Abstract
This project
examines the effect of exchange rate on balance of payment in Nigeria. The
broad objective of the study is to ascertain the extent to which exchange rate
determines the balance of payment and also to determine the relationship
between national income and balance of payment. The problem of foreign exchange
inadequacy, dependence on the oil sector for exchange earning, continuous
depreciation of the naira exchange rate coupled with the inability to determine
precisely the level of exchange rate of the naira that would ensure the
internal and external balance simultaneously. The secondary source of data
collection was used as data was collected from CBN publications and the Federal
Office of Statistics. The ordinary least square regression was used to analyze
the data and the findings revealed that the national income has a positive
correlation with balance of payment and that the relative price of agricultural
products has a positive correlation with balance of payment. It was concluded
that the disparity in the size of oil export and non oil export in terms of
relative comparism, the unfavourable domestic and international economic
development has constrained the achievement of balance and sustained economic
growth that could foster balance of payment viability. It was recommended
amongst others that there should be increase in non oil exports commodities
TABLE OF CONTENT
Title page i
Certification ii
Dedication iii
Acknowledgements iv
Abstract v
Chapter
One: Introduction 1
1.1 Background
to the Study 1
1.2 Statement
of Problem 3
1.3 Research
Questions 5
1.4 Objectives
of the Study 5
1.5 Statement
of Hypotheses 6
1.6 Significance
of the Study 6
1.7 Scope
of the Study 7
1.8 Limitations
of the Study 7
Chapter
Two: Review of Related Literature
2.1 Introduction 9
2.2 Concept of balance of payment 9
2.3 Concept of foreign exchange rate 12
2.3.1 The
traditional flow model 14
2.3.2 Monetary model 16
2.3.3
Portfolio- Balance model 17
2.3.4
Purchasing power parity (PPP) Theory
18
2.4 Relationship
between balance of payment and
exchange
rate 20
2.5 Trends
of Nigeria balance of payment and foreign
exchange Relationship 27
2.6 Trends
in exchange rate and output performances in Nigeria 29
2.7 The
impact of Agricultural export and on exchange
rate and Balance of payment 33
2.8 Exchange Rate Fluctuation of Naira to Dollar
and
Pounds 37
Chapter
Three: Research Method and Design
3.1 Introduction
39
3.2 Research
design 39
3.3 Description
of the Population of the Study 40
3.4 Sample
Size 40
3.5 Sampling
Techniques 40
3.6 Sources
of Data Collection 40
3.7 Method
of Data Presentation 41
3.8 Method
of Data Analysis 41
Chapter Four: Data Presentation, Analysis and
Interpretation
4.1 Introduction 44
4.2 Presentation of Data 44
4.3 Data Analysis 44
4.4 Hypothesis Testing 46
Chapter
Five: Summary of Findings, Conclusion and Recommendations 54
5.1 Introduction 54
5.2 Summary of findings 54
5.3 Conclusion 55
5.4 Recommendations 56
References 58
CHAPTER ONE
INTRODUCTION
1.1 Background
to the Study
Right from time immemorial, a country’s exchange
rate and balance of payment is usually regarded as the sum of indices by which
a nation’s strength can be measured especially its economic strength. Balance
of payments is an accounting record to all monetary transactions between a
country and the rest of the world.
Devaluation is tall in a fixed exchange rate,
which reduces the value of a currency in terms of other currencies. So what we
are trying to do in this study is to determine how the reduction value of a
currency with respect to the currency of another country affect the record of
all monetary transactions between a country and another, whether visible or
invisible in a period of time. This is very important because no nation can
exist on its own no matter how independent or self-sufficient it can be, it is
important to have a relationship with other nations which can be characterized
by goods and services going one way and foreign exchange going the other way.
When accessing the nation involved, a record of gains and losses may have been
kept. As such a nation’s foreign exchange and balance of payments can help
slowdown, accelerate or decelerate walking growth progress and development.
This will also have a positive or negative effect on the citizens since it
deals mainly with economic relations.
Our nation Nigeria is currently facing serious
problems regarding its foreign exchange rating (which is very low in comparison
to other countries) and it’s balance of payment which is clearly in
disequilibrium and in a deficit. As a result of this the government is
retrogressing and the citizens clearly suffering.
It is in a bid to discover why this is so and how
this can be solved that this study as pertinent.
1.2 Statement of Problem
Prior to the adoption
of structural adjustment programme (SAP) IN 1986, Nigeria had no well spelt out
trade policies. the practice was the formulation of trade policies, meant to
protect the local industries, thus the policies consist of qualitative import control administered
through import licensing system relatively high tariffs and imposition of
quantity restrictions on imports by way of quotas and the outright ban on
certain goods and services and hence exchange of currencies between Nigeria and
other countries as a result, the exchange rate of the naira has been greatly
affected by this economic controls. Typical of these economic controls was the
exchange control system based largely on the exchange control act of 1962,
which was applied vigorously during the civil war and up to 1971, during which
the Nigeria currency became increasingly unconvertible.
However the problem
of foreign exchange inadequacy, dependence on the oil sector for exchange
earning, continuous depreciation of the naira exchange rate coupled with the inability
to determine precisely the level of exchange rate of the naira that would
ensure the internal and external balance simultaneously. The existence of black
market where the naira is exchange with other currencies illegally has also
affected the exchanged rate in the sense
that the black market violate all policies and regulatory measures used by the
government to control the exchange rate of the naira and as such the existence
of these black market has to a Large extent distorted the effective measure of
exchange of Nigeria currency (naira) with those of other currencies and as the
records (data) of exchange does not reflect the actual exchange due to the
existence of the black market has to a large extent distorted the effective
measure of exchange of Nigeria currency (naira) with those of other currencies
and as the record (data) of exchange does not reflect the actual exchange due
to the existence of the black market.
1.3 Research Questions
This research work
will be relevant to readers because it will treat or provide answers to the
following questions:
i. To what extent does exchange rate determine
balance of payment?
ii. What relationship does national income have
with balance of payment?
iii. What relationship does the relative price of
agricultural products have with balance of payment?
1.4 Objectives
of the Study
The objectives of this study are listed
below in the following:
i. To ascertain the extent to which exchange
rate determines the balance of payment.
ii. To determine the relationship between
national income and balance of payment.
iii. To ascertain how relative prices of
agricultural products affect balance of payment.
1.5 Statement
of Hypothesis
Hypothesis One
Exchange rate does not significantly affect balance
of payment.
Hypothesis Two
The national income has a negative correlation
with balance of payment.
Hypothesis
Three
The relative prices of agricultural products have
a negative correlation with balance of payment.
1.6 Significance
of the Study
Stakeholders:
The stakeholders will generally benefit from this
study since it will make known the relationship between exchange rate and
balance of payment policy implications and recommendations which will be of
immense help to policy makers and balance of payment,
Government:
This study will also benefit the government
especially as regard to the transaction of the exchange and balance of payment
in Nigeria.
Researchers:
It is also of importance to researchers, be it
student or lecturers and the entire public who is interested in the subject
matter and its utilization in whichever way.
1.7 Scope
of the Study
Balance of payment
deficit and unstable exchange rate are global phenomena and have not been
smooth in their movements in Nigeria. This study examines the relationship
between balance of payment and exchange rate using 2010 – 2015 as a reference
period.
1.8 Limitations of the Study
The study is faced with some constraints which may
likely affect the generalization of findings; the constraints include the
following below:
·
Geographical
Coverage: Factor that may likely affect the work is the
issue of investigating all accounting firms in the country. Due to the spread
of accounting firms all over major cities in the country, the researcher could
not be able to cover the whole areas.
·
Problem
of sourcing for material: The research was faced with
problems of getting current materials, textbooks, journals, seminar papers in
relation with this research topic. In the final analysis most interviewed and
investigated could not give some vital information that would have acted as
ingredients in the work.
·
Only selected firms were used as case
study hence if the result is generalized, it may not reflect the true position
of other firms due to environmental difference.
Login To Comment