The foreign exchange management policy of an economy
serves as one of the major factor that contributes to the economic development
of such nation. To the federal government, FOREX is a very crucial resource for
conducting international transaction; therefore, the government felt once
earned should be judiciously managed.
The extent of the effective management of exchange
rate on import and export is what the project really examined. There came
different era of, changes of foreign exchange management policies ranging from
pre SAP period, SAP period and post SAP period with each having different
effects on import and export trade. The project tends to answer how these
different policies really affected the import and export trade of the Nigerian
economy. The procedure for analyzing the collected data was transformed into a
linear regression equation using the least square method and other hypothesis
were carried out, in order to achieve
the objective of the study.
Following the outcome of the analysis and hypothesis
tested, it shows that there is a direct relationship between foreign exchange
rate policies and net export; it also shows that import and export trade of a developing economy depended greatly on
the foreign exchange management policies at any particular period of focus.
However, the conclusion reached was that, at any
point, in time, increase in the export as a result of foreign exchange rate
management policies has been able to promote economic growth and development,
reduce inflation and also stabilize the exchange rate in the economy.
TABLE OF CONTENT
of foreign exchange
of the study
questions and hypothesis
and limitation of study
of unfamiliar terms References
background of foreign exchange in Nigeria
Exchange Management before SAP
Exchange Management under SAP
2.6 Exchange Management after SAP
Rate Regime and Basis for fixed and Flexible Regimes
Foreign Exchange Market
of foreign exchange Market
of Determination of Foreign Exchange Rate
for exchange rate policy in Nigeria’s Economic
of Monetary Policy
of Monetary Policy
and Implementation of Monetary and Exchange
of Monetary Policies
of the Research Question and Hypothesis
of the study population
for Analyzing Data
OF DATA, ANALYSE AND INTERPRETATION
Implication and Empirical
CONCLUSION AND RECOMMENDATION
5.5 Suggestion for further study
OF THE STUDY
Economies are confronted with one problem or the
other, and governments are constantly locked in effort and actions to alleviate
them from the economic point of view, there is the gap between the potential
Gross Domestic Product (GDP) and the actual, which is referred to as the
employment gap, or the GDP gap. This gap has to be reduced to the minimum. In
order to achieve this, the government or its agencies take various actions,
referred technically as policies.
The natures of economic problems differ from a
recession/depression with high levels of unemployment or at the extreme
rampaging inflation, currency, depreciation and balance of payments deficits.
Since the 1970's, it has been recognized that rather than the existence of a trade-off
between inflation and unemployment, a country could be experiencing
stagflation- a combination, of stagnating outputs as well as high levels of
inflation at the same time (Samuelson and Nordhaus 1989: 204: 206). This situation calls for a combination of policies
to address them.
Policies available to any government in managing its
economy by tackling the problems identified above exist in. a menu; from
monetary and exchange rate through fiscal, trade, commercial, Income among
others. Consequently, the government often uses these in combination or singly,
depending on the problem at hand and the philosophy of the regime in power. A
rightist philosophy is inherently anti-policy activists and when necessary will
prefer monetary to fiscal policies. However, he reality of economic malaise
confronting an economy. These policies are used in packages.
1.2 DEFINITION OF FOREIGN EXCHANGE
Foreign exchange has been variously, defined by
different works of study but all tending towards the same meaning. Foreign
exchange is a means of effecting payments for international transactions. It
can be acquired by a country through, the export-of goods and services, direct
investment in-flow, draw down on external loans, aids and grants and it can be
expended to settle international obligations.
Foreign exchange in Nigerian context is defined as
any currency other than the Nigerian currency which as at anytime been legal
tender in any territory outside Nigerian. Exchange rate policy is. intractably
tied up with the management of a country's foreign exchange; it refers to the
manipulation of some crucial variables so as to ensure that the country's
exchange rate contributes to the attainment of external (or payment viability
and general economic prosperity.
Foreign exchange transaction is carried out in the
foreign exchange market, this market is a market for the sale or purchase of
foreign provides a frame work and opportunity to trade in deal in, off load or
produce foreign currencies for effecting or closing international transaction.
In case where foreign expenditures is lower than foreign receipts, the surplus
is added to reserves, these reserves which are also savings from foreign
exchange transactions are held by the authorities to finance shortfalls in
foreign exchange receipts and to safeguard the international valve of the
Foreign exchange earrings from international trade
transactions and external aids are great important for economic development of
less developed counties (LDCs). This is as a result of the fact that resource
form the sources can induce increase in factors supplies and promote the
development of technical skills and knowledge, all of which should enhance
domestic capital formation and economic growth.
Nigeria like other developing nations had chosen to
determine her exchange rate through basket of currencies; naira was pegged to
the U.S dollar and to the pounds on a bid to ensure that he rate have some
bearing with the factors of the balance of payment and domestic economy .
The Nigerian economic history reveals that, Nigerian
initially operated affixed exchange rate regime from independence in 1960-1986
before switching to a flexible rate
regime. These changes where anchored as a result of the types of disturbance to
which economies are exposed the structural characteristics of the economy and
the commonality of the risks to which they are subject and the objectives they
pursue (Guitan 1994) Agbevlic eta., 1991, frankel 1992.
In this connection, the
consideration are that where the problems are external shocks and domestic real
stocks, such as imbalance in the goods market as the country experienced in the
1980's then the best policy regimes becomes flexible rate because shocks to
domestic demand will lead to change in the rate that will bring about
off-setting movement in foreign demand so that domestic output is not severely
affected" ceteris paribus (Guitan 4: 19).
For the purpose of analysis,
the period under review will include:
- Exchange rate management policy before SAP.
- Exchange rate management policy under SAP.
- Exchange rate management policy after SAP.
- Review of monetary policy.
1.3 STATEMENT OF PROBLEMS
- The rationale for various
macro-economic policies adopted under the structural Adjustment Programme (SAP)
have failed to impact on the Nigerian export and import and therefore affect
our foreign reserves.
- Why the various foreign
exchange regimes (policies) have not been able to impact significantly on the
macro economic variable as balance of payment, employment, inflation etc.
- The extent on which the
exchange rate can be managed through the effective management of the country
export index and external reserves.
- The extent to which other
macro- economic indices depend on the exchange rates
1.4 OBJECTIVES OF THE STUDY
Although, the objectives of
exchange rates management policies to achieve macro-economic goals. This study
strives to ascertain;
- To what extent are these objectives been achieved
- To determine how such
objectives as been achieved in the past, current dispensation on and the
possible direction that could be followed in the future.
- To investigate the possible
problems and constraint and proffer suggestion to factors that militates
against effective management of foreign exchange in Nigeria.
- To review the monetary
policies and various measures used in achieving its objectives.
1.5 RESEARCH QUESTION & HYPOTHESIS
This study is centered on
findings out the effect of foreign exchange rate management policies on
developing economy, taking Nigeria as a case study. The following question will
be considered in order to achieve of the study.
- Is there a link between exchange rate and monetary policy in
- To what extent do the
instruction of SAP and other economic reforms impact on the foreign exchange
management in Nigeria? To review the monetary, policies and various measures
used in achieving its objectives.
- What is the relationship
between demand and supply of foreign exchange to various users?
The hypothesis will be testes
Ho: Foreign exchange rate do not contribute to Net Export
Hi: Foreign exchange rate contributes to Net Export.
1.6 SCOPE AND LIMITATION OF THE
This study is confined on the effectiveness of foreign exchange
management policies and conducts of monetary policies in a developing economy.
This research work is also limited to Nigerian economy as a case study of a
1.7 SIGNIFICANT OF STUDY
The result of this research
work would be relevant to academicians, investors, financial institutions as
well as the government who may wish to avail themselves of the data and
information therein. It will particularly assist student of finance on their
study of foreign exchange on economy and will also enlighten the public on how
foreign exchange management policies affect their daily business and
governance. It will also serve as a dimension for future research and recommend
direction for necessary amendments.
1.8 DEFINITION OF UNFAMILIAR TERMS
1) Direct Investment: This inv investment enterprises of a domestic
firm in a foreign country as a subsidiary of the parent business enterprises.
Foreign Exchange Market: This is a
market for government reservation in transaction, where valves of naira are
pegged and remain relatively stronger.
3) Fiscal policy: It is use of
measure such as taxation, government expenditures budgetary variables in order
to achieve desired economic objectives.
4) Fixed Rate Regime: This is a period where administrative fixing of
the value of national currency are employed in relation to major currencies by
the monetary authorities.
5) Floating Rate Regime: This
is the period where national currency was allowed to fluctuate in response to
the forces of demand and supply in the foreign exchange market.
6) Inflation: It is a
persistent increase in price or a fall in the value of money.
7) Legal Tender: This is any
commodity that is generally accepted as a means of exchange and setting debt.
8) Over Value Exchange Rate:
This implies artificially high valued currency which makes imports
cheaper relative to exports.
9) Second-Tier Foreign Exchange Market: This is a market where the determination or
value of the naira exchange rate was made to reflect the market force of demand
10) Under-valued Exchange Rate:
This implies artificially low valued currency which makes imports costly
relative to export.
11) Bureau de Change: Is a non
bank financial institution licensed by Central Bank of Nigeria to operate in
FOREX market in order to improve access to FOREX especially, for small users.
Over 240 bureau de change. has been licensed and supervised by Central Bank of
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