implies that, the real exchange rate matches
the terms of trade; although they are separate concept. In addition to that, trade policies may
result in large fluctuations if terms of trade are not taken into account.
Furthermore, the role played by black markets, trade patterns and unrecorded trade which have a
important role in developing countries, may present a problem when applying the MundellFleming one composite good framework. It is also unclear which basket and weights of the
domestic and foreign goods should be used empirically.
The two-good model which is also known as the two-sector Salter and Swan model is an open
economy version of the aggregate demand and supply model. This model assumes two goods;
that is the tradable and non-tradables, and the real exchange rate is defined as the number of units
of the non-traded goods required to purchase one units of the traded good.
The model measures exportable and importable together as one traded good, hence the result of
the terms of trade is insignificant. The model therefore is not applicable when analyzing the
effects of changes in the terms of trade on the real exchange rate.
Although this model is more applicable to emerging countries, it poses some empirical problems.
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This is because internal RER should be measured using domestic price indexes for tradable and
non-tradable goods and these are not readily available in most developing countries. Most
countries however have price data for imports and exports of the domestically produced goods
which are used when computing the external RER. For this reason, the external RERs are often
used as proxies for internal RERs (Hinkle and Nsengiyumva, 1999). Other issues which arise in
the two-good model are in the classification of the tradable goods.
The three-goods model consist of three good, that is; importable good, exportable good and nontradable good. Due to this, two definition of real exchange rate arise in this model. Firstly, the
internal real exchange rate is the relative price of non-tradable to exportable. It can also be said
to the ratio of the non-tradable good to the domestic currency price of the exportable good.
Second definition is that, the internal real exchange rate is the relative price of non-tradables to
importable goods or in other words, it’s the ratio of the non-tradable good to the domestic
currency price of the importable good.
The first definition shows price competitiveness of exportable goods in both production and
consumption relative to non-tradable goods. Likewise, the second definition shows the internal
price competiveness of importable in both production and consumption relative to non-tradables
(Hinkle and Nsengiyumva, 1999). In the three-good model, there is a clear difference between
the prices of the importable and the exportable as a result, this framework is useful when
analyzing the macroeconomic effects of terms of trade fluctuations, as well as the effect of
commercial policy on the real exchange rate (Hinkle and Nsengiyumva, 1999).
This model suffers a drawback in its definition of the non-tradables. As it was in the case of the
two-good model, there is an array of definitions of what constitutes the non-tradables in
empirical literature. This unclearness is worsened by the various prices indexes used to
determine the importable, exportable and non-tradable.
Because of the limitations plague the internal real exchange rate, much of the empirical literature
opts for the use of a blend on the internal and external real exchange rate.
If the overseas prices level rises, local goods produced become relatively cheaper at the initial
exchange rate. Foreigners demand more of the local currency, which will cause the value of the
local currency to increase. The appreciation of the exchange rate will continue until the
Page | 27
competition in the foreign market is re-established. That is, an increase in the foreign price level
leads to an appreciation of the local currency all things being equal. The policy implication of
this conclusion is that inflation from the world does not really impact the local economy, and the
local price levels are determined in the domestic market devoid of overseas influences.
An increase in the local interest rates relative to those in the overseas country will result in an
increase in the supply of foreign currency into local currency, due to an increase in the investors
drawn by high interest rates. All this will result in the appreciation of the domestic currency. A
lower local interest rate relative to foreign interest rates has the opposite effect on the exchange
rate.
2.11.1
THE
RELATIVE
PURCHASING
POWER
PARITY
(PPP)
APPROACH
The relative purchasing power parity theory uses two approaches. Namely; the base-year and the
trend approach. The base year method establishes a base period where the observed real
exchange rate is assumed to be at its equilibrium level. Misalignment is measured as the
difference between the observed real exchange rates and the base period value, depending on the
assumption that the long-run real exchange rate has remained the same at its base level.
The main downside of this approach is its inability to take note of the permanent changes in the
long-run real exchange rate which would cause real exchange rate to be non-stationary.
In the trend approach, the long-run real exchange rate can be assumed to be a mean value to
which the real exchange rate reverts back in the long-run. Exchange rate misalignment can
therefore be measured as the deviation of the real exchange rates from its mean value (Ahlers
and Hinkle, 1999).
The relative PPP approach depicted above has its preferences. Aside from having a moderately
basic strategy, it has constrained information necessities, which is especially helpful while
analyzing misalignment in low-salary nations. Moreover, the relative purchasing power parity
approach is especially helpful in nations which are tormented with inflation where the shocks to
the external RER are largely nominal ones.
Page | 28
The relatively purchasing power parity approach is not time consuming, that is, it is often used in
multi-country cases where the amount of time devoted to the study is limited. Due to its
simplicity, the relative purchasing power parity approach is also useful as a starting point for
analytical purposes, prior to using more sophisticated techniques (Ahlers and Hinkle, 1999).
Edwards 1989 and Copeland 1994 argued that the purchasing power parity (PPP) have failed to
perform in low-income earning countries. One of the main reasons given is because the relative
PPP approach fails to take into account that the real exchange rate does not necessarily revert
back to a mean value.
The purchasing power parity approach fails to consider a new long-run equilibrium real
exchange rate caused by the existence of structural breaks in data or permanent changes in its
fundamentals. Furthermore, exchange rates are volatile and reversion to the mean may take a
long time. Due to this, the use of PPP approach in policy making is not important. Hence, it is
therefore important to discuss more sophisticated techniques that avoid the limitations of the
relative PPP approach.
2.11.2 EDWARD’S (1989) MODEL
Edwards (1989) model is a standard inter-temporal general equilibrium model of a small
economy to assess the real exchange rates response to changes in a series of variables. The
model assumes that all the variables are real; therefore, monetary disturbances are not discussed
(Edwards, 1989). The model looks at two periods which is present and future period and
provides equations to satisfy the internal and external equilibrium and from these equations,
Edwards (1989) concludes it is possible to arrange the real exchange rates as functions of all
exogenous variables in both short and long-run.
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2.12 OVERVIEW AND HISTORY OF EXCHNAGE RATE REGIMES IN
GHANA
Normally, there are two types of exchange rates regime that countries have to choose from and
these are fixed exchange rate regime and the floating exchange rate regime. Abdalla (2012) is of
the view that the basis for classification of the exchange rate regime depends largely on the
flexibility that the monetary authorities show towards the fluctuations in the exchange rates.
Under the fixed exchange rate framework, the rate is determined by government or monetary
authority which adopts fiscal and monetary policy tools to keep up the rate. Under this regime,
the government or monetary authorities intervene to set the exchange rate of the local currency
against other foreign currencies. Fixed exchange rate is often a political decision. Under on this
framework, the currency is revalued or devalued based on the economic fundamentals of the
country. The other framework is called the floating exchange rate regime and under this, the
market forces (demand and supply) interact to fix the exchange rate.
During the colonial international economic arrangements, Ghana adopted a fixed exchange rate
regime. The British West Africa Currency Board (WACB) was responsible for managing the
availabilities of currencies to the British West African Colonies. During that time, there was no
independent monetary policy in Ghana. The Ghana government did not have the freedom to print
the local currency at will. The rate was fixed and there was no need to boarder about exchange
rate depreciation against the pounds sterling.
In 1965, Ghana introduced the cedi after she had withdrawn from the West African Currency
Board arrangement in 1963. This is as a result of strict requirements of fiscal discipline WACB
imposed on her. Though Ghana consistently operated a fixed exchange rate regime, the rate of
exchange at that time was ¢1.04/$. Prior to the Economic Recovery Program (ERP) in 1983,
successive government after Nkrumah operated and maintained a fixed exchange rate regime for
the cedi with occasional devaluation, and exchange rationing. Because Ghana could not strictly
adhere to the fiscal and monetary discipline, this regime did not work. This led to persistent
increase in general price levels, insufficient foreign exchange, application of exchange controls,
and the introduction of a vigorous black market for foreign currency (Bawumia, 2014).
Page | 30
In the same year 1983, Ghana maintained a highly restrictive exchange rate regime for many
years and started to adopt certain reforms in Aril 1983. Ghana closed the flexible exchange rate
regime in 1983 under the structural Adjustment Program (SAP). One of the principal aims of the
SAP was to allow a stepwise liberalization of foreign exchange market. In order to officially
absorb the black market, foreign exchange bureaus were set up in February 1998, to merge the
black market and formal exchange rates.
The cedi exchange rate therefore became market accepted rate leading to a rise in demand for
foreign currency which further led to a depreciation of the currency while the increment in
supply of foreign currency resulted in cedi appreciation with all things being equal. During the
period of 1983 and 1990, the government formulated and implemented several trade and
payment policies with the aim of moving away from direct government intervention and controls
and to move towards the independence of the market outcomes (Jebuni, 2006).
Sowa (1999) gave a six distinct phases of foreign exchange liberalization in Ghana as follows:
1. Bonuses and surcharges
2. The two- Window System
3. The Unified System
4. The Foreign Exchange Bureau
5. The Wholesale Dutch auction
6. The Interbank Market
Ghana acquired or adopted a dual exchange rate system in 1986. Two – window system of
exchange rate determination was introduced in order to accelerate the movement of the exchange
rate towards an equilibrium rate. Window one (1) kept a fixed but adjustable exchange rate. The
rate in Window 1 was fixed at ¢90 to the US dollar for a year and it was applicable to
government transactions, pharmaceutical products, petroleum imports, basic foodstuff, capital
goods, cocoa and other traditional export receipts as well as government debt contracted prior to
January 1986. The Bank of Ghana has the sole responsibility for setting the rates for window one
which was intended for official transactions.
Page | 31
The second window, known as window two applied to all other transactions and was mainly
fixed by market forces in a weekly auction supervised by the Bank of Ghana. Sowa (1999) was
of the view that, the Bank of Ghana was the official supplier in the foreign exchange market. The
central bank relied mainly on traditional export earnings, grants and loans from foreign donors as
its official source of foreign exchange. It occasionally purchased currencies from the
international foreign exchange market. In 1987, Window one (1) was established and only the
auction system was maintained.
In 1992, an interbank wholesale system was introduced to merge the two-window auction
systems. In this arrangement, a weekly wholesale auction is used to determine the interbank rate.
Banks were the principal agents allowed to partake in this wholesale auction. In 1988, an attempt
to merge the parallel market into a more formal foreign exchange market was made and the
foreign exchange bureau system was introduced.
These foreign exchange bureaus were fully licensed entities that were operated and managed by
individuals, groups or institutions. The Forex bureau were directly not allowed to actively
participate in the interbank market, banks cannot retail to the Forex bureau. The two markets –
are highly segmented such that Bank of Ghana intervenes in the Forex bureau by selling foreign
exchange to them (Jebuni, 2006). In March 1990, the country introduced the wholesale auction
system. This replaced the weekly retail auction, which resulted in the operation of the inter-bank
and a wholesale system.
However, the wholesale auction system was ended in April 1992 and the inter-bank market was
introduced
Page | 32
CHAPTER THREE
METHODOLOGY
3.0 INTRODUCTION
This chapter of the study shows the research style used with respect to the objectives of the study by
ensuring the application of the appropriate methodology. It takes into consideration, the research
design, the population, sampling procedures and sampling size, data collection and sources, data
analysis and measures used to ensure reliability of the findings.
3.1 THE RESEARCH DESIGN
According to Frankfort-Nachmias and Nachmias (1996), the research plans of a study illustrate the
rational form of proof that enables the researcher to make inferences about the underlying
associations among the variables under investigation. It describes all the means for gathering
information in order for the research questions to be answered. Sekaran (2003), proposed that the
numerous matters involved in the research design concerns the type of investigation, purpose of the
study, the type of sample used, the methods by which the needed information were collected, as
well as the procedure followed for the analysis. Three major approaches are mostly considered by
researchers and these are; quantitative, qualitative or the mixed approach. According to Saunders et
al. (2007), qualitative method is the most technique whereby the collection method of the study
uses or generates non-numerical data. Hence for the purpose of this study, quantitative approach is
used.
However, this study was designed into five chapters. The five chapters include Nature and
background of the study, Review of literature, Methodology, Data analysis and presentation with
the last chapter being Summary, Conclusion and Recommendations.
Page | 33
This is paper was designed in such a way that, the researcher started working on chapter four first
until it was completed and then moved on to chapter five. After the chapter five, chapter three was
developed then followed by two and one.
3.2 POPULATION
Agyedu etal (1999) defined population as the collection of people with common characteristics
which interest the researcher. The target population of the study is in the Accra Metropolis and
specifically some suburbs with market environments were selected; these are Sowutuom, Santa
Maria, Lapaz and Kwashiman. Generally, the research population is a large collection of
individuals that is the main focus of the scientific query. Due to the large size of population, the
researcher did not test every individual in the population, for it is too expensive and time
consuming.
Therefore in order to obtain data appropriate to achieving the objectives of the study, the
research adopted a purposive and convenience sampling techniques where 84 respondents were
the sample size. These are people who one way or the other have some experience related to the
exchange of foreign currencies as well as it includes people of interest that are involved in both
formal and informal exchange rates.
3.3 SAMPLING TECHNIQUE AND SAMPLE SIZE
Ogula (2005) defined sampling as the process of selecting a number of individuals for a study in
such a way that the individuals selected represent the large group from which they were selected.
Due to the varied nature of the sample population, purposive sampling technique was used to
select the participants from the suburbs; Sowutuom, Santa Maria, Lapaz and Kwashiman in order
to get a precise outcome. The technique was that, participants were asked if they have any
experience in relation to exchange of currencies or whether they have exchanged currency before
the questionnaire was given to participant to fill.
Page | 34
The total sample size for the study was eighty four (84) respondents in the selected suburbs of
Accra Metropolis (Sowutuom, Santa Maria, Lapaz and Kwashiman). This was made up of both
interested personnel and people who have exchanged currencies before either at the black market
or from any of the formal foreign exchange players. (Forex bureaus, banks and other financial
institutions)
3.4 DATA COLLECTION AND SOURCES
Data collection involves the process of gathering information to address the significant questions
which has been identified earlier in the work. Many ways of gathering information and a wide
variety of information sources were found. The study used both primary data and other
secondary data sources to obtain information.
Primary data is a data which is collected directly from original source. They are collected with
the objective of identifying some specific factors needed by the researcher. Primary data is
directly relevant and the researcher derived the data by means of questionnaires. Through the
administration of the questionnaires, the researcher was able to reach a wide range of
respondents and received original information that helped in the study.
In the administration of the questionnaires, the researcher asked respondents whether they have
exchanged currency or have experience in terms of exchange of currencies before answering the
questionnaires. People who gave yes to the question were given a questionnaire to go through
and answer them. The researcher did this in order to get quality data from the target population.
The researcher did help the respondents to answer the questions and collected them on the same
day. It took a minimum of ten (10) minutes with each respondent to get all the questions
answered.
During the administration of the questionnaires, I encountered certain challenges such as
unwillingness of filling the questionnaire by some respondents and the difficulties in getting the
exact respondents interested in topic. Due to the nature of the task, it took me about almost two
(2) months to get all the 84 questionnaires answered. The researcher went out three times in a
week to look for respondents and a minimum of four questionnaires were answered in a day.
Page | 35
Apart from the distribution of the questionnaires, secondary data was used. Secondary data are
data which are published and collected in the past. They have been collected from already
available resources of information such as journals, review articles and editorials, informal talks
with experience people including lecturers. Information from the World Wide Web were found
using
search
engine
such
us
Yahoo
(http://www.yahoo.com)
and
Google
(http://www.google.com)
3.5 RESEARH INSTRUMENTS
Questionnaires were the main instrument used for the collection of data. Open - ended was the type
used in developing the questions because it does not restrict respondents but rather enable them to
choose between several options. In development of the questionnaires, the three research questions
or statements stated in chapter one was used as a basis for generating the questionnaires. The
research questions or statements are:

The Black Market Is an Exchange Rate System

The Formal Exchange Rate System In Ghana

The Black Market Operation does not affect the Formal Exchange Rate System
Four (4) indirect questions were developed under each question or statement. These four indirect
questions under each question or statement were also further broken down into simple questions
with answers to form the questionnaires. Fifteen questions were developed that represent the three
questions or statement with possible answers of which respondents are to choose the one that suit
them. Respondent were not restricted to choose one answer on a question.
Aside the fifteen questions, and additional of four questions were added to make a total of Nineteen
questions. These four questions represent the demographics. It consisted of respondent’s Age,
Gender, Education and Employment status. The questionnaire also had a preamble which
introduced the researcher and the institution the researcher is from.
Page | 36
The topic for the study was also introduced in the preamble. In all, a total of hundred questionnaires
were printed and out of it, the researcher was able to get eighty four (84) respondents to fill out the
questionnaires remaining sixteen (16) questionnaires left unanswered.
3.6 STATISTICAL (DATA) ANALYSIS
Data analysis is the process of analyzing the original data obtained from the administration of the
questionnaires. The information received from the respondents was first analysed by way of
tallying each question in the questionnaire. The researcher tallied the first part of the
questionnaires which is the demographics or section A. The sum total of the respondents and
their age groups, gender, education and employment status were all tallied. After the tallying of
the demographics, a frequency table was formed for each question relating to the demographics.
The frequency table consisted of three columns with the title, frequency and percentage.
The researcher then used Microsoft word which is a computer program to draw the frequency
tables. Graphics were also used in addition to the frequency tables to analyze the demographics.
Pie chart was the specific chart that the researcher used. The insert function in Microsoft word
was used to draw and insert the pie chart for each frequency table drawn. Below the Pie charts,
the researcher used texts to explain the analysis done with the frequency table and the chart.
Section B of the questionnaires was also tallied and analyzed. This part of the questionnaire
consisted of fifteen questions but because of the tedious nature of the tallying exercise, the
researcher divided it into three parts making it five (5) questions in each part. Tallying was done
to capture one part before the other.
Frequency table was developed for each question under the Section B of which a pie chart was
drawn from. The Pie chart presented the same information in the frequency table and in addition
to it, text were used to explain the quantitative analysis done with the frequency tables. The
researcher used approximately one week to complete the exercise and have chapter four done.
Page | 37
3.7 LIMITATIONS
Limitations are the principles that limit the extent of something or it’s the quality of being
limited or restricted. During the course of this study, some difficulties were faced during the
period and these became limitations. The cost of printing each chapter for submission and
corrections, the transportation needed to go to each selected suburb in the Accra Metropolis as
well as the inability to receive much information for the study were some of the difficulties the
researcher faced.
Page | 38
CHAPTER FOUR
PRESENTATIONS OF FINDINGS AND ANALYSIS
4.0 INTRODUCTION
This chapter deals with presentation, analysis and interpretation of the data collected from the
field by means of questionnaires to show the impact of black market operations on the exchange
rate system in Ghana. These analyses are presented in tables and chart. There were eighty four
(84) questionnaires administered to people who have experience in changing currency or have
exchanged currency before. All these will be presented in tables and charts in this chapter.
4.1 AGE
Table 4.1 Age
AGE GROUP
FREQUENCY
PERCENTAGE%
15-20
1
1
20-25
13
15
26-30
22
26
31-35
20
24
36-40
8
10
41-45
8
10
46-50
7
8
51-55
2
2
56+
3
4
TOTAL
84
100
Page | 39
Figure 4.1 Age
AGE
15-20
20-25
26-30
31-35
36-40
46-50
51-55
56+
1%
2%
4%
8%
41-45
15%
10%
10%
26%
24%
From table 4.1 and figure 4.1, 1 respondent representing 1% fall within the age group 15-20, 13
respondents representing 15% are within the ages of 20-25, 22 respondents representing 26% fall
within 26-30 age group, 20 respondents representing 24% fall within the age group 31-35, 8
respondents representing 10% fall within the age group 36-40, 8 respondents also representing
10% fall within the age group 41-45, 7 respondents representing 8% were 46-50, 2 respondents
representing 2% fall within 51-55 and 3 respondents representing 4% were 54+ .
4.2 GENDER
Table 4.2 Gender
GENDER
FREQUENCY
PERCENTAGE %
MALE
48
57
FEMALE
36
43
TOTAL
84
100
Page | 40
Figure 4.2 Gender
GENDER
male
female
43%
57%
From table 4.2 and Figure 4.2 above, 48 respondents representing 57% were males and 36
respondents representing 43% were females.
4.3 LEVEL OF EDUCATION
Table 4.3 Level of Education of Respondents
LEVEL OF EDUCATION
FREQUENCY
PERCENTAGE%
OTHERS (J.H.S, FORM 4, S.H.S)
12
14
DIPLOMA
11
13
HND
20
24
DEGREE
33
39
MASTERS
8
10
TOTAL
84
100
Page | 41
Figure 4.3 Level of Education of Respondents
LEVEL OF EDUCATION
Others (j.h.s, form 4, s.h.s)
diploma
10%
h.n.d
degree
masters
14%
13%
39%
24%
Table 4.3 and Figure 4.3 show the level of education of respondents. Out of 84 questionnaires
distributed, 12 respondents representing 14% were holders of S.H.S, J.H.S and FORM 4
certificates, 11 respondents representing 13% were holders of diploma certificate, 20 respondents
representing 24% were HND holders, 33 respondents representing 39% were graduates with 1st
degree and 8 respondents representing 10% were graduates with 2nd degree.
4.4 EMPLOYMENT STATUS
Table 4.4 Current employment status of respondents
EMPLOYMENT STATUS
FREQUENCY
PERCENTAGE %
LONG TERM
7
8
Page | 42
SHORT TERM
22
26
SELF-EMPLOYED
36
43
RETIRED
2
2
JOB SEEKING
9
11
OTHERS (STUDENTS)
8
10
TOTAL
84
100
Figure 4.4 Current employment statuses of respondents
CURRENT EMPLOYMENT STATUS
Long term
Short term
Self employed
9%
Retired
Job seeking
Others (Students)
10%
11%
2%
26%
42%
Table 4.4 and Figure 4.4 depict the current employment status of the respondents. According to
the data presented above, 7 respondents representing 8% were long-term, 22 respondents were
short-term employed, and 36 respondents representing 43% were self-employed.
Page | 43
Also 2 respondents representing 2% were in retirement, 9 respondents representing 11% were
unemployed or seeking for job and 8 respondents representing 10% being students.
4.5 HOW OFTEN DO RESPONDENTS EXCHANGE CURRENCY
Table 4.5 Number of times respondents exchange currency
RESPONSE
FREQUENCY
PERCENTAGE %
OFTEN
33
39
VERY OFTEN
6
7
NOT OFTEN
45
54
TOTAL
84
100
Figure 4.5 Number of times respondents exchange currency
NUMBER OF TIMES RESPONDENTS EXCHANGE
FOREIGN CURRENCY
OFTEN
VERY OFTEN
NOT OFTEN
39%
54%
7%
Page | 44
Table 4.5 and Figure 4.5 indicate the number of times respondents has exchange foreign
currency. With regards to the questionnaires distributed, 33 respondents also representing 39%
exchange foreign currency often and 6 respondents representing 7% do exchange foreign
currency very often. In addition to this, 45 out of 84 respondents representing 54% does not often
exchange foreign currency
4.6 QUANTITY OF FOREIGN EXCHANGE DONE
Table 4.6 showing the quantity of foreign exchange respondents do.
QUANTITY
FREQUENCY
PERCENTAGE %
LARGE SUM
1
1
MORE REGULAR SMALL
38
45
45
54
84
100
AMOUNT
MIXTURE OF LARGE AND
SMALL AMOUNT
TOTAL
Figure 4.6 showing the quantity of foreign exchange respondents do
QUANTITY OF FOREIGN EXCHANGE
LARGE SUM
MORE RREGULAR SMALL AMOUNT
MIXTURE OF LARGE AND SMALL AMOUNT
1%
45%
54%
Page | 45
Table 4.6 and Figure 4.6 shows in a typical manner the quantity of foreign exchange done by the
respondents. Out of 84 respondents, 1 respondent representing 1% does a large transaction when
exchange foreign currencies and 38 respondents also representing 45% exchange foreign
currency typically in a small quantity. Also 45 of them representing 54% do a mixture of large
and small amount when performing a currency exchange.
4.7 HOW MUCH MONEY RESPONDENTS EXCHANGE
Table 4.7 shows how much money or respondents’ exchange
AMOUNTS
FREQUENCY
PERCENTAGE %
1-100
61
46
101-500
41
31
501-1000
28
21
1000+
3
2
TOTAL
133
100
Note: Respondents were allowed to tick more than one appropriate answer for question 7 in
the questionnaire which relates to 4.7 and the denomination was in $/€/£. See Appendix for
the questionnaire.
Figure 4.7 shows how much money respondents’ exchange
HOW MUCH RESPONDENTS EXCHANGE
1-100
101-500
501-1000
1000+
2%
21%
46%
31%
Page | 46
From Table 4.7 and Figure 4.7 above, 61 ticks out of 133 ticks for the exact question relating to
this section represent 46% and were for $/€/£ 1-100 range as well as 41 ticks which represent
31% was related to the range of $/€/£ 101-500. 28 ticks representing 21% related to $/€/£ 5011000 range and 3 ticks representing 2% were for $/€/£ 1000+.
4.8 REASON FOR THE EXCHANGE OF FOREIGN CURRENCY
Table 4.8 showing the reasons why respondents exchange currency
REASONS
FREQUENCY
PERCENTAGE %
SPENDING IN CEDIS
76
71
FOREIGN BUSINESS
25
23
SAFE SAVINGS
1
1
PAY SCHOOL FEES
0
0
HOLIDAY/TRAVEL
5
5
TOTAL
107
100
RELATED
ABROAD
Note: Respondents were allowed to choose more than one appropriate answer and this led to
the total frequency of 107.
Page | 47
Figure 4.8 showing the reasons why respondents exchange currency
REASONS WHY RESPONDENTS EXCHANGE
FOREIGN CURRENCY
1% 0%
5%
23%
Spending in cedis
Foreign business related
Safe savings
71%
Pay school fees abroad
Holiday/Travel
Table 4.8 and Figure 4.8 indicates the reasons why respondents exchange foreign currency and
out of these reasons, “spending in cedis” had the majority ticks with 76 ticks representing 71% of
the total ticks followed by “foreign business related” with 25 ticks representing 23%. 5 ticks
representing 5% went for the reason “holiday/travel” and 1 tick representing 1% was for the
reason “safe savings”. None of the respondents or ticks went for the reason “pay school fess
abroad”.
4.9 WHERE RESPONDENTS EXCHANGE CURRENCY
Table 4.9 showing the preferred places that respondents exchange currency
PLACE
FOREX BUREAU
BLACK MARKET
BANK
TOTAL
FREQUENCY
67
41
16
124
PERCENTAGE %
13
54
33
100
Page | 48
Figure 4.9 shows the exact places respondents prefer to exchange foreign currency
WHERE RESPONDENTS EXCHANGE FOREIGN
CURRENCY
13%
33%
Bank
Forex Bureau
Black Market
54%
Table 4.9 and Figure 4.9 show clearly the exact location that respondents prefer to exchange
their foreign currency. Most respondent choose more than one place and therefore this led to a
total frequency of 124. Out of this 124 ticks ticked by respondents, 67 ticks which represent 54%
went for Forex Bureau whiles 41 ticks representing 33% went for Black Market. The remaining
16 ticks which represent 13% were for the Bank.
4.10 RESPONDENTS WHO GO TO BLACK MARKET FOR FOREIGN
EXCHANGE AND THEIR REASONS FOR GOING
Table 4.10 shows the reasons why respondents go to black market to exchange foreign currency
REASONS
FREQUENCY
PERCENTAGE %
CHEAPER RATES
14
34
FASTER SERVICE
11
27
BOTH CHEAPER RATES
12
29
AND FASTER SERVICE
Page | 49
NEED FOR MORE
4
10
41
100
DOLLARS
TOTAL
Note: Need for more dollars were other reasons stated by respondents.
Figure 4.10 shows the reasons why respondents go to black market to exchange foreign currency
REASONS WHY RESPONDENTS GO TO BLACK
MARKET TO EXCHANGE FOREIGN CURRENCY
10%
34%
29%
Cheaper rates
Faster service
Both cheaper rates and faster
service
27%
Need for more dollars
Table 4.10 and Figure 4.10 indicates the reasons why respondents go to the black market to
exchange foreign currency and out of the 41 respondents (see table 4.9), 14 of them representing
34% chose “cheaper rates” as the reason for going to the black market to exchange currency
whereas 11 respondents which represent 27% chose “faster service” as the reason for exchanging
foreign currency at the black market. 12 respondents also representing 29% said they go to the
black market for both cheaper rates and faster service and the remaining 4 respondents gave
other reason for going to the black market which is the “need for more dollars”.
Page | 50
4.11 RESPONDENT WHO DID NOT CHOOSE BLACK MARKET AS THE
MARKET THEY EXCHANGE FOREIGN CURRENCY FROM WERE
ASKED IF THEY HAVE BEEN TO BLACK MARKET BEFORE
Table 4.11 shows the outcome of the response from respondents who were asked if they have
been to black market before.
RESPONSE
FREQUENCY
PERCENTAGE %
YES
30
70
NO
13
30
TOTAL
43
100
Figure 4.11 shows the outcome of the response from respondents who were asked if they have
been to black market before.
RESPONDENTS WHO WERE ASKED IF THEY HAVE
BEEN TO BLACK MARKET BEFORE
30%
YES
70%
NO
Table 4.11 and Figure 4.11 represent the response that respondents gave when been asked if they
have been to the black market for foreign exchange before. Out of the 43 response, 30
respondents representing 70% said YES and the remaining 13 respondents representing 30% said
NO.
Page | 51
4.12 LOCATION OF THE BLACK MARKET GIVEN BY RESPONDENTS
Table 4.12 shows the location for the black market that respondents go there to exchange foreign
currency.
LOCATION
FREQUENCY
PERCENTAGE %
ACCRA-UTC
1
1
CIRCLE
43
61
ACCRA-TUDU
21
30
COW LANE (HIGH
6
8
71
100
STREET)
TOTAL
Figure 4.12 shows the location for the black market that respondents go there to exchange
foreign currency.
LOCATION OF THE BLACK MARKET GIVEN BY
RESPONDENTS
1%
8%
30%
Accra-UTC
61%
Circle
Accra-Tudu
Cow lane (high street)
Table 4.12 and Figure 4.12 shows the different locations of black market that respondents do
exchange their foreign currency and out of the total 71 respondents that have at least visited the
black market before, 1 respondent representing 1% did say that he/she visit the black market at
Page | 52
Accra-UTC. 43 respondents representing 61% said they visit the black market for currency
exchange at “Circle” which is near the Vodaphone Ghana Head Office. 21 respondents also
representing 30% said they go the black market at “Accra-Tudu”, 6 of the respondent which
represents 8% said they visit the black market at “Cow Lane” Accra High Street.
4.13 EXCHANGE CURRENCY OR MAKE INQUIRY
Table 4.13 shows the response respondents gave upon being asked what they go to the black
market to do.
RESPONSE
FREQUENCY
PERCENTAGE %
EXCHANGE CURRENCY
45
63
MADE INQUIRY
22
31
BOTH EXCHANGE
2
3
2
3
71
100
CURRENCY AND MADE
INQUIRY
NONE OF THE ABOVE
RESPONSE
TOTAL
Page | 53
Figure 4.13 shows the response respondents gave upon being asked what they go to the black
market to do.
EXCHANGE CURRENCY OR MAKE INQUIRY
3%
3%
Exchange currency
31%
Made inquiry
63%
Both exchange currency and
made inquiry
None of the above reason
45 of them representing 63% said they go to the black market to exchange currency, 22
respondents representing 31% said they went there to make inquiry and 2 of them representing
3% said they go to the black market to exchange currency and make inquiry at the same time
Two (2) representing 3% out of the 71 respondents from the 84 respondents who participated in
the answering of the questionnaires said they have been to the black market before and for none
of the reasons stated on the questionnaire, i.e. exchange currency and made inquiry.
4.14 THE LEVEL OF EXCHANGE RATES AT THE BLACK MARKET
Table 4.14 shows the level of exchange rates at the black market according to the feedback
respondents gave in relation to question 14 in the questionnaires.
LEVEL OF EXCHANGE
FREQUENCY
PERCENTAGE %
4
6
RATES
VERY HIGH
Page | 54
HIGH
20
29
MODERATE
37
53
LOW
8
12
TOTAL
69
100
Figure 4.14 shows the level of exchange rates at the black market according to the feedback
respondents gave in relation to question 14 in the questionnaires.
THE LEVEL OF EXCHANGE RATES AT THE BLACK
MARKET
11%
6%
29%
Very high
High
Moderate
54%
Low
From the Table 4.14 and Figure 4.14, with 69 respondents who visits the black market for
foreign exchange to both exchange currency and make inquiry, 4 respondents representing 6%
chose the level of the exchange rates at the black market as very high and 20 respondents which
represent 29% said the level of exchange rates at the black market is high. 37 of them
representing 54% said the level of exchange rates at the black market is moderate whereas 8
respondents which also represent 11% said the rate is low.
Page | 55
4.15 SATISFACTION WITH DEALINGS AT THE BLACK MARKET FOR
FOREIGN EXCHANGE
Table 4.15 shows whether respondents are satisfied when dealing in the black market for foreign
exchange.
RESPONSE
FREQUENCY
PERCENTAGE %
YES
42
61
NO
27
39
TOTAL
69
100
Figure 4.15 shows whether respondents are satisfied when dealing in the black market for
foreign exchange.
SATISFACTION WITH DEALINGS AT THE BLACK
MARKET
39%
YES
61%
NO
From table 4.15 and figure 4.15, 69 respondents who visit the black market for foreign exchange
to exchange foreign currencies or make inquiry, 42 out of it representing 61% said YES and the
remaining 27 respondents representing 39% said NO all with regards to if they are satisfied when
dealing at the black market for foreign exchange.
Page | 56
4.16 IF “YES” TO SATISFACTION, THINGS THAT COULD HAVE GONE
WRONG
Table 4.16 show respondents response to what could have gone wrong even though they were
satisfied in dealing at the black market.
RESPONSE
FREQUENCY
PERCENTAGE %
ROBBERY/LARCENCY
19
41
COUNTERFEIT/FAKE
15
33
FRAUD
12
26
TOTAL
46
100
CURRENCY COULD HAVE
BEEN RECEIVED
Figure 4.16 show respondents response to what could have gone wrong even though they were
satisfied in dealing at the black market.
THINGS THAT COULD HAVE GONE WRONG
26%
41%
Rubbery/Larcency
Counterfeit/Fake currency
33%
Fraud
Table 4.16 and Figure 4.16 depicts the things that respondents suggested it could have happen
when dealing at the black market and out of 46 response given, 19 of it representing 41% was
Page | 57
that rubbery or larceny or violence could have happen. 15 response representing 33% and the
remaining12 representing 26% were for the possibility of getting a counterfeit money and being
fraud respectively.
4.17 IF “NO” THINGS THAT WENT WRONG
Table 4.17 indicates respondents’ response on the things that went wrong
RESPONSE
FREQUENCY
PERCENTAGE %
SAME RATES WITH
10
30
10
30
POOR ENVIRONMENT
3
9
RECEIVED COUNTERFEIT
8
24
WITNESSED A RUBBERY
1
3
SHORTAGE OF MONEY
1
3
33
100
FOREX BUREAU / POOR
RATES
FEAR OF BEING RUBBED
OR PANIC ATTACK
RECEIVED
TOTAL
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Figure 4.17 indicates respondents’ response on the things that went wrong
THINGS THAT WENT WRONG
3%
3%
31%
24%
Same rates with forex bureau
Fear of being rubbed
Poor environment
9%
Received counterfeit money
30%
Witnessed a rubbery
Shortage of money received
Table 4.17 and Figure 4.17 show the response that response that respondents gave in relation to
the things that went wrong when they were dealing at the black market. 10 response representing
30% was for the fact that, the rates they had at the black market was the same rates with Forex
bureau rate. 10 response also representing 30% was for the fact that, respondents were afraid of
being rubbed o had a panic attack and 3 response representing 9% depict the fact that the
environment or condition in which the operators of the black market operates in was not
favorable. 8 of the respondents representing 24% said they received fake currency whereas 1
respondent which represent 3% said he/she witnessed a rubbery at the black market and the
remaining 1 respondent representing 3% also said the money received from the transaction was
not up to the total conversion or there was a shortage.
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4.18 RESPONDENTS RESPONSE TO IF THEY WILL PREFER TO
EXCHANGE CURRENCY AT THE BLACK MARKET AGAIN
Table 4.18 shows the response that respondents gave in relation to whether they will prefer to
exchange foreign currency at the black market again
RESPONSE
FREQUENCY
PERCENTAGE %
YES
35
42
NO
48
58
TOTAL
83
100
Figure 4.18 shows the response that respondents gave in relation to whether they will prefer
exchange foreign currency at the black market again
RESPONDENTS WHO PREFER TO EXCHANGE
CURRRENCY AT THE BLACK MARKET
42%
58%
YES
NO
Table 4.17 and Figure 4.17 is showing the response that respondents gave in relation to whether
they will prefer to exchange currency at the black market again or even respondents who have
not done any transaction at the black market to try it once and the response was a YES/NO
response. Out of 83 respondents who answered that question, 35 of them representing 42% said
YES and the remaining 48 representing 52% said NO
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4.19 RESPONDENTS RESPONSE TO WHETHER THEY WILL
RECOMMEND THE BLACK MARKET TO ANYONE WHO WANTS TO
EXCHANGE FOREIGN CURRENCY
Table 4.19 shows the exact response that respondents gave in relation to whether they will
recommend the black market to anyone who wants to exchange currency.
RESPONSE
FREQUENCY
PERCENTAGE %
YES
20
24%
NO
64
76%
TOTAL
84
100
Figure 4.19 shows the exact response that respondents gave in relation to whether they will
recommend the black market to anyone who wants to exchange currency.
RECOMMEND THE BLACK MARKET FOR
FOREIGN EXCHANGE
YES
NO
From table 4.19 and Figure 4.19, respondents were asked if they will recommend the black
market to anyone wanting to exchange foreign currency and the response was a YES/NO
response. Out of the total response give to this question, 20 of it representing 24% said YES and
the remaining 64 response out of 84 total response representing 76% said NO.
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CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0. INTRODUCTION
This final chapter represents the summary of the study as well as reporting. It accommodates
précis of the findings, conclusions and recommendations of the study and the topics for further
research. The study aimed at the impact of black market operations on the formal exchange rate
systems in Ghana and in all, 84 respondents established communication with us.
5.1 SUMMARY
This section is structured into five parts. The first part summarizes the chapter one of this
research paper. Chapter one gave a brief background of the study of which an introduction to
what black market for foreign exchange is outlined. It also elaborated how the black market
operations emerge in both developed and developing countries. The black market for foreign
exchange is a clandestine market with some aspect of illegalities where currencies are being
bought and sold openly by participants such as individuals. Chapter one also indicated the
problem statements where it talked about why the study was undertaken. The problem statements
also stated the exact areas in which the research was conducted and one of these areas was the
key participants of the black market for foreign exchange. The chapter also stated the objectives
for this study by listing what the researcher intend to achieve during the course of this study as
well as pointing out research questions that will enable the researcher to achieve the set
objectives. Key terms such as “black market” used in this study was defined in this chapter and
also stated in this chapter is the limitations of the study, i.e. the difficulties faced by the
researcher during the course of the study. The method of collecting the data used for this
research paper was stated in this chapter and the outline for the study as well. The outline for the
study talked about the total period that the researcher has in completing this paper.
Chapter two of the study dealt with existing literature review relating to this study and theoretical
framework for the study under which sub topic such as; overview of black market, black market
for foreign exchange, the black market exchange rate, the background of foreign exchange black
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market in Ghana, the structure of black market for foreign exchange in Ghana, how operators of
the black operates in Ghana, statute law made against the black market for foreign exchange in
Ghana, overview of foreign exchange rate system and many others. Existing articles and online
journals were also accessed for some literature.
Chapter three presented the methodology used to gather data for this research paper and they
include the research design which was an explanatory form, the population size for the study, the
sampling procedure which includes random sampling where by the same chance of being
selected was available to anyone. Both primary and secondary data were used in collecting data.
The primary data was specifically from the distribution of the questionnaires whereas secondary
data was from other sources such as the internet, journals books, etc. Statistical data analysis was
performed with the use of excel spread sheet to form the tables and graphs in order to illustrate
the information gathered.
Chapter four of the study is about presentation of the data and analysis, and the tools used were
tables, graphs and text. It includes; the gender of respondents, their age, level of education,
employment status, number of times respondents exchange currency, quantity of foreign
exchange done, how much money respondents exchange, reasons why respondents exchange
foreign currency, where exchange of foreign currency is done, reasons why respondents go to
black market to exchange foreign currency, respondents who were asked if they have been to the
black market before, location of the black market given by respondents, respondents were asked
if they go to the black market to exchange currency or make inquiry, the level of exchange rates
at the black market, respondents satisfaction with the dealings at the black market, things that
could have gone wrong, things that went wrong, respondents response to if they will prefer to
exchange currency at the black market again and the respondents response to whether they will
recommend the black market for foreign exchange to anyone who wants to exchange foreign
currency.
The fifth chapter which is the final chapter gives a summary, conclusion and some
recommendations for the study. In relation to the summary, it gives a compendious of what each
chapter discussed, which started from chapter one to chapter five. Conclusions for the study was
drawn out in this chapter based on the hypothesis and finally recommendations were given
according to the study and findings to create awareness off the dangers in dealing in the black
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market, the impact of black market operations on the exchange rate system in Ghana and also for
policy makers to be able to make good policies regarding the exchange of foreign currency
across the country.
5.2 CONCLUSION
The conclusion of the study is based on the research questions outlined in chapter one of the
study. Therefore, hypotheses are as fellows;
Hypothesis 1: The black market is an exchange rate system.
Table 4.9 and figure 4.9 shows the exact places that respondents exchange currency. Based on
the analysis, it was accomplished that 33% of the total ticks made by respondents in relation to
where they exchange currencies was black market.
Table 4.10 and figure 4.10 indicate the reasons why respondents go to the black market to
exchange currency and according to the analysis, 34% percent of the total respondent of 41 goes
to the black market for cheaper rates, 27% goes there for faster service, 29% goes there for both
cheaper rates and faster service and the remaining 10% goes to the black market due to the need
for more US dollars. Table 4.11 and figure 4.11 shows the number of respondents who were
asked if they have been to the black market for foreign exchange before. Based on the analysis,
70% have been to the black market before and the other percentage has not been to the black
market before.
Table 4.12 and figure 4.11 shows some of the places respondents gave as where black market are
located and from the analysis been done, 1% of the total respondents indicated Accra-UTC as a
location for black market, 61% indicated Accra-Circle as a location, 30% relates to Accra-Tudu
and 8% also indicated Cow-lane (Accra high street) as a place where black market for foreign
exchange can be located. Table 4.13 and figure 4.13 show that 63% respondents go the black
market to exchange currency. 31% go there to make inquiry whiles 3% go there to both
exchange currency and make inquiry and the other 3% go there for no reason.
Therefore, this indicates or proves that the black market is an exchange rate system.
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Hypothesis 2: The formal exchange rate systems in Ghana
Table 4.9 and figure 4.9 shows where respondents exchange foreign currency. Out of the total
ticks of 124, 67 ticks representing 54% made by respondents is for Forex bureaus whiles 16
ticks representing 13% of the total ticks made by respondents is for banks. In a total, 67% of the
total ticks relates to the formal exchange rate system in Ghana.
Note: Aside 4.9 and figure 4.9, there are other data analysis that proves that there is a vibrant
foreign exchange activity in Ghana and some of these analyses is given below;
Table 4.8 and figure 4.8 indicate various reasons that respondents exchange currency and based
on the analysis, 71% of the respondents exchange currency in order to spend in cedis, 23%
exchange currency for foreign business transactions, 5% for holiday and traveling purposes and
the remaining 1% for safe savings.
Table 4.7 and figure 4.7 shows how much money respondents do exchange and from the
analysis, 46% of the ticks were for exchanges within ($/€/£) 1-100, 31% for exchanges between
($/€/£) 101-500, 21% ticks for ($/€/£) 501-1000 and 2% ticks for ($/€/£) 1000+.
Therefore, from this, we can deduce that all this foreign exchange activities been done in the
country through regulated bodies like the Forex bureaus and the banks proves that there is an
exchange rate system in Ghana.
Hypothesis 3: The black market operation does not affect the formal exchange
rate systems in Ghana
Table 4.9 and figure 4.9 indicate where respondents go to exchange currency and based on the
analysis, 54% relates to the Forex bureau and 13% to the bank. Hence a total of 67% is for the
bank and the Forex bureaus which fall within the formal exchange rate system in Ghana.
Table 4.14 and figure 4.14 shows the level of exchange rates at the black market compared to the
banks and the Forex bureaus.
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Based on the analysis, 6% of the respondents said the rate is very high, 29% said the rates is
high, 53% said the rates are moderates compared to the rates at the Forex bureaus and the banks
and the remaining 12% said the rate is low.
Table 4.16 and figure 4.16 indicate what could have gone wrong though respondents were
satisfied with their dealings at the black market and based on the analysis, 41% of respondents
who were satisfied said rubbery or larceny could have happen, 33% said that they could have
received counterfeit or fake currency. 26% of the satisfied respondents said they could have been
rubbed. Table 4.17 and figure 4.17 indicate what went wrong with respondents who were not
satisfied and from the findings and the analysis done, 30% of the unsatisfied respondents said
they had the same rates as Forex bureaus’, 30% had a panic attack, 9% said the environment in
which the operators in the black market operates is very poor and conducive. 24% of the
respondents received counterfeit money, 3% witnessed rubbery and 3% had a shortage on the
money they received.
Table 4.18 and figure 4.18 indicate response related to whether respondents would prefer to
exchange currency at the black market again and based on the analysis, 42% said YES and the
58% remaining said NO. Table 4.19 and figure 4.19 also shows the response respondents gave as
whether they would recommend the black market for foreign exchange to others and from the
analysis, 26% would recommend the black and the remaining 76% won’t recommend the black
market to anyone wanting to exchange foreign currency.
Therefore based on the hypothesis above, we can conclude that indeed the black market
operation does not affect the exchange rate system in Ghana.
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5.3 RECOMMENDATIONS
 Promote collaboration with the players involved in the formal exchange
rate systems in Ghana
There could be collaboration or coaction between Forex bureaus, banks and other financial
institutions with the mandate to operate in the activities of foreign exchange in order to leverage
each other’s strengths and offer attractive rates that can beat the black market rates. By way of
collaborating, they can also help control the market forces (demand and supply) which are a
major determinant of the exchange rates. This can also help increase awareness of the benefits
involve in exchanging foreign currency with regulated bodies as well as help adjust the
restrictions set on the amount of foreign currency one can exchange at a time when necessary.
 Inflation rates should be low and stable
The government should ensure that the rates at which prices of general goods and service in the
country will be stable and low as well. When this is ensured, it will increase the value of the
domestic currency and lead to an appreciation of the local currency against other foreign
currency. When this takes place, it will discourage people in holding their money in other foreign
currency, hence reducing the excessive demand for foreign currency which leads to an increase
in the operations of the black market and rather increases the demand and supply for the local
currency.
 Public education on the risk involve in dealing at the black market
Based on the findings of this paper, it was found out that dealing in the black market carries risk
such as; possibility of getting a counterfeit money, rubbery or larceny, shortage of money and
many others. Mass education on these risks to the public could lead to the collapse of black
market operations since people would be discouraged to go to the black market to exchange
currency due to knowledge gained on the awareness of the dangers involve their activities.
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 Enforcement of the laws made against the operations of the black
market
For instance, according to section 29 of the Exchange Acts 2006, it is a crime to deal in the
exchange of foreign currencies without license. The government should ensure that the law
enforcement agencies would enforce these laws in order to help eliminate these clandestine
activities of the black market for foreign exchange. We should not tolerate the present of such
activities in our cities though it does not have a major effect of the exchange rate system in
Ghana but it will eventually have effect in the long run if care is not taken.
 Exports should exceeds Imports
Based on the findings, it was found out that many people exchange foreign currency due to
foreign business transactions such as importation of goods and service. Hence, our local
producers should be given the needed assistance to enable them produce quality goods and
service with better standard or same with the foreign goods. This will cause an increase in the
taste for foreign goods thereby reducing the demand for foreign currency which as a result will
cause the operations of the black market for foreign exchange to reduce or perhaps diminish in
the long run instead of increasing rapidly.
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APPENDIX
QUESTIONNAIRE
RESEARCH QUESTIONNAIRES TO RESPONDENTS WHO HAVE EXCHANGE
CURRENCIES BEFORE
The following questionnaire is being administered by Mr. Theophilus Buckman, a final year
student of Pentecost University College for a long essay project on the topic “The Impact of
Black Market Operations on the Exchange Rate System in Ghana”.
Your kind corporation is hereby being wanted to help answer these questions. Assurance is also
given that any information provided will be treated with the necessary confidentiality it deserves
and will be used solely for purposes of academic study.
Section A
Demographic Information
1. Age (Please Tick your age Group)
15-20[ ] 20-25[ ] 26-30[ ] 31-35[ ] 36-40[ ] 41-45[ ] 46-50[ ] 51-55[ ] Above
56[ ]
2. Gender (Please tick applicable gender)
Male [ ]
Female [ ]
3. Education (Please tick your education level)
Diploma [ ] HND [ ] Degree [ ] Masters [ ] Others ………………………………....
4. What is your current employment status? (Please tick appropriate job description)
Long term employed ( )
Short term/Contract work ( )
Self-Employed ( )
Retired ( ) Job Seeking ( )
Other ( )
Section B (you can choose more than one answer when appropriate)
5. How often do you exchange currencies?
a. Often b. Very often
c. Not often
6. When performing a currency exchange, is it typically:
a. a large sum b.
more regular small amount c.
mixture of large and small amount
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7. How much?
a. $/€/£ 1 - 100 b.
$/€/£ 101 – 500
c.
$/€/£ 501 – 1000
d.
$/€/£ 1000+
8. What is the typical reason for you deciding to exchange currency?
a. to spend in cedis
foreign business related c. safe savings d. pay school fees
abroad e. holiday/travel f. Other (state)……………………………………………..
9. Where do you exchange currencies?
a. Bank b. Forex bureau c.
Black market d. others (state) ……………………….
(If not black market, go to question 11)
10. With regards to question “9” if black market, what’s your reason?
a. cheaper rate
b. faster service
c. both “a and b”
d. other (state)……
……………………………………………………………………………...
(If your answer in question 9 is Black Market, go to question 12)
11. Have you been to a black market for currency exchange before?
a. YES
b. NO
12. Where is it located?
………………………………………………………………………………………………
13. Did you exchange currency or made inquiry?
a. exchange currency
b. made inquiry c. both d.
none of the above
14. What was the exchange rate in the black market compared to Forex bureaus and bank
rates?
a. Very High b. High c. Moderate d Low
15. Did you feel satisfied when dealing in the black market?
a YES
b. NO
16. If YES, what do you think could have gone wrong?
………………………………………................................................................................
17. If NO, what went wrong?
……………………………………………………………………………………………...
Would you prefer to exchange currency in the black market again? a. YES b. NO
18. Would you recommend the black market to anyone who wants to exchange currency?
a. YES
b. NO
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