A Comprehensive Analysis of the Effect of Regulation and Deregulation of Exchange Rate on Nigeria’s Foreign Trade
Chapter One
Objective of the study
The objectives of the study are;
- To find out the strengths and problems and what development and growth has the exchange rate deregulation impacted on the economy
- To recommend or proffer solutions for necessary foreign exchange regulations that will enable organizations achieving the organizational set goals and objectives
- To investigate the consistency of exchange rate volatility in Nigeria
CHAPTER TWO
REVIEW OF RELATED LUTERATURE
INTRODUCTION
The issue of exchange rate has been prevalent in the literature, real exchange rate is said to be a very important relative price in the economy. This is because changes in the real exchange rate influences foreign trade flows, the balance of payments, the level and structure of production and consumption and therefore employment, the allocation of resources in the economy and domestic prices (Khan & Ross, 1977). According to Mireilles (2007) argues that overvaluation of exchange rate constitute a major setback in the recovery process of Nigeria. Huizingu(1997) reports that developing countries frequently maintain an overvalued nominal exchange rate resulting in real exchange rate misalignment. To finance import demand at the overvalued exchange rate, countries have raise the level of income taxation or they have to resort to monetary finance. According to Moser (1995), the relationship between exchange rate and import prices evolves from the model of price determination which incorporates both demand and supply factors. Since the breakdown of Bretton Wood system of fixed exchange rate, both real and nominal exchange rates have fluctuated widely. This volatility has often been cited by the proponents of managed or fixed exchange rate as detrimental. Generally, two theoretical schools of thoughts exist that attempts to explain the effect of exchange rate volatility on international trade. They are the traditional school and the risk portfolio school. The traditional school pioneered by Clark (1973) holds that volatility increases risk of trade and therefore depresses trade flows. Early study of this issue focused on firm’s behavior and presumed that increased exchange rate volatility would increase the uncertainty of profits on contracts denominated in a foreign currency and this would therefore reduce international trade to levels lower than would otherwise exist without exchange rate volatility (Farrel, DeRosa & McCrown 1983). The risk portfolio school of thought on the other hand postulates that higher risk present greater opportunities for profit and should increase trade. The portfolio thesis also focuses on the effect of exchange rate volatility on expected profit. If profits are a convex function of the exchange rate, then increased exchange rate variability will lead to increase expected profits, Giovannini (1988). This could account for a positive relationship between exchange rate variability. The model by Clark (1973) is one of the earliest theories that examine the connection between exchange rate volatility and trade flows. It considers a competitive firm with no market power producing only one commodity, which is sold entirely to one foreign market and does not import any intermediate inputs. The firm is paid in foreign currency and converts the proceeds of its exports at the current exchange rate which varies in an unpredictable fashion, as there are assumed to be no hedging possibilities, such as through the forward sales of the foreign currency export sales.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.
This study was carried to examine a comprehensive analysis of the effect of regulations and deregulation of exchanage rate on Nigeria’s foreign trade. CBN form the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain a comprehensive analysis of the effect of regulations and deregulation of exchanage rate on Nigeria’s foreign trade. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges ofa comprehensive analysis of the effect of regulations and deregulation of exchanage rate on Nigeria’s foreign trade
Summary
This study was on a comprehensive analysis of the effect of regulations and deregulation of exchanage rate on Nigeria’s foreign trade. Three objectives were raised which included: To find out the strengths and problems and what development and growth has the exchange rate deregulation impacted on the economy, to recommend or proffer solutions for necessary foreign exchange regulations that will enable organizations achieving the organizational set goals and objectives and to investigate the consistency of exchange rate volatility in Nigeria. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from CBN, UYo. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
In Nigeria, however, the management of foreign exchange has not been impressive. This is due to factors which includes corruption and flawed management of the Nigerian stock exchange. The performance of the money market and capital market over the year has not been impressive. This has been partly responsible for the high level of imports in Nigeria. The decayed level of basic infrastructure in Nigeria has been partly responsible for this. The results however indicated that the volatility of exchange rate has a detrimental impact on the level of imports. This indicated that import into Nigeria is prone to external shocks.
Recommendation
The monetary authorities should develop policies that could immune the country from foreign exchange rate volatility. This will serve as automatic stabilizer which will protect the importation of goods and services. ii. The exchange rate should be depreciated. This will increase the level of exports and hence reduce the level of imports.
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