Naira Exchange Rate Depression and Domestic Inflation in Nigeria
CHAPTER ONE
OBJECTIVE OF THE STUDY
The main objective of this study is on naira exchange rate depression and domestic inflation in Nigeria. But for the successful completion of the study; the researcher intends to achieve the following sub-objectives;
- To identify the causes of inflation and exchange rate depression
- To examine the extent to which naira exchange rate depression affected domestic inflationary rate in Nigeria.
- To ascertain the relationship between exchange rate depression and economic growth in Nigeria
- To ascertain the relationship between naira exchange rate depression and domestic inflation in Nigeria
CHAPTER TWO
REVIEW OF RELATED LITERATURE
CONCEPT OF EXCHANGE RATE
The price at which one country exchange its currency for other currencies is referred to as exchange rate i.e. the rate at which the domestic currency is exchanged in terms of foreign currencies. This established exchange rate is mostly important in international transaction, where goods are traded to make direct comparison of prices of the goods. Exchange rate state the price in terms of one currency, at which another currency can be bought (Baumol and Blinder, 1971). According to Lipsey (1993), exchange rate is the rate at which two currencies are traded. It is the amount of foreign currency that exchanges for one unit of domestic currency or the amount of domestic currency those exchanges for one foreign currency. It is the quantity or amount of foreign currency that must be given up in order to purchase a unit of another currency. (Oyejide and Ogun 1995) saw exchange rate to a representation of the fulcrum of a liberalization process, hence the introduction of an auction market for the determination of the exchange value of the naira in 1986 which marked the beginning of the comprehensive adjustment process in the country. The currency of a country is said to depreciate when exchange rate changes so that a unit of its currency can buy fewer units of foreign currency. Lipsey, (1993) observed that when exchange in the exchange rate lowers the value of one currency, the currency is said to have depreciated. Depreciation therefore, implies a fall in the price of export and hence increases in the volume of export and also a rise in effect of currency depreciation and is similar to devaluation in practice. Devaluation is an intentional act put forward by the government of a country with the aim of sustaining equilibrium. An economy under recession can devalue its currency to attain a sustaining equilibrium. The disequilibrium may be that more get are imported than exported. Such situation will affect the balance of payment of the importing country negatively. Devaluation of the currency therefore, means that the price of import will be very high. This is to discourage imports and encourage export in order to arrive at equilibrium i.e. a nation in the pursuit of macroeconomic goal of a healthy external balance as indicated in the balance of payment (BOP) position control measures. Henderson and Poole, (1991) simply defined exchange rate as the price of one currency terms to another currency, it depends to a large extent on the level of a country’s external reserves. The level of a country’s external reserves depends on the quantum of inflow of foreign exchange to the country and the rate of deployment of such receipts for financing of imports and external debt service payment (CBN 2001).
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to naira exchange rate depression and domestic inflation in Nigeria.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
DATA ANALYSIS
The data collected from the respondents were analyzed in tabular form with simple percentage for easy understanding.
A total of 133(one hundred and thirty three) questionnaires were distributed and 133 questionnaires were returned.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain naira exchange rate depression and domestic inflation in Nigeria.
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 of naira exchange rate depression and domestic inflation in Nigeria
Summary
This study was on naira exchange rate depression and domestic inflation in Nigeria. Four objectives were raised which included; To identify the causes of inflation and exchange rate depression, to examine the extent to which naira exchange rate depression affected domestic inflationary rate in Nigeria, to ascertain government policy that affect exchange rate and domestic inflation in Nigeria, to ascertain the relationship between naira exchange rate depression and domestic inflation in Nigeria. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff from central bank of Nigeria was selected randomly. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up auditors, human resource managers, customer care officers and receptionists were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies.
Conclusion
The results show that inflation in Nigeria is highly responsive to exchange rate depression, money supply and real GDP. A long run relationship was also found to exist between inflation and exchange rate depression, indicating that the model has a self-adjusting mechanism for correcting any deviation of the variables from equilibrium. The implication of this is that additional effort need to be put in place to increase the volume of export products to make up for the extra demand that may be created by the depression. The paper also found that inflation rate in Nigeria has a lagged cumulative effect. Although exchange rate depression may not directly control inflation, it helps to restructure the price mechanism of both import and export, such that Naira depression subtly tends to moderate prices in Nigeria, especially imported price inflation.
Recommendation
The researchers therefore recommend that the central policy makers should in addition to inflation targeting policies they employ to stabilize the real exchange rate, also adopt other macroeconomic measures such as increasing domestic production through the attraction of Foreign Direct Investment and improvement of human capital. They should also aim at intervening directly in the foreign exchange market by managing adequately the country’s foreign reserve and use it to arrest any unwanted deterioration in the Naira/Dollar exchange rate. With a good foreign reserve, a country can purchase/demand its currency in the foreign exchange market to halt its fluctuation beyond a certain level.
REFERENCES
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