The Effect Of Exchange Rate On The Nigerian Balance Of Payments (1970-2010)

The Effect Of Exchange Rate On The Nigerian Balance Of Payments (1970-2010)

ABSTRACT

This work sets out to examine the relationship between balance of payment and exchange rate. The work is divided into five chapters; chapter 1 gives a general preface to the subject matter, chapter two gives the general review of literature in the subject matter, chapter 3 gives or states the methodology and specifies the model used for testing. Chapter four runs the required test and provides the result as well as the interpretation and chapter five concludes the findings and recommends policy for the government grounded on the findings in thetest.The ordinary least square retrogression( ols) system is used to test for R- squared test( explicatory power of the variables), T- test for the trustability, F- test for the overall significance of the exponentials andD.W test which is the econometric criterion for testing for presence of bus accumulative scheme. The result shows a negative relationship between balance of payment and trade openness, also there exists a positive relationship between exchange rate and foreign direct investment. Since trade openness has a negative impact on the balance of payment it’s recommended that the government shouldn’t consider it a policy for profitable development.

Chapter One

General Introduction

Back Ground Of Study

Right from time old, a country’s exchange rate and balance of payment is generally regarded as the sum of indicators by which a nation’s strength can be measured especially its profitable strength. Paul( 1996) defines balance of payments as an account record to all financial deals between a country and the rest of the world.

These deals include payments for the country’s exports and significances of goods, services and fiscal capital, as well as fiscal transfer. It summarizes the transnational sale for a specific period generally one time and is prepared in single currency for the country concerned. Nzotta( 2004) defines foreign exchange as the value of foreign nation’s currency in terms of the home nation currency. In finance, the exchange rates( as also known as the foreign exchange rate or forex rate) between two currencies specify how important one currency is worth in terms of the other.

Devaluation is altitudinous in a fixed exchange rate, which reduces the value of a currency in terms of other currencies. So what we’re 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 financial deals between a country

and another, whether visible or unnoticeable in a period of time. This is veritably important because no nation can live on its own no matter how independent or tone- sufficient it can be, it’s 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 penetrating the nation involved, a record of earnings and losses may have been kept. As such a nation’s foreign exchange and balance of payments can help retardation, accelerate or brake walking growth progress and development. This will also have a positive or negative effect on the citizens since it deals substantially with profitable relations.

Our nation Nigeria is presently facing serious problems regarding its foreign exchange standing( which is veritably low in comparison to other countries) and it’s Balance of payment which is easily in disequilibrium and in a deficiency. As a result of this the government is returning and the citizens easily suffering.

It’s in a shot to discover why this is so and how this can be answered that this study as material.

Statement Of The Research Problem

Foreign exchange and balance of payment are the crucial factors of a nation’s life. They’re also factors to look into when comparing a country’s relationship with other nations. These factors directly or laterally affect a host of other factors

which are of severe significance in any nation. Accordingly these factors can be seen as essential to the growth and development of the nation.

presently these two factors can be said to have crippled the Nigeria frugality and made life uncomfortable and unsupportable for it citizens. These factors have brought the country to a position where growth and development appear to be an vision.

presently the nation’s exchange rate has fallen so downward due to inimical nature of the contending power of the nation’s currency with foreign currencies of the world. Our frugality has been trying to resolve the problem of external and internal balance, which has manifested in disequilibrium in our balance of payment and causing us a balance of payment deficiency.

important contestation had also been regressed by the devaluation of our Naira( the public currency). Applicable literature and opinion on this issue are of the view that exchange rate policy plays an important part in conservation of internal and external balance, on the other hands, other pens argued that devaluation isn’t the stylish policy for the less advanced country because of numerous different results.

Research Question

This work is guided by the following exploration questions

1. How does exchange rate affect the Nigerian Balance of payment?

2. How can the Nigerian Balance of payment position be bettered?

Objects Of The Study

The general ideal of this study is to examine the effect of exchange rate on the balance of payment of a nation with special reference to Nigeria. The specific objects are to

1. estimate the impact exchange rate on the Nigeria balance of payment.

2. Recommend ways of perfecting Nigerian Balance of payment positions.

Exploration Thesis

thesis will be tested in other to allow success of this work. The thesis includes;

1. There’s no significant relationship between exchange rate and balance of payment( BOP) in Nigeria.

Compass Of Study

This study is limited to change rate and its effect on balance of payment with reference to the Nigeria frugality. It covers a period of 40 timesi.e from 1970 to 2010.

Significance Of Study

The exchange rate and balance of payments of any nation are the heart and foundation of any governments ’ development. These are veritably controversial factors that aren’t doing well in Nigeria. Naturally, since our frugality is import-dependent and as similar dependent on other nations, this affects us greatly especially

since foreign involvement and foreign exchange is involved in every sector of the frugality. It’s the significance of this study thus; to make known the relationship between exchange rate and balance of payments, policy counteraccusations and recommendations which will be of immense help to policy makers and balance of payments, and government especially as regard to the sale of the exchange rate and balance of payment in Nigeria. It’s also of significance to scholars and speakers and the entire public who’s interested in the subject matter and its application in whichever way.