- BACKGROUND OF THE STUDY
exchange rate is a term defined as the worth of the currency in terms of another, in finance, exchange rate is the rate at which one country’s currency exchange for another country’s currency. Thus it is not surprising that exchange rate remains one of the most widely disused topic in the affairs of any nation, most importantly the exchange rate plays a key role in the economics activities of developing economics such as Nigeria, which is an import-dependent nation, where most raw materials and machines are important from the developed nation (olisadebe,1995).
Exchange rate volatilizes is seen as the unusual movement of the exchange rate and represents uncertainty and risk which impose cost on economics agents ( Tsilua,2006). To this extent, exchange rate volatility impose uncertainty on economic indicators such as investment, standard of living and economic growth. Therefore for any nation to achieve internal balance in both the short run and long run, the monetary authorities are saddled with the responsibility of implementing sound exchange rate polices. This is against the backdrop that public sectors, foreign investors and private individuals play a lot of attention to exchange rate volatility .
In Nigeria , exchange rate management has under some large charges over the lask four decades for instance , in 1960 the nation operated a fixed exchange rate require which was fixed at par with the British pounds and he American dollar (Aliyu,2011)
Later on , in 1978, the monetary authorizes pegged the naira to a basket of currencies of her major trading partners but this led to a dire consequence the sharp fall in international oil prices and subsequent decline in foreign exchange receipts in the early 1980s were such that the economy could not meet its international commitments in order to mitigate these challenges, the stabilization act of 1982 was implanted which led to huge depreciation of the naira (Aliyu,2011) the volatility of Nigeria exchange rate took a dangerous directions after the introduction of structural adjustment programme (SAP) in 1986.
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