ABSTRACT
The
major aim of this research work is to know the effects of exchange rate
fluctuation on imported goods in Nigeria. It is also aimed at ascertaining the
level of relationship between the depreciation value of Naira and the pricing
of imported goods in Nigeria. The fluctuating nature of exchange rate appears
to be responsible for the exploitative pricing of imported goods in Nigeria.
The objective of researcher is to address the following to know the reason of
this upward movement of the pricing of goods in Nigeria. To discover only
Nigeria dependable on importation to X – ray why then is steady rise in the
price of imported goods these issues were addressed through theoretical and
empirical approach within help of secondary and primary data collection method,
related literature were reviewed to ascertain what various authors have to say
on the topic. The primary data was collected through questionnaire administered
on the financial institutions importers and retailers of various imported goods
in Lagos metropolis. The question is upward movement of the pricing of goods in
Nigeria due to the exchange rate fluctuation. The researcher found out that the
upward movement of the pricing of goods in Nigeria is due to exchange rate
fluctuation. The researcher made the following recommendation, government
should work tirelessly with its monetary agencies to fix the rate of Naira, for
no country of the world leaves its currency afloat to the pros and cons of
forces of demand and supply.
TABLE
OF CONTENTS
Title
- - -- - - - - - - - - -i
Approval
- - - - - - - - - - - -ii
Dedication
- - - - - - - - - - -iii
Acknowledgements- - - - - - - - - -iv
Table
of contents - - - - - - - - -v
List
of tables - - - - - - - - -viii
Abstract
- - - - - - - - - - -ix
CHAPTER ONE
INTRODUCTION
1.1
Background of the study - - - - - - -
1
1.2
Statement of the problem- - - - - - - -5
1.3
Purpose of the study- - - - - - - - -6
1.4
Significance of the Study- - - - - - - -7
1.5
Research Questions- - - - - - - -7
1.6
Scope of the Study - - - - - - - -8
1.7
Definition of Terms - - - - - - - -9
CHAPTER TWO
LITERATURE REVIEW
2.0
Introduction- - - - - - - -11
2.1
Review of related literature a historical perspective -13
2.1.1
Factors influencing the determination of exchange rate -15
2.1.2
Exchange rate policy in Nigeria from (1960-1998)- - -19
2.1.3
The period 1986-1994- - - - - 28
2.1.4
Some thought on the appropriate exchange rate regime
for
Nigeria- - - - - -- -
36
2.2.1
The policies government external trade and finance in
Nigeria - - - - - - - 41
2.2.2 Policies government external trade and
finance before
the introduction of SAP - - - - 43
2.2.3
Finance/ payment (policies)- - - - 46
2.2.4
Nigeria’s trade and finance policies since the introduction
of SAP- - - - - - - - 48
2.2.5
Imports - - - - - - - 49
2.2.6
Exchange rate fluctuation and the Dollar Problem its
effect on imported goods- - - - -50
2.2.7
The summary of literature review- - - -51
CHAPTER THREE
METHODOLOGY
3.0
Introduction - - - - -- - - -52
3.1
Design of the study - - - - - -52
3.2
Area of the study - - - - - -53
3.4
Sample of the study- - - - - -54
3.5
Instrument of data collection - - - -54
3.6
Validation of the instrument - - - -56
3.7
Distribution and retrieval of Instrument - - -56
3.8
Method of data analysis- - - - - -57
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.1
Findings - - - - - - -60
4.2
Discussion of findings- - - - - -61
CHAPTER FIVE
SUMMARY CONCLUSION AND RECOMMENDATION
5.1
Summary of findings - - - - - -62
5.2
Conclusion - - - - - - - -62
5.3
Recommendation - - - - - -63
5.4
Limitations of the study - - - - -64
5.5
Suggestions for further research - - - -65
References
- - - - - - - - -66
Appendix
A- - - - - - - - -67
Appendix
B- - - - - - - - -68
LIST OF TABLES
Table
I: Is upward movement of good in Nigeria
due to exchange rate fluctuation? - - - - - - - -58
Table
II: Do over dependency in importation in Nigeria due to lack of economic of
scale - - - - - - -59
Table
III: Does the steady rise in price of imported goods in Nigeria due to the
exchange rate of Naira to dollar.- -59
Table
IV: Did the price of made in Nigeria Goods fluctuates with the price of
imported Goods - - - - - -60
CHAPTER
ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The
Nigeria economy has witnessed a great degree of instability ever since the end
of Civil War. From 2.48824 to 1.24414 grains of fine gold following the
exchange of the Nigerian Pound to Naira in 1973, fixed exchange rates were
establish for both Pound sterling and the US Dollar at £0.5833 and US 1.5200
respectively to N1.00 this has caused
havoc to the Nigerian economy in that exchange rate the Naira to both Dollar
and Pound sterling has been observed that the economy has it also been
witnessed the highest degree of inflation. The result is that Nigeria as a
country has last it’s financial credibility in the outside world at the home
front because the exchange rate is net to our favour the country has witnessed
the greatest degree of brain drain.
The
exchange rate fluctuations has effected most our industries that import whole
or part of their raw materials and the result is that production is below
capacity utilization, resulting in unemployment. Again, because of the exchange
rate, most local home made goods are expensive thereby pricing themselves out
of the market.
The
rate at which Naira exchange for Dollar determines the rate at which goods are
sold in the market. Therefore, the exchange rate fluctuation effects the prices
of imported goods upwards or downwards as the case may be.
At
the same time, it affects the price of locally produced goods that most of the
raw materials and machines are imported and prices at which the currency of
exchange are secured effect the price positively or negatively.
The
control of exchange rate fluctuation in the money market has posed problems to
both the government and individuals corporate and individual firms.
This
has lead to the continued search for a viable economic order for the country
which has to the introduction of FEM were:
a. Determination of realistic exchange
rate of the Naira.
b. Using the topic mechanism to channel
resources to the most deserving sector of the economy.
The
exchange rate influence importation positively. When exchange rate is high,
importation of goods will decrease except for necessities, which have a
negligible reaction to exchange rate.
Exchange
rate has a direct influence on price of imported goods positively. However, in
practice, imports respond more quickly to change in domestic income than to
change in the real exchange rate. Again, if sustained, a change in the real
exchange rate will eventually have significant effect on the level of imports
as well as export in contrast, imports have been on the increase since 1985.
When there is depreciation of the Naira, the exchange rate fluctuates downwards
and this makes import very costly, conversely, when the Naira appreciates, it
favour imports.
Adverse
fluctuation rate make for losses or lower profit due to increases in the prices
of input used in production process
Nigeria is highly dependent on imported input and raw materials to keep
the numerous manufacturing industries going. Consequently, with every
depreciation of the Naira, the price of imported inputs soar in terms of Naira
and this is transmitted to the whole economy in the form of higher price of
goods and services and intolerable inflation since a fall in the international
value of Naira makes Nigeria goods cheaper in foreign currencies and foreign
goods more expensive in Naira this change in the Naira exchange rate tends to
increase the quality of goods Nigeria export and reduce the quality of goods
imported to Nigeria. During the period under review, 2000 – 2012 Nigeria had
the highest inflation rate than most of its trading partners. Whether Nigeria
goods became more or less competitive in the world market depends on whether
the increase in Nigeria competitiveness as justified by real events in the
economy such as technological progress, changes in external terms, change in
taxation etc.
Adverse
changes in exchange rate gives producer distinct advantage in cost
competitiveness. The major negative effect of the fall in exchange rate of
Naira is that, it make planning very difficult.
Near
accurate plans cannot be made because exchange rate continues tumbling thereby
making business projections inaccurate marketing experts and mangers are
therefore faced with the problem of setting accurate strategies marketing plans
and operations.
1.2 STATEMENT OF THE PROBLEM
The
fluctuation of exchange rate and its attendant effects on price of imported
goods in Nigeria has posed a big challenge to financial institution importance
of various goods and Nigeria institutions, importance of various goods and
Nigerian populace in general.
It
is on this backed up that the researcher was prompted to engage in further
exploration with a view to ascertain, the effect which exchange rate
fluctuation have on imported goods in Nigeria. Hence this study focuses on the
imported goods in Nigeria.
1.3 PURPOSE OF THE STUDY
The
objective of this study is to ascertain the effect of exchange rate fluctuation
on the imported goods in Nigeria.
The objective can be broken down as
follows:
i.
To know the reason of this upward
movement of the pricing of goods in Nigeria.
ii.
To discover why Nigeria depends solely
on imported industrial inputs for its industrial use.
iii.
To x – ray why the steady rise in
exchange of the Naira over other currencies.
1.4 SIGINIFICANCE OF THE STUDY
The
findings of the study will form a benchmark on which the marketing experts and
monetary authorities will appraise and if necessary modify the existing
policies.
This
study will give a clear perception through the highlight of the strengths and
weakness of foreign exchange management a great percentage of the Nigerian
populace have not yet come to terms with the fact that the foreign exchange
markets is part of the economic recovery programme.
1.5 RESEARCH QUESTIONS
The
following questions will guide the study:
1. Is
upward movement of the pricing of goods in Nigeria due to exchange rate of
fluctuation?
2. Is
over dependence on importation of industrial equipment in Nigeria due to lack
of economics of scale?
3. Does
the price of made in Nigeria goods fluctuate with the prices of imported goods?
4. Does
the steady rise in prices of imported goods in Nigeria due to the exchange rate
of Naira to Dollar?
1.6 SCOPE OF THE STUDY
The
study sets out of X – ray the effect of the exchange rate fluctuation on the
prices of imported goods in Nigeria.
The
period covered by the study is 2000 – 2012 and limited to some financial
establishments and importers within Lagos metropolis because the researchers
believes that the general position in Nigeria would be the same from result of
the Lagos metropolis since the exchange rate fluctuation prevails throughout
the country. The other areas the study peered into through availability of some
secondary data, including x – raying the annual average exchange rates of the
Naira, retail prices of some locally manufactured/packaged goods, pre SAP and
Post SAP retail prices indices of some select goods imports and annual rate of
the Naira.
1.7 DEFINITION OF TERMS
Exchange
rate is the price of one currency in terms of another. More accurately an
exchange rate is the number of units of foreign currency and vice versa.
Nominal
Exchange Rate
The
nominal exchange rate is defined as units of domestic currency per unit of
foreign exchange.
Trade
Tables
These are goods what could be exchange
for in the international market.
Non
Trade Table
These
are the outputs of an economy that can be consumed domestically and therefore
for exportation e.g. electricity.
Misalignment
This
is the deviation of the actual real exchange rate from its equilibrium value.
Purchasing
Power Party (PPP)
The
purchasing Power Parity rate is path of the nominal exchange rate that would
keep exchange rate constant over a given period. The Purchasing Power Parity
between two countries is defined as either the ration currencies price level
(absolute PPP) or the product of the exchange rate in a base period and the
reciprocal of the absolute PPP (relative PPP).
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