ABSTRACT
So many
economies of the world are experiencing exchange rate instability which affects
their economic performance as a result of inability to achieve expected
realistic exchange rate and price stability. The care of exchange rate reforms
in Nigeria is the stimulation of the growth of exports beyond that of imports
with a view to an overall improvement in the balance of payment. The study
assesses the macro-economic determinants of exchange rate in Nigeria, adopting
ordinary least square (OLS) techniques and also use secondary date obtained
from Central Bank of Nigeria Statistical
Bulletin , Annual Report and Statement of Account covering the period
1980 to 2011. The study discovered that total government expenditure, Gross
Domestic Product, lnflationary rate and
Interest rate are Macroeconomic determinant of exchange rate in Nigeria
economy. The study therefore recommended that the monetary authorities must put
in place existence of consistent monetary and fiscal policy that will induce
favorable exchange rate. Government should put in place macroeconomic policies
to check the importation of good and services that could be locally produced so
as to improve the performance of the Nigeria export which will induce favorable
exchange rate and finally government should ensure that the political system is
deepened, further improve power supply and intensify the war against corruption
in order encourage both domestic and foreign investment, as well as raise
productivity. All of these should check the continuous depreciation of exchange
rate and over a long-term, leads to its appreciation or stability.
CHAPTER
ONE
1.0 INTRODUCTION
The role of exchange
rate and its effect on macroeconomic performance has continued to generate
interest among economist...
1.1
BACKGROUND OF THE STUDY
Exchange
rate refers to the rate at which one currency is exchanged for another
(Jhingan, 2003). Exchange rate is said to depreciate if the amount of domestic
currency required to buy a foreign currency reduces. An appreciation on the
real exchange rate may create current account problems because it leads to
overvaluation. Overvaluation in turn makes imports artificially cheaper while exports
relatively expensive, thus reducing the international competitiveness of a
country (Takaendesa, 2006). Exchange rate volatility refers to swings or
fluctuations in the exchange rate over a period of time. The existence of many parallel markets side by side, the
officially recognized foreign exchange market give rise to exchange
misalignment (Mordi, 2006)...
1.2 STATEMENT OF THE RESEARCH PROBLEM
Macroeconomic performance of a nation
is determined be a number of factors exogenous and indigenous. The exogenous
factors include changes in terms of trade, a change in the economic activities
in the industrialized countries and in international interest rate and prices.
The endogenous factors include fiscal position and exchange rate. Exchange rate
has been singled out as one of the most important factors influencing economic
performance of a nation... This made it
imperative to ask the following questions.
1. To
what extent do inflation and interest rate affect exchange rate in Nigeria?
2.
What are the major issues in exchange
rate policy and management in Nigeria?
3. What
are the macroeconomic factors that influence exchange rate in Nigeria?
4. What
is the effect of exchange rate on the economic growth in Nigeria?
1.3 OBJECTIVES OF THE STUDY
The purpose of this study is to
evaluate the determinant(s) of exchange rates in Nigeria and the policy
concerns.
Specially, the study
aims to achieve the following objectives:
1.
Investigate the effect of inflation and
interest rate on exchange rate in Nigeria;
2.
Identify the macro-economic factors
that influence exchange rate in Nigeria; and
3.
Determine the effect of exchange rate
on economic growth in Nigeria.
1.4 RESEARCH HYPOTHESIS
In this study, the following null
hypotheses were formulated tested.
1.
Ho: Inflation and interest rate do not
have any significant impact on Nigeria exchange rate.
2.
Ho: Economic performance and volume of
imports do not have any significant effect on Nigeria exchange rate.
3.
Ho: Exchange rate has negative effect
on economic growth.
1.5 SIGNIFICANCE OF THE STUDY
The need for foreign exchange
management lies only within the framework of countries engaged in international
trade in contract to closed economy. This need is underscored by the economic
theory of comparative advantage, theory of comparative cost as well as international
resources endowment differential.
This study will reveal the
macroeconomic factors that influence the exchange rate so the monetary
authorities could manipulate them effectively to stimulate growth in the
economy.
However, the study will appraise the
various exchange rate regimes that the country had implemented with the view of
raising critical issues. Lastly, the study will contribute to the knowledge of macroeconomic
factors that influence exchange rate instability and will as a foundation upon
which subsequent research work on exchange rate fluctuation can be carried out.
1.6 SCOPE OF THE STUDY
The scope of the study which appears
from 1980-2017 shall cover the exchange rate developments in Nigeria. However,
the empirical investigation of the factors that determine the exchange rate in
Nigeria shall be restricted to the period when the market forces was allowed to
determine the market demand and supply of exchange rate in Nigeria between the
period of 1980-2017.
1.7 RESEARCH METHODOLOGY
The empirical investigation of the
effect of the macroeconomic factors on exchange rate in Nigeria will be
ordinary least square (OLS) method. The necessary data will be from secondary
i.e. the Central Bank of Nigeria’s statistical bulletin from 1980-2017.
1.8
ORGANISATION OF THE STUDY
The research study will be presented in
the following form. Chapter one which is the introduction deals with the
background of the study and covers the statement of research problems,
objectives of the study, research hypothesis, significance of the study,
research methodology, organization of the study and limitation of the study.
Chapter two focuses on the review of related literature and while chapter three
dwells on theoretical framework and research methodology. Chapter four contains
the presentation, analysis of data and also the interpretation of results while
chapter five summarizes the result of the findings, recommendations and conclusion.
1.9 LIMITATION OF THE STUDY
In carrying out this research work, the
researcher was challenged by certain limitations, which are short duration of
the research study, financial constrain, proximity and access to reliable data,
this is because data is often manipulated e.g. for political purpose.
CHAPTER TWO
LITERATURE REVIEW
2.1 Concept of Exchange Rate. - - - - 14
2.2 Classification of Exchange Rate.- - - 16
2.3 Determinants of Exchange Rate.- - - 23
2.4 The Profile of Nigeria’s Exchange Rate
Development. 28
Development. 28
2.5 The Relationship between Exchange Rate on
Balance of Payment.- - - - - - 30
2.6 The Effect of Exchange Rate on the Growth of
the Economy.- - - - - - - 35
CHAPTER THREE
THEORETICAL FRAMEWORK AND
RESEARCH METHODOLOGY
3.0 Introduction - - - - - - - 41
3.1 Theoretical framework- - - - - 41
3.2 Research Methodology- - - - - 44
I.
Sources of data- - - - - 44
II. Method of data analysis- - - - 44
III. Model specification- - - - 44
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1 Data presentation- - - - - - 48
4.2 Data analysis- - - - - - - 50
4.3 Interpretation of results- - - - - 52
CHAPTER FIVE
SUMMARY OF FINDINGS,
RECOMMENDATION AND CONCLUSION
5.1 Summary of Findings- - - - - 58
5.2 Conclusions- - - - - - - 60
5.3 Recommendation- - - - - - 61
References - - - - - - - 63
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