ABSTRACT
This research work investigates the impact of foreign
exchange management by the monetary authority of Nigeria, the Central Bank on
the Nigerian economy using the ordinary least squares regression technique for
time series data spanning 1981 to 2007.
From the findings of this research work, it was observed
that the success of foreign exchange policies critically depends on the foreign
exchange rate elasticity of foreign demand for the country's export. In
Nigeria's case, exports are basically primary in nature i.e. either mineral or
agricultural products which at reduced external prices (due to currency
devaluation) do not significantly increase export earnings. Since the end
result of Nigeria's floating exchange rate regime is currency devaluation, the policy
is not ideal for Nigeria's situation. Thus, the paper concludes by
recommending, among others currency appreciation combined with a relatively
liberalized trade policy regime.
TABLE OF CONTENTS
TITLE PAGE
CERTIFICATION
DEDICATION
ACKNOWLEDGEMENT
ABSTRACT
TABLE OF CONTENTS
CHAPTER
ONE [INTRODUCTION
1.0 Background to
the Study
1.1 Statement of
the Problem
1.2 Significance
of the Study
1.3 Objectives of
the Study
1.4 Research
Methodology
1.5 Scope and
Limitation
1.6 Chapterization
References
CHAPTER
TWO LITERATURE REVIEW
2.0 Introduction
2. 1 Theories of
Foreign Exchange
2.1.1 The Mint Parity
Theory: Determination Under gold Standard
2.1.2 The Purchasing
Power Parity Theory
2.1.3 The Balance of
Payment Theory
2.2 Causes of Changes
in the Exchange Rate
2.3 Types of Exchange
Rate Management Method
2.4 Instrument of
Foreign Exchange Rate Management
2.5 The Monetary
Models of Exchange Rate Determination
2.6 Determination
of Exchange Rate
2.7 Exchange Rate
Regimes in Practices
2.8 Exchange Rate
Policy and Trade Flows
2.9 Economic
Impact analysis of Economic Rate Regimes
2.10 Exchange Rate
Movement and Export Performance
References
CHAPTER
THREE [EXCHANGE RATE POLICY IN NIGERIA
3.0 Introduction
3.1 Exchange Rate Policy
Objectives in Nigeria
3.2 Structure of
Nigeria's Foreign Exchange Market
3.3 Exchange Rate
Regimes in Nigeria
3.3.1 Fixed Exchange
Rate System Era
3.3.2 The Dual
Exchange Rate System Era
3.3.3 The Unified
Exchange Rate System
3.3.4 Further
Deregulation of the Exchange Rate System
3.3.5 Reintroduction
of the Fixed Exchange Rate System
3.3.6 The Dual
Exchange Rate Regime
References
CHAPTER
FOUR [RESEARCH METHODOLOGY AND DATA ANALYSIS]
4.0 Introduction
4.1 Collection of
Data
4.2 Method of Data
Analysis
4.3 Statement of
Hypothesis
4.4 Presentation
of Data
4.5 Interpretation
of Result
4.6 Conclusion
CHAPTER FIVE
[SUMMARY, CONCLUSION AND RECOMMENDATION]
5.1 Summary
5.2 Conclusion
5.3 Recommendations
References
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
1.0
BACKGROUND TO THE STUDY
This study is designed to examine the foreign exchange
rate policy and management on the economic growth of Nigeria. Attention is
focused on this direction because of the fact that Nigeria being a developing
Nation needs to pay more attention to her economic growth and development. A
developed economy will go a long way to create employment opportunities for the
growing population and improve the general standard of living. The foreign
exchange position has deteriorated due to continuous dwindling of the price of
crude-petroleum, the Nigeria's major foreign exchange earlier in the world
market. In the light of this, Nigeria, which is endowed with abundant natural
and human resources, must strive to harness all the resources for its economic
development.
The management of foreign exchange is a major challenge to
the monetary authorities and this is evident in the fact that foreign exchange
plays a critical role in a country's development process. For this reason, it
is important to assess the impact of foreign exchange on the economy regularly
so that the development process is sustained.
Foreign exchange management in a deregulated economy could
be a system of exchanging the money of a country for another country's in a
free trade economy. The interdependence of countries in terms of trade has
grown so much that perhaps no country can lay absolute claim and self-sufficiency
in its resource requirement. However the degree of a country's exposure to
international trade determines its involvement in Foreign Exchange Management.
For instance, a country with adequate supply of foreign exchange would import
basic raw materials needed for economic development process, likewise,
inadequate supply of foreign exchange exerts pressure on external reserves and
also imposes serious constraint on the country's development plan.
The Naira exchange rate is perhaps one of the most
problematic preoccupations of the Nigerian monetary authorities ever since the
introduction of the second tier Foreign Exchange Market (SFEM) in 1986. This
has brought about a phenomenal increase in the number of market participants as
all licensed banks become authorized dealers in foreign exchange. It has also
created enormous regulatory and supervisory challenges to the Central Bank of
Nigeria (CBN).
1.1
STATEMENT OF THE PROBLEM
The question of inadequate supply of foreign exchange remains
a major problem as the Central Bank of Nigeria is the major supplier of funds
to the market. The expansionary fiscal operations of the demand of individuals
still inflict the efforts of the Apex Bank. Capital flight is still in place as
people still get worried by the envisaged depreciation even as the realization
of forex on one- to-one remains an uphill task. The issues of multiple bids have continued to
persist even with the great penalty involved. Monitoring has continued to be a
little difficult as incomplete data hold sway.
1.2
SIGNIFICANCE OF THE STUDY
The need for foreign exchange management lies only within
the framework of countries engaged in international trade in contract to a
closed economy. This need is underscored by the economic theory of comparative
advantage, theory of comparative cost as well as international resources
endowment differentials. This study is expected to show that a realistic
exchange rate policy should reduce excessive demand for foreign exchange
especially for importation of finished goods and services, as well as eliminate
the prevailing distortion in the economy and stimulate non-oil exports. It is
a.1so expected that a realistic exchange rate would accelerate the rate of economic growth via the attraction of more
foreign capital and investment with low level
1.3
OBJECTIVES OF THE STUDY
The objective of this study is to analyse the past
experiences of the Nigerian Monetary Authority (Central Bank of Nigeria) in the
management of foreign exchange and investigate whether or not exchange rate is
effectively managed by examining its impact on the Nigerian economy.
1.4
RESEARCH METHODOLOGY
COLLECTION
OF DATA
The data relevant for this study are obtained from various
secondary sources and diverse documentary publications such as the Central Bank
of Nigeria, the National Bureau of Statistics (NBS), the Nigerian Institute for
Social and Economic Research (NISER) among others.
Secondary time series data which can capture the
relationship between exchange rate polices and export performance are relevant
for the study. These data include variables such as real exchange rate; export
value, interest rates, Gross Domestic Product and domestic price levels. These
macro-economic variables directly and indirectly impact upon the velocity and
the direction of trade between one country
and the rest of the world. The propensity and capacity to export is thus
influenced by the aforementioned variables.
METHOD
OF ANALYSIS
The ordinary least squares (OLS) regression techniques
will be used in estimating the impact of exchange rate policies on exports in
Nigeria between 1981 and 2007.
The ordinary least square regression is a fairly simple
estimation technique with desirable optimal properties, linearity and unbiasdness.
The OLS regression is based on the model below
GDP = Bo
+ B1 Export + B2
EXCR + B3 IMPORT +µ
Where:
EXPORT = Total export (Oil &
non - oil)
EXCR = Exchange Rate
GDP = Gross Domestic Product at Market Price.
IMPORT = Total import (oil and non-oil).
STATEMENT
OF HYPOTHESIS
Ho: The naira exchange rate has no significant
effect on Nigeria's economy.
Hi: The naira exchange rate has a significant
effect of the Nigeria economy.
1.5
SCOPE AND LIMITATION
The impact of exchange rate, export and import on the
Gross Domestic Product will be analysed between periods 1981 and 2007. Also,
concerning the important role foreign exchange management plays on the economy,
efforts will be made to examine various techniques being adopted by the Apex
Bank in managing the nation's foreign exchange.
1.6
CHAPTERIZATION
Chapter one - Chapter one consists of the background to the study, the
statement of the research problem, objectives, significance of the study as
well as the scope of the study and research methods.
Chapter Two -Literature Review and theoretical framework of foreign
exchange. Views and related studies of earlier writers on this topic are
considered in this chapter.
Chapter Three - This
Chapter will examine the performance of exchange rate regimes and foreign
exchange policies in Nigeria.
Chapter Four - Research
methodology and Data Analysis. This chapter 'will show the data collected, the
regression results, and the summary or interpretation of these results
Chapter Five: Summary,
Conclusion of the Findings For the Study and Policy Recommendation.
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